Rereading classics | Bitcoin and Libra, perhaps not the competitive currency that Hayek envisioned

From the revelation of "non-nationalization of money."

History is jumping forward. It always jumps on the fault we can't imagine.

– Taleb "Black Swan"
As a representative of the Austrian school, Hayek has been advocating a free market economy throughout his life. The economist and philosopher was active in thought and academic excellence, and was circulated to the world for his "Road to slavery" and "fatal conceit." In his later years, he carried out the liberal economic thought to the end, questioned the legal rationality of the state monopoly currency, proposed the theory of "multi-currency competition", and wrote the important and predictive paper of "non-stateization of money." Although the non-stateization of money was published two years after Hayek won the Nobel Prize in Economics (1976), it did not cause much repercussions in the economics community. For the "private currency" emphasized in the book, Friedman, an economist who also insists on liberalism, expressed doubts. In the next 40 years, this booklet was even drowned in the dust of history.

Interestingly, Hayek has been mentioned frequently in recent years. Why do the believers and evangelists of cryptocurrencies like to quote "currency non-state" as the theoretical pillar of bitcoin to become the mainstream currency? Is Bitcoin really the ideal currency that Hayek envisioned? What kind of encryption assets are more in line with Hayek's expectations?

To answer these three questions, we need to first locate and investigate Hayek and the "non-stateization of money" in the history of economic thought.

After the Second World War, Western economies experienced a period of golden development. Keynesianism was popular. The “visible hand” dominated the development of the currency in different ways. (Editor's Note: 'The visible hand' is from Keynes' employment, interest and The book "General Theory of Money" refers to the state's intervention in economic life). Despite the continuous efforts of Hayek and others, the liberal economic theory system has continued to mature and perfect, but in the face of the "government hand", it still appears to be weak.

As the major Western economies were caught in the "stagflation of the seventies," the Keynesian building began to falter. The Austrian school, represented by Hayek, has entered the spotlight of economic practice by virtue of its analysis of the economic cycle and its criticism of Keynesianism. In 1979, the United Kingdom welcomed Mrs. Thatcher, who believed in Hayek, and began to fully promote liberalization reform. In 1981, Reagan became the president of the United States, and his neoliberal economic policy echoed with Margaret Thatcher. The Austrian school liberal economy can be seen behind these policies and reforms.

Since then, in the context of the Latin American debt crisis, the Asian financial crisis, and the long-term capital management company crisis in the United States, the “government hand” has long suppressed the “market hand” and began to reverse globally.

Especially in the 2008 US financial crisis, the global economy fell into recession. When governments were tired of printing money, a genius named “Zhong Bencong” published a paper: “Bitcoin White Paper: A Peer-to-Peer E-Cash system". The following year, the first bitcoin was born. In the next decade, Bitcoin showed an incredible development. It has been found that the introduction of Bitcoin and other cryptocurrencies has brought new ideas to optimize the currency problem.

Hayek imagined the multi-currency system in "Non-State of Money", arguing that money should not be issued and controlled by the government or the central bank, but allowed private banks to issue competitive currencies. According to Hayek, the issuance of money has never been a privilege of government monopoly. It is only because of the long-term monopoly of the government that people have this impression. The instability of the market economy in the past is actually because the most important self-regulating component of the currency market is controlled by the government and is not regulated by the market mechanism. The competition of private banks for currency circulation will promote the survival of the fittest between different currencies. As a result, a stable and reputable currency will stand out, thus achieving a competitive balance of multiple currencies, and the economic operation will return to the ideal equilibrium of the general balance of Wakalas.

In fact, from the perspective of the history of currency development, the evolution of money itself is a process of competition between different currencies: competition between metal currency and banknotes, competition between private and official currencies, and competition between sovereign and world currencies. In the end, the more advantageous party wins and forms a consensus, which is accepted by everyone. The evolution of money from gold to paper money, the evolution of British bank notes in the 17th century to the pound, and the dollarization of some developing countries' currencies after World War II, are all the result of multi-currency competition.

It was only under the political structure of the time that the state could not give up the exclusive or monopoly power of currency issuance and was willing to play the role of a supplier of public goods. As Hayek said, the exclusive right or monopoly power of currency is always an attractive source of government revenue and an important means of winning power. Especially after the emergence of banknotes, the government has obtained a cheaper way of financing than the coinage era. Therefore, Hayek’s vision seemed unlikely to be implemented at the time.

Still, Hayek wrote that he still hopes that a series of events will happen one day to change the rules. He even suggested that this change may need to happen without government support.

