Dogecoin Beats The Digital Dollar

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The Fed, the People’s Bank of China, and the Bank of England are planning digital currencies linked to their currencies. Their real objective is to stop people using cash so they can create even more distorted interest rate structures. Their new constructions will thus combine the insecurities of digital currencies with the Gosplan approach to monetary management that is now so popular. Dogecoin started as a joke and with money creation controlled by an algorithm, will be a much better store of value than these central bank constructs and will protect the public against the tyranny of bureaucrats.

Fiat currencies are always something of a confidence trick. The early attempts at them, the Song dynasty paper money, the American continentals and the French assignats, all collapsed into hyperinflation (the Song money only did so after a Mongol invasion, to be fair). So also, gradually, did the Austrian Gulden paper money issued by the Stadt Banco from 1759, which depreciated in value as inflation increased (fluctuating between 16% and 31% a year between 1770 and 1816) until Austria declared bankruptcy on February 20, 1811. The Stadt Banco’s notes, amounting to 1.06 billion gulden (nominally over $30 billion at today’s values) were converted to new notes, the Wiener Wahrung at one-fifth of their value. Further war expenditures then caused the Wiener Wahrung to trade at one-fifth of their silver value by 1816, although two years later, by establishing yet another new bank, Austria was able to redeem at least some of the Wiener Wahrung and undertake to issue no further paper money.

The Austrian saga, so damaging to the country’s savers, made Austria and those parts of the Holy Roman Empire that used its currency impoverished economic backwaters, with real Vienna wage levels one-eighth of those in London, by the early 19th Century. Austrian policy was criticized heavily by Karl Marx, who grew up under the aftereffects of those policies in what had been the Electoral Bishopric of Trier. As a result of his childhood experiences, Marx was unquestionably a sound money man, but alas lacking a belief in capitalism, since the Trier of his childhood never really experienced it.

As experience since the 1930s has shown, fiat currencies work adequately provided their issuers do not go overboard with the printing press and the population that uses them has adequate confidence in the issuing government. Both conditions are now coming under question. Governments for decades have forced interest rates far below their natural levels, killing productivity growth and making savers speculate ever more unsoundly in tech stocks, SPACs, and crypto-currencies in order to receive a return on their money.

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Disclosure: Neither Martin Hutchinson nor his immediate family own any Dogecoin.

(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the ...

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