>Why is this a fiat currency?
I am glad you caught that. Here are some passages from Wikipedia:
- Fiat money is money that has value only because of government regulation or law.
- money without intrinsic value.
- While specie-backed representative money entails the legal requirement that the bank of issue redeem