Rethinking Money Part 11: Denationalized Currencies

Anyone can issue a currency. Really.

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It is possible for any trusted entity to issue a currency into circulation. Whether or not people will use it depends on 1) the features of the currency, 2) the trust that people have in the issuer, and 3) whether or not the issuer can force people to use the currency.

Governments rely on force and trust more than features. In fact, it may be fair to say that governments generally give no thought at all to the features of their money when they create and issue it. It seems they just do what has always been done, rather than think about what features their currency should have to make it the best it can be. A free market of competing denationalized currencies would change that completely.

Nevertheless, people use government fiat money because they are forced to. Fiat currencies are so common and seem so normal that most people think that it is impossible for anyone other than a government to issue a currency.


Is It Possible to Issue a Denationalized Currency?

The answer is yes. In fact, it has already been done.

Recently, the US government recognized bitcoin as a legal private currency and made it subject to regulation. In doing so, they established a legal precedent. Bitcoin is issued by a software system. There is no person or entity that issues it. If a software system can issue a currency and the US government recognizes it as a valid currency subject to regulation, then the government can have no objection to anyone at all who issues a currency as long as they submit to regulation and their currency in no way resembles the US dollar.

What about Legal Tender Laws?

At this point, it’s worthwhile to briefly discuss legal tender laws.

Legal tender laws in most countries do not prevent citizens from accepting other currencies. For instance, merchants on both sides of the US-Canada border routinely accept each other’s currencies. This is not a violation of the law in either country.

It is true that merchants typically charge a conversion fee when presented with a non-national currency. They do this because their supply chains are almost entirely within their own country. Therefore they convert the money they receive into their own currency. If there were an alternative currency that their entire supply chain accepted, they would not need to do so and they would not need to charge the conversion fee.

Because of legal tender laws, merchants cannot refuse legal tender when it is offered. However, if sellers prefer another currency, they can give a discount to people who will pay in it. Alternatively, they can charge a conversion fee for US dollars. The law does not prevent them from doing that. However, customers' perception of that may be less than positive, so giving a discount for preferred currencies is probably better.

Legal tender laws also affect contracts. It is perfectly possible for two parties to enter into a contract to be paid in something other than a national currency. But if the buyer breaches the contract and is taken to court by the seller, the judge (if the seller receives a favorable ruling) will definitely make the buyer pay in legal tender, which is the national currency.

Sellers can balance out the impact of legal tender laws by including a clause that requires a conversion fee. That is, if the buyer ends up paying with anything other than the agreed-upon currency, the buyer must bear all of the costs of the contract by paying a conversion fee so that the seller can obtain the agreed-upon currency. In this way, legal tender laws do not really impact the seller.

Why Would Someone Use a Denationalized Currency?

Why would anyone want to use a currency issued by a business, nonprofit organization, or an individual rather than a currency issued by a country? There are basically three reasons.

  1. Free market currencies provide choice. They give businesses, organizations, and individuals the ability to use the currency they prefer.
  2. Free market currencies hold their value. Their buying power stays constant over time. Government-issued currencies always undergo inflation. They are never stable.
  3. Free market currencies are the basis of economic democracy. In an economic democracy, people can choose what currencies they want to use and anyone has the power to issue money. Political democracy cannot survive in the long term where there is a governmental monopoly over currency.

Creating a Private Currency

 In most developed countries it is illegal to print your own currency. In many of them, this was once not the case. Private currencies, in the form of bank notes, were often issued by banks in Western nations for at least a century. In most cases, it was longer. Not one of the nations where bank notes were in circulation could show any detrimental effects from their availability. In fact, some countries still have bank notes in circulation. It is to these countries that we must turn for the creation of private currencies.

In countries where banks can legally issue currencies, nothing prevents them from issuing bank notes in behalf of specific clients. If the bank notes are legal in that country, they are legal in all countries. That is, no one will be arrested for printing the currency because the bank notes were issued legally. Therefore, a bank in a country that allows the issuing of bank notes can provide their issuing services to anyone anywhere. By using a bank in a country where bank notes are not illegal, anyone can issue a currency. This is true of banks, businesses, nonprofit organizations, labor unions, or even private individuals. Anyone can contract with an issuing bank to create a currency.

