Inflation is about 2 things. One is the actual amount of money that's been printed/is in circulation. The other, more important thing, is people's belief in the currency. Your approach might affect the second, but I don't know how.Do you think that if we introduced a larger denomination (something bigger than a dollar or euro) to try to deal with the problem of inflation that it would actually lead to more inflation? I mean, if you said that now there was a Super Dollar that was worth 100 USD, then that would make sellers want to round up to the nearest super-dollar, or near enough. Which would seem to accelerate the problem to my mind.
On the other hand, historically most daily transactions were done in cents, and a dollar was a lot of money (prior to the Great War). Further, my understanding is that that has generally been the case through history, that there are always larger denominations that are not used in day-to-day transactions. So our current system of fiat currency has broken that balance and heavily encourages inflation in return for easier loans and faster economic growth.
The more I look at fiat currency, the dumber it seems and the more downsides it has. However, those downsides are only important in a society that does not consider economics as the prime virtue of society, as all western societies have in living memory.
crypto is better, because we can actually enforce rules and have truly controlled creation of new currency without relying on a central authority, but fiat currency was and is a very useful technology.
This (only this part, I think the rest of your points are good) Imma disagree with. There's a significant number of successful nations that do not use their own national currency but are not failed states. Panama uses the US Dollar and doesn't ever mint its own currency, f'rex, as do several several nations in Micronesia, Ecuador, Timor-Leste, Palau, and Zimbabwe after their own attempts at printing money crashed and burned. Nothing in particular stops a state from taxing a currency they don't print themselves.
- Modern states only exist if they can tax the money supply. If you do not have control over the money supply, you do not have an effective state. A sign of a failed state today is if people aren't using the national currency within state borders, like in Venezuela, where there is so much inflation that the people exchange literally anything else except Venezuelan dollars. They are using World of Warcraft and Runescape gold. You don't want that happening in the US, where people are widely using something besides the dollar, because then the government can't tax it, and then the government can't function. If it looks like crypto starts taking off and common people start actually using it, cryptocurrency will be outlawed for this reason, because it poses a threat to governments.
So this is very much untrue. It would be created out of thin air the same way that cash now is created out of thin air. People wouldn't hold actual crypto in their banks, just like people don't own actual cash in their banks now. Instead, they'd hold promises to acquire crypto on demand, just like right now, people own promises that money would be provided to them on demand. And this of course would allow money to be created in the same exact way as before, with many promises being exchanged like actual money. Now the promises wouldn't be quite as valuable as the actual stuff, but it could be done.
- It can't be used as a part of the fraction-reserve banking system due to how the hashing work. If you are going to do that, there is nothing to stop crypto from working like fiat money which can be pulled out of thin are, which defeats the point of cryptocurrency (in that it's supposed to be like gold in that there is a a stable, limited supply and it's not supposed to really be inflated).
It's also difficult for poor people to acquire as well, which is why any use as a currency will likely be crypto-backed (which also saves on electricity) instead of crypto, or at least not the only means of exchange.
- If there's ever a state of emergency, it's not useful. If the power goes out and you need to buy food, you can still walk down the street and take a metal coin out of your wallet and buy food. You can't use bitcoin.
This is 'just' a network effect (those are pretty big though), which can go away or be created. A nation with no trust from it's people might start using crypto because it guarantees that it can't inflate the value, for example, or crypto might be more and more accepted, as we see with bit pay.
- Dollars/Pounds/Euros/Yen/etc are already the accepted standards of currency. Crypto isn't going to supplant those standards of currency; it's just going to join a long list of other standards hardly anyone uses. We already see this problem with Crypto where now there are dozens of different standards of cryptocurrencies.
Crypto is young. What you have here is what people do with Crypto now. In the future, this could change. Also, look at Bitpay.
- People are hopping on the bitcoin bandwagon not because they're going to use bitcoin as a currency - nobody does - but because they want to make dollars. The whole point is to mine crypto and then sell it for dollars, because dollars is what people use. Hardly anyone actually intends to turn their dollars into crypto and then keep it as crypto and buy stuff with crypto.
Modern states don't tax money supply, they tax income. This is just as doable with crypto as it is with other currencies (if not more so with a psuedononymous currency like Bitcoin, which is much more trackable than cash).
