Defending Fiat

(Part one of a point-counterpoint series)

Fiat currency might seem odd at first to a physicist new to this game, as fiat evades physical or laboratory-verifiable definition. There is no public ledger to look up a bank account dollar on to see it's history, and no assay which we can perform to tell us how legit a digital dollar is, be it a Paypal buck or a Bank of America savings account buck. However, removing this concreteness and hardness of definition from the gestures of monetary commerce and relying entirely on discretion of authority in hierarchy is something we are going to defend now, in part one of this point - counterpoint series. You might find it odd to find a defense of fiat currency in a forum devoted to cryptocurrency, but this kind of thing is very important. If one cannot try ones hardest to see opposing viewpoints then perhaps one isn't qualified with the requisite imagination to champion any viewpoints at all.

One argument we should consider is that fiat currency has lifted billions of people out of poverty and enabled modern society to thrive. Okay okay, this argument needs some refinement. First, it is technological progress which has really lifted people out of poverty, not socialism, not communism, not capitalism, and not fiat currency. Secondly, and more importantly, we must point out that correlation is not causation. Just because Lance Armstrong had cancer and he won the tour de France doesn't mean that cancer is what brought him the title. Just because we sacrificed a living child every full moon and the sun continued to shine doesn't mean the child sacrifice is what is what is needed by our sun. Murder has been a part of society during the same time period that fiat currency has been a part of it, and we aren't tempted to say that murder has enabled modern society to thrive. At least, I hope not.

However, there is something a little different about fiat here. It is used very often by nearly everyone, unlike murder and cancer. And it is socially accepted. Sure, this is anecdotal evidence, but it is nonetheless an argument - fiat has been with us to some degree for a long time, and hasn't killed us yet. It has been a part of great feats of human ingenuity like the Apollo mission and the Hubble Telescope, the University system, Interstate Highways, the Iraq War, and the Hoover Dam. Whether you think these projects are worthy or not is beside the point, which is that fiat has been with us and enabled some good stuff (whatever you choose). Clearly we cannot treat this as a logical proof of the greatness of a monetary system, but this is an anecdotal argument which should tell us to consider the proposition that fiat currency is a good idea. Lets state it clearly so that we can proceed satisfying even the most bored crypto-trolls: there have been occurrences in the last century which are consistent with the hypothesis that fiat currency has not been entirely detrimental.

Why might this be so?

Fiat currency is in one sense nothing but a method by which some individuals (the issuers) can enjoy the power of private seigniorage over another group (the users). Typically the issuers are called "the government" or "the king", although today the issuance class usually prefers to remain outside of the public eye, as shareholders of a controlling group of a central bank or in some other heirarchy. When this monetary system was discovered in use by Marco Polo he reported how the system made the king incredibly wealthy, beyond what Marco's imagination had thought possible. And why not? This is basically the point here, as enthusiasts of fiat currency use we wish our leaders to have any resources they like available to them. After all, they are our leaders. If we didn't want them to be able to lead us in any way they chose, we wouldn't call them our leaders. So we support our leaders, therefore we support fiat currency. Right?

We can do even better; we need to be even more specific. Fiat refers not only to the fact that the issuers have rights of seigniorage, but also that their issuance takes place in private. USDT (Tether) for example is a currency which enables the issuers to have seigniorage, as they can issue new tokens at no cost any time they like. However, when they issue the currency it is public - the amount and date are visible by anyone who cares to look. Because of this public blockchain nature of USDT, it isn't really a fiat currency. Fiat requires not only the giving of exorbitant privilege of seigniorage to the issuer, but also giving the issuer the right to use it without our knowledge.

And why not? Once again, these are our leaders. The question here becomes one of how devoted or loyal you might be to your leaders. If you want to double-check their activities, keep them transparent, perhaps you don't trust them enough. Fiat currency is about giving the issuers (your leaders) not only the power to issue currency - but to lie about it to you. To fool us. In fact, this is what they deserve and what we should do, as we should do anything we can to increase their power and strength if indeed we support them.

The seeds of disloyalty should not be sewn, and so we should not use monetary systems that allow for self-sovereignty or limit our leaders in any way. This way our leaders will be strong and our nation will follow in strength.

This provides a socio-political argument for fiat currency, but we can do better with practical arguments.

First of all, we have Gresham's law. This says that we ought to use fiat currency, as long as people will accept it, and if we have it. This is because harder money is better for saving; fiat is for spending. This in in effect a demurrage, as the value of fiat lowers with time so we are more likely to spend it - as saving it doesn't make much cents (sense). Some people even advocate such demurrage systems for societal economic reasons, so - here is a practical argument supporting the use of fiat currency. Otherwise, what are we going to do? Use fractions of apple shares, gold ETFs, bitcoins, or real estate to buy beer? While it is possible today, we probably won't do these things - because there is something better suited to small transactions - to cleaning out the pocket so to speak - and that is fiat currency.

Another important point here is that we already know the language of fiat currency. We know what dimes, quarters, nickels, and pennies are. We know what a grand is and what 10k is. We know what 1.6 large is and what 1.2 terabucks are. We have the language and the skills ready, why not use them? Fiat currencies, due to the simple fact of our history in the last century, are part of our common culture. This makes them easy to use and this is what is most important in commerce.

So to conclude, lets recap the arguments. Fiat is with us already - it works at least to some extent, and is easy to use. Social forces such as Gresham's law also compel us to use it as we keep more valuable things aside for a rainy day. The built in inflation acts as a demurrage which encourages spending and this helps the economy. And finally, it is a great way to demonstrate loyalty to our leaders and enable our leaders to pursue their own vision without restriction. Privately issued tokens for the win, go go fiat! 法定货币加油!

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