Bitcoin Ignites Ron Paul’s Parallel Currency Revolution
January 30, 2014
(This item originally appeared at Forbes.com on January 30, 2014.)
When Ron Paul invited me to testify in Congress in 2012 on the topic of “parallel currencies,” the idea was still perceived as rather eccentric. I pointed out that most people in the world were already using multiple currencies, usually a domestic junk fiat currency such as the Peruvian nuevo sol, and an international currency like the dollar or euro.
Since then, Bitcoin has awakened people worldwide to the fact that Ron Paul and I have known for years: that governments don’t have a monopoly on currency creation, and that you can have a great many non-government currencies if you want.
Bitcoin has already led to a phalanx of imitators: at last count, there were 83 “crypto-currencies” in the Bitcoin model. One of them is even called “RonPaulCoin”. Some people are already experimenting with grafting the Bitcoin platform to gold, producing an independent gold-based currency.
At the same time, larger institutions like Russia’s Sberbank are thinking of issuing their own competitive currencies. Britain’s Royal Mint plans to issue “gold-backed physical Bitcoins“.
Already, in the U.S., there have been many experiments with “community currencies.” At last count, there were sixteen in California alone, and another ten in Washington state. Mostly, these are low-quality dollar adjuncts, although there have been some experiments in making currencies based on “man-hours.”
There’s nothing new about “parallel currencies,” and actually nothing particularly special about Bitcoin. Any bank, like Russia’s Sberbank for example, could create its own currency, with all of the accompanying services such as bank deposit accounts, payment services, checks, credit cards, debit cards, electronic transfers via smartphone or whatever, and also physical banknotes and coins. It isn’t actually hard to do at all, and in fact banks in Hong Kong do this today, with independent bank-issued currencies based on the U.S. dollar.
After we have a little fun of playing with the idea of “parallel currencies,” eventually we will come to a more significant issue: what is the best kind of currency? Bitcoin itself is actually a junk currency, as I’ve described in the past. People then were so enamored of the seemingly-new (but actually rather mundane) idea of a “parallel currency” that was not issued by some government, that they were willing to overlook these problems.
Over time, people will eventually learn some other things that Ron Paul and I already know. The best currency is one based on gold; that is, whose value is reliably fixed to gold, in some unchanging ratio. This is the model the United States used for 182 years, from 1789 to 1971. For most of that time, until 1933, the dollar’s value was fixed at 23.2 troy grains of gold, or 1/20.67 of a troy ounce. After a devaluation in 1933, the dollar’s value was 1/35th of an ounce of gold, which continued until 1971.
The U.S. became a world superpower, the most successful country of the 19th and 20th centuries.
People have been fooling around with money for thousands of years. They’ve tried money based on shark’s teeth, cowrie shells, and hundreds of experiments of floating fiat currencies managed by some committee of bureaucrats. By 1900, the last competitor — silver — had been effectively eliminated, leaving one and only one winner: gold.
Ultimately, a currency has to be managed according to some sort of system. Bitcoin uses a system of slowly-increasing supply. Others have had fixed-value systems linked to wheat, copper, or giant stone wheels. In the 1850s, there were, by one count, 1,694 different paper currencies circulating in Japan, including varieties based on gold, silver, copper, rice, umbrellas, potter’s wheels, string, and something called an eiraku-sen note, which means what I don’t know.
This menagerie was eventually abandoned, and the unified, gold-based yen introduced in 1871. People then knew junk currencies when they saw them, and they had had enough of it.
Do you think you invented “parallel currencies”? I assure you that you did not.
I think that a major step forward will be when a major government — such as China — begins to issue an international alternative currency based on gold. The existing, dollar-based yuan would continue as it is, but there would be another Chinese currency, supported by the Chinese state, that is suitable for international use on a vast scale. Major Chinese banks (and non-Chinese banks) would provide a full array of banking services based on this new gold-based currency, capable of institutional size to serve transactions between giant multinational corporations. Chinese people, or anyone else worldwide, would be welcome to use it on a voluntary basis.
Would you use this instead of Bitcoin? I would.
Shanghai would become the next financial capital of the world. It is so easy to do.