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Thursday, October 2, 2014

The next currency

USA is the world currency barometer that all other currencies are measured against.  As such, no one country wants their currency to value or devalue against the USD.
If a currency becomes more valuable, their exports will become expensive.  If their currency devalues then imports become expensive.

This is simply because the other participants in the system will try to keep their currencies to be stable against USD while outlier countries fluctuate.

This system is freaking pure genius, the US can do whatever it wants and the world will react to ensure that status quo remains.  This includes if the US issues 1 million, 1 billion, 1 trillion, or 10 trillion new dollars in any given year.  The excess currency will be 'soaked up' by other countries preventing those countries from spending on local economies, but instead to buy US bonds to prevent currency fluctuation.

Think about that, there is NOTHING too outrageous the US can do without the world attempting to maintain stability of their currency no matter HOW BAD the impact is immediately to the country funds.   Simply because the currency change could cause severe and lasting effects from current local economies.

I am in awe of how the US was able to put this together under Nixon and cut from the gold standard to rely on this model for stability.

This system is pretty awesome really.  Lets ASSUME the US never abuses it's position and always does the right thing for everyone.  In that world, the status quo compels everyone to moderation for self preservation reasons.  And since fiat currencies can be created as needed, with almost ZERO cost, it serves as a very efficient value creation and maintainer.

So, whats the issue? For each country the currency creation is NOT done by governments, but instead is done by banks by 'lending' money to governments to create money.  This in effect puts a tax on every single dollar every created with an annual tax paid to the banks.  Don't get me wrong, I am not against banking, simply against an infinite fee for creating a dollar in 1945 STILL being paid to the banks through bonds.

Further the entire system is done behind closed doors.  Banks today declare their asset values simply by fiat, before 2009 it was by market valuations.  That's like someone in Detroit who's home is worth $1K declaring it is still worth 100K from 1980 prices.  You can't get away with such a declaration, and neither should anyone.  Currency and accounting must be equal from the lowest person to the richest person.  The richest should have every single advantage money can buy, without special 'systematic currency' privileges.

Bitcoin's secret sauce is the block chain.  Every single bitcoin is tracked and recorded publicly with millions of computers around the world.  NO ONE PERSON owns the general ledger of who owns what.  No one person can TAKE a single cent without the right key to prove ownership to transfer.
I have HUGE problems with bitcoin, but zero with the framework that Bitcoin brought to the world.

So when I see the graph below, I hope that when the USD finally loses it's status as the measurement of the rest, I hope a bitcoin-like public record replaces it.  I suspect the Chinese Yuan or worse yet, gold, replaces USD before we can 'discover' the genius of an open corrupt-free general ledger system.

I know with every fiber of my being that a system controlled by people who 'declare' new rules, special privileges, insider knowledge, opacity for protection of questions, or any paradigm that relies on individuals to simply do the right thing daily for 100 years is subject to atrophy, corruption, and failure.

A system such as block chain that DOES evolve, with clear transparency to every single human on the planet, and does so with intense visibility and critique will be much more trustworthy and long lasting.

Further innovation is to take the smallest bitcoin unit and use it to track a myriad of other items, such as contracts using the blockchain.

Good luck!

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