Anyone Can Use a Private Currency

But how can regular people use private currencies?

Any citizen of almost any country can already use multiple currencies to do business, buy, or sell. They do this by creating an account at an international bank. Large international banks enable their customers to have accounts where they hold currencies other than the currency of their own country.

Currently, individuals and businesses use international banks to buy and sell across national borders. Suppose a company is based in the US and does business abroad. Imagine that its international business results in the company receiving a large share of its revenues in Indian rupees. The company encounters no problem with that. It can have accounts at an international bank that allows it to keep its accounts in rupees (and probably other currencies as well). It can make and receive payments, or do any other business, in rupees whenever it needs to without a problem. When it wants to deal in US dollars, it simply converts rupees to dollars.

Currency issuers can issue their currencies as digital private bank notes. They then need to convince international banks to accept deposits and so forth in their new currencies.

Suppose, for example, a nonprofit group issues a currency called FairBux. FairBux are issued as private bank notes in a jurisdiction that allows that (there are many). Now imagine that an international bank allows accounts to be kept in FairBux. In such a situation, anyone can buy and sell in FairBux whenever they want as long as the people they do business with also deal in FairBux. In many countries, merchants can already accept foreign currencies when they buy and sell.


In a few countries, it is illegal to buy, sell, or fulfill contracts in any currency but the national one. However, these countries are the exception rather than the rule.

Of course, merchants typically charge a conversion fee for dealing in a foreign currency. That is because they expect to ultimately spend or hold their own local currency. However, if they are also buying in Qbits (not just selling in Qbits), there is no need for them to charge the conversion fee. They will only convert to other currencies when they need to.

What Gives Value to Currency?

At this point, it’s sensible to stop and ask, “What gives a denationalized currency its value? Why should anyone believe that it has any value at all?”

In centuries past, currency was all in precious metal. It was the value of the metal itself that gave value to the currency–or so we once thought.

There are multiple examples of times in history when the value of the metal and the value of the currency became disconnected in a way that provided a positive result. We will present two.

In 1879, Austria was using silver coins for its money. The value of silver took a sudden downturn. This caused the value of Austria’s silver coins to decline precipitously. Carl Menger, an economist of the time, advised the government as follows.

Well, if you want to escape the effect of the depreciation of silver on your currency, stop the free coinage of silver, stop increasing the quantity of silver coin, and you will find that the silver coin will begin to rise above the value of their content in silver. (A Free-Market Monetary System, F. A. Hayek, p 17-18. Ludwig von Mises Institute.) 

Menger’s answer was simple; issue fewer coins. The government followed Menger’s advice and decreased the number of their silver coins in circulation. The result was exactly as he predicted. The value of an Austrian silver coin quickly returned to its face value, rather than the value of the silver in the coin. It saved the economy. But it also proved that currency does not derive its value from precious metals.

Exactly the same thing happened in India fourteen years later. They took the same course and got the same result.

What does this tell us?

First, currency doesn’t need to be backed by a precious metal to make it valuable. It is simply when you limit the supply of a currency to wht the market is demanding that it retains its value. If the amount of currency does not exceed the demand for that currency, then the currency will have value and people will accept it.

People may ask the very valid question, “What about the gold standard?”

For a long time, many countries were on a national gold standard. The US was one such country. That is, there had to be one dollar’s worth of gold held by the government for each paper dollar that it issued. In theory, one could go to Fort Knox (where all the gold was kept, knock on the door, and demand to exchange paper dollars for gold. In reality, no one ever did that. Eventually, that was also made illegal to consolidate government power over money. During the Nixon administration, the US government realized that there was really no connection between the gold it held and the currency it issued. Therefore, it abolished the national gold standard and began printing money in whatever quantities it wanted.

Some people today call for a return to the national gold standard. This isn't necessary. All the gold standard did was to limit the government’s ability to rampantly print money. But the genie is out of the bottle, so to speak. It cannot be put back in. The US will never return to a gold standard because politicians love deficit spending far too much.

