Free Market Currencies

Applying free market principles to money itself will produce money that is stable, valuable, and easy to use.



Note: Neither this page nor any page on this site can be considered legal advice. The contents of this web site is provided for informational purposes only.

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. 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.



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. Political democracy cannot survive in the long term where there is a governmental monopoly over currency.


Creating a Private Currency

Private currencies, in the form of bank notes, were often issued by banks in most 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, no one will be arrested for printing the currency. Therefore, a bank in a country that allows the issuing of bank notes can provide their issuing services to anyone anywhere, including banks, businesses, nonprofit organizations, labor unions, or even private individuals.


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 by creating an account at an international bank that lets their customers have accounts in currencies other than that of their own country.

Currently, individuals and businesses use international banks to buy and sell across national borders. If an international bank allows accounts to be kept in a denationalized currency, anyone can buy and sell in that currency whenever they want as long as the people they do business with agree to accept it. In many countries, merchants can already accept foreign currencies when they buy and sell. 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 their supply chain accepts the denationalized currency, 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, “Why should anyone believe that a denationalized currency 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 to issue fewer coins. The government followed Menger’s advice and decreased the number of their silver coins in circulation. The result was that 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 such that it does not exceed the demand that the currency will have value and people will accept it.

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. 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 and people like the currency’s features, 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, 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. Long experience with free markets shows that when there is healthy competition, the price of products and services goes down and the efficiency of producing it goes up. 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.

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.

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