by Jeff Fong

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In 1976, the economist F.A. Hayek wrote a book entitled Denationalisation of Money-The Argument Refined: An Analysis of the Theory and Practice of Concurrent Currencies. Its thesis was that money and monetary order would be better provided for by the private sector; instead of a central bank issuing a national currency, Hayek advocated a world in which commercial banks would issue their own currencies and these would co-circulate without regard to national boundaries.

On the supply side, a subset of commercial banks would issue loans denominated in their own currency; the more widely accepted the currency, the larger the potential market for a bank’s loans. According to Hayek, the competition for market share would force issuing banks to compete on the basis of price stability.

On the demand side, customers would move to and from whichever currencies best suited their needs, irrespective of geography or national boundaries.

In place of a government's incentives to over-inflate, the livelihood of a private issuer would depend on providing money with a stable value. With multiple currencies in co-circulation, businesses and individuals could diversify their holdings such that the mismanagement of any one particular currency would never mean the obliteration of an entire national economy.

Bitcoin, however, is in many ways a different system from the one described in Denationalisation.

Hayek’s vision was still that of a monetary system controlled by human discretion. The difference between his world and the status quo is the idea of competition as a restraint on discretion, but Bitcoin’s static ruleset is a different creature altogether.

With Bitcoin, the system is what the system is; the pace of money creation and the distribution of new Bitcoins into the economy will both continue according to the rules prescribed in the code-in effect, Bitcoin’s monetary policy is on auto-pilot.

The wider revolution in crypto-currency, however, does share an important similarity with Hayek’s vision in that it’s a field wide open to competition. The proliferation of alt-coins underscores just how easy it is to enter the fray.

But what if crypto-currencies are just the beginning of a sea change in how humans create, use, and regulate money? If currencies like Bitcoin eventually change general perceptions about what money is and where it comes from, there might someday be room for the privately issued, actively managed money depicted in Denationalisation.

While it’s possible a private bank might take up the role of money issuer in some favorable regulatory future, it seems more likely that a company like Apple, Google or Ericsson would take up the cause- a private money issuer would have to be considered trustworthy, after all. All three of these companies are experimenting with mobile payments and enjoy excellent brand recognition as well as consumer confidence. They also enjoy another advantage that existing commercial banks simply don’t have.

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If an Apple, Google, or Ericsson were to issue its own brand of money, it would almost certainly have to make that money redeemable in its own goods and services. In effect, the money would be backed by the value of the company’s production.

Tencent’s accidental launch of Q Coins as a black market currency illustrates just how easy it might be to create private money-government prohibitions notwithstanding.

In Denationalisation, Hayek wrote that if anything resembling his vision were to come about, it would probably happen in a way he had no chance of accurately predicting-and on that count, he was definitely right.

We, however, may be in similar position to the one he occupied some thirty seven years ago. If Bitcoin succeeds, it will completely alter the way human beings relate to the creation and management of money; the future that’s set to unfold over the next three and half decades is probably even more opaque to us than our present day was to F.A. Hayek.

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