- Modern states only exist if they can tax the money supply. If you do not have control over the money supply, you do not have an effective state. A sign of a failed state today is if people aren't using the national currency within state borders, like in Venezuela, where there is so much inflation that the people exchange literally anything else except Venezuelan dollars. They are using World of Warcraft and Runescape gold. You don't want that happening in the US, where people are widely using something besides the dollar, because then the government can't tax it, and then the government can't function. If it looks like crypto starts taking off and common people start actually using it, cryptocurrency will be outlawed for this reason, because it poses a threat to governments.
This (only this part, I think the rest of your points are good) Imma disagree with. There's a significant number of successful nations that do not use their own national currency but are not failed states. Panama uses the US Dollar and doesn't ever mint its own currency, f'rex, as do several several nations in Micronesia, Ecuador, Timor-Leste, Palau, and Zimbabwe after their own attempts at printing money crashed and burned. Nothing in particular stops a state from taxing a currency they don't print themselves.
Zimbabwe has dramatically improved over the past few years, though still not exactly rock solid it's gone down the list of fragile nations many positions. Getting rid of their horrifically inflationary currency and replacing it with another nation's has helped them tremendously.If you're listing 'Zimbabwe' among your list of 'not failed states,' you might want to reconsider your list as a whole.
Zimbabwe has dramatically improved over the past few years, though still not exactly rock solid it's gone down the list of fragile nations many positions. Getting rid of their horrifically inflationary currency and replacing it with another nation's has helped them tremendously.
Yes... which is why pointing to them as an example of a country that doesn't handle its own currency is a reasonable thing, giving up having a national currency stabilized the nation hence they belong on the list.Yes, they're on the road to recovery. That doesn't change the fact that their failure to handle their own currency responsibly, is part of what made them a failed state, which they are now trying to recover from.
I'm only aware of one instance of massive inflation while people were using commodity currency, that being the Spanish. Maybe there were lesser instances when dealing with colonial style mercantilism, but not enough to crash the economy. The other huge difference between then and now is that we have a far better understanding of economics (if you trust what economists say anyway), so by manipulating the flow and availability of various commodities you should be able to manipulate the inflation rate as well.As for fiat, I wouldn't be so harsh on it. It's better than it's predecessor (commodity backed currency), because there was still arbitrary inflation or deflation, but it was entirely uncontrollable, which lead to a lot of problems. Fiat currency being manipulated by a tightly bound central authority (the fed has a dual mandate to keep both inflation and unemployment low, and is somewhat politically independent) isn't honestly the worst thing by a long shot.
It's not just hyper inflation one must be worried about though. For example, because the dollar was pegged to gold, it lead to massive problems come the Great Depression. The Fed was forced by it to pursue the exact opposite policy of what they should have done: raising interest rates on already hurting banks. And that's not the only problem. Backed currencies have significant problems. Even simply pegged currencies can lead to problems (see: the Eurozone crisis, Black Wednesday), and a backed currency is just one that is pegged to a commodity along with a promise (you can swap this dollar for so much gold) to back up the promise.I'm only aware of one instance of massive inflation while people were using commodity currency, that being the Spanish. Maybe there were lesser instances when dealing with colonial style mercantilism, but not enough to crash the economy. The other huge difference between then and now is that we have a far better understanding of economics (if you trust what economists say anyway), so by manipulating the flow and availability of various commodities you should be able to manipulate the inflation rate as well.
I'm only aware of one instance of massive inflation while people were using commodity currency, that being the Spanish. Maybe there were lesser instances when dealing with colonial style mercantilism, but not enough to crash the economy. The other huge difference between then and now is that we have a far better understanding of economics (if you trust what economists say anyway), so by manipulating the flow and availability of various commodities you should be able to manipulate the inflation rate as well.
I'm not so much arguing that commodity based currencies are a good way, but rather that every system that has been tried has sucked for various reasons and that it's at least par for the course and mostly gets a bad rap for being the previous system and having been popular during an exceptionally long period of profound ignorance. Of course, what people ignore is that if the Spanish had been using fiat currency, or crypto (magically), then they would have crashed their economy even harder then they did when there were arbitrary material limitations to their expenditure.
Deflation is, to some extent at least, a solvable problem. If nothing else you use a commodity peg for a fiat currency and then just change the peg.Commodity currencies don't usually have hyperinflation but have frequent bouts of deflation, which can be really bad. When currency deflates everybody tends to not buy anything because "it will be even cheaper next week." This stifles the economy and can lead to a death spiral where nobody's buying, so prices drop more to attract buyers, so the currency deflates more, so people buy even less, so prices drop more...