The emergence of Bitcoin is like the change that Hayek expects. The issuance of Bitcoin is controlled by algorithms and is managed collectively by all network nodes and is not under the full control of any institution. Its decentralized nature negates the inevitability of the government's currency monopoly. In terms of monetary system design, Bitcoin is a deflation-type virtual currency, which is halved every four years. In 2009-2013, bitcoin was issued about 10.5 million pieces, which is halved in 4 years. It is 21 million pieces. From the outset, the arrangement of the total number of issuances tried to solve the problem of the government's indiscriminate use of legal currency by technical means, and also fit the idea of ​​the non-stateization of Hayek's currency. However, Hayek emphasized at the time that private banks issued currency, and bitcoin was privately issued. The issue body is different between the two.

Is that bitcoin really the ideal currency that Hayek envisioned?

In "Non-State of Money," Hayek gallops on his own imagination and outlines the prospect of multi-currency competition. According to its description, in the international money market, after fierce competition and competition, a number of private banknote banks will survive. They have independent currency distribution rights, can issue currency in any country, and the value of their banknotes is linked to a basket of stable value goods and is legally recognized (is it a bit like Libra's vision). More importantly, currency competition will provide a spontaneous and effective incentive and restraint, forcing the issuing bank to maintain the stability of its paper currency value and to improve its reputation. The basis for the survival of private money is people's trust. Any attempt to profit from the expansion of currency issuance or low-interest loans will be counterproductive, and its currency value will drop rapidly due to excess money supply.

From the above dimensional stability point of view, bitcoin with large price fluctuations is obviously not the ideal currency in Hayek’s mind. The private currency envisaged by Hayek is entirely derived from the system of currency issuance. That is to say, private banks must have certain assets as endorsements to issue a certain amount of money, and then adjust the market supply and demand relationship to maintain the price through positive and negative repurchase methods. The issue of Bitcoin has no assets as a rigid redemption or endorsement, and is a closed currency issuance mechanism that does not serve the purpose of trading commodities. Although fixed supply assets solve the problem of inflation, like rare metals, fixed supply assets cannot respond to changes in demand, and they will never achieve the sustainable price stability required to compete with government currencies, let alone Acts as a measure of the value of money (unit of measure).

In addition, as an open source system, Bitcoin has also been exposed to fatal problems in technology (in 2010, a hacker exploited a loophole in the bitcoin core software to create 184.4 billion bitcoins out of thin air, and Nakamoto quickly updated the software version. The hard fork clears the 'bad chain') and it is difficult to guarantee that it will not be cracked by hackers.

If bitcoin opens the prelude to the era of cryptocurrency, then the legal currency mortgage-stabilized currency may be one of the practical methods to achieve currency non-stateization . The legal currency mortgage-stable currency (such as USDT) is linked to a stable dollar and becomes a bridge between the French currency and the “traditional Canadian dollar currency”. Libra, which anchors a variety of legal coins, stood on the shoulders of USDT and others. From the reaction of the US Congress, we can also see that the dollar imagined itself as a Libra competitor. This time, the business giant forced the government to raise the level of monetary policy in the form of a private bank. However, the French currency stable currency involves exchanges with the legal currency, and challenges the existing foreign exchange control policies and tax issues and privacy security in the entire cross-border service (e-commerce, logistics, transactions and other application scenarios). Regulation and compliance are the biggest difficulties on the road to development.

Compared with the legal currency-backed stable currency, the algorithm stabilizes the currency driven by the market and strictly enforces the supply policy that the central government cannot force to change. In addition, algorithm-stabilized coins are functional account units, which allows them to compete with sovereign currencies for stability. However, due to the lack of military and government authorization, the algorithmic stable currency can only be accepted generally if it is better than the existing currency in terms of distribution and supply management. However, from the current development situation, there is no algorithmic stable currency in the market that can compete with the government currency.

At the moment, in less than 50 years after the publication of the "Non-State of Money" publication, the global economy has been over-reliant on the US dollar, and about 60% of foreign exchange reserves are held in the form of US dollars or US Treasury bonds, plus the US's continued deficit spending. The cycle has contributed to a longer depression cycle. It is the dissatisfaction with these depression cycles that catalyze the global cryptocurrency movement.

But whether it is bitcoin or stable currency, there are more or less problems. The blockchain technology behind it is only possible to design the future monetary system. There is still a long way to go before the competitive currency that Hayek envisions. In essence, cryptocurrency and fiat currency are the contest between market and government mechanisms. The comparison between digital currency financial system and legal currency financial system, the spread of distributed books and large databases in terms of security and efficiency is even more decentralized. Organizational and centralized institutions compete in power and ideas. How to play the game in the future, we will wait and see.


" Non-nationalization of currency "

Text | Li Xueting

Produced by Odaily Planet Daily Research Institute

Original article, author: Li Xueting. Violation of the law will be investigated.