Fortunately, we don’t need a gold standard. And anyway, there is not enough gold in the world for every country to be on a gold standard. However, it doesn’t matter. In a free currency market, competition forces currency issuers to do their best to keep their currencies at a stable value. They need only limit the supply of their currencies to match the market's demand. In reality, currency is a representation of trust. If the issuer of a currency has the trust of a large number of people, its currency will be used. As long as the issuer proves that it can maintain the buying power of the currency at or near a fixed level, that trust will continue to grow. As it does, the currency will see wider and wider adoption.

In a free currency market where many currencies are available for use, anyone can select the currencies from the issuers they trust. It doesn’t matter whether that issuer is their bank, their church, their civic group, or their labor union.

Competition Equals Efficiency, Stability, and Safety

Long experience with free markets shows that when there is healthy competition among the producers of a product or service, the price of that product or service goes down. In addition, the efficiency of producing it goes up. Based on free market experience, it is reasonable to predict that the competition in a free currency market would produce a currency that is highly stable, efficient to use, and retains its value over a long period of time. Stability, efficiency, and value over time are the primary features that most people desire in a currency. A free currency market also provides greater safety for consumers.

If a currency begins to lose its value, people will quite naturally move into other currencies to protect their savings. Likewise, businesses will protect their investments by diversifying their currency holdings. No longer will anyone be tied to the fate of any single currency. They can protect themselves from the effects of economic instability by exercising their free choice in the currencies they use and hold.

Businesses Need Stable Currencies

To continue to do business over time, companies must have a stable currency. For instance, when a bank makes a loan during an inflationary period, the value of each dollar that they receive when the loan is paid off is less than the value of the dollars that they loaned. It is true that they receive more dollars than they lent. However, because the individual dollars have been devaluated, they make significantly less profit than they would if the money had a stable value. Because banks can make fewer loans, there is less opportunity for new businesses to start and for existing businesses to expand. The economy produces fewer jobs and unemployment may even result. Which, of course, causes government to intervene again by generating more inflation.

In wage contract negotiations, business is again the big loser when inflation occurs. While it is true that they may give less value in wages over time than they received in labor, the workers’ unions are not dumb. They know that they must build in a cost of living increase into their contracts. They typically take their members out on strike when the company does not want to give such a large wage increase–often resulting in lost profits for the company. The effect of strikes can ripple through a large portion of the economy. If management does accede to the demanded cost of living increase, the company loses again if inflation is not as large as anticipated. In that case, they are paying too much for their wages. The result is higher costs, less business, and fewer new jobs. Also, inflation and higher wages are costs that businesses must pass along to customers. Higher costs usually drive demand for their products and services down. That is, they will do less business because of higher costs. They may become less competitive than companies in other countries that have a more stable currency or are not as unionized. In every respect, inflation is bad for business. Business must have a stable currency.

Citizens Need Stable Currencies

The average citizen also needs a currency that does not inflate. People do not want the buying power of their money to decrease over time. No one likes the fact that when US president Barak Obama took office, the price of gasoline was over most of the nation was around $1.80. By the end of his first administration, it more than doubled. The effect on the economy was profound. The price of virtually everything increased as the effect of the rise in gas prices impacted all aspects of business.

It isn’t only gasoline that has been hit by such out-of-control inflation. In less than one lifetime, the price of one cup of milk purchased as part of a school lunch has gone from 4 cents to 40 cents. The average consumer can cite similar examples each time they go shopping. They know quite clearly that the money they earn is being eaten away by inflation very dramatically. It will only get worse.

The value of a worker’s life savings goes down over the lifetime of the worker. Saving money is rapidly becoming an exercise in futility. Because the buying power of money is going down, workers have little hope of a decent retirement.

In every respect, inflation is bad for consumers. They must have a stable currency. The software we are producing enables anyone to issue a denationalized currency. If the issuer can gain the trust of businesses and consumers, and if the money’s features are seen as preferable to government fiat currency, then it is entirely possible for their currency to compete and succeed in the market.

In a free society governed by the rule of law there can be only one answer: The highest moral obligations we owe to our fellow human beings are self-reliance and equality.


It is possible to issue a denationalized currency that does not suffer from inflation, holds its value, and is as easy to use as anything we have now. The software we are building at Cognisaya enables any trusted entity to issue a currency. That entity can be an individual, a business, or a nonprofit group. A free market of competing currencies provides the basis for economic democracy. And without economic democracy, political democracy cannot survive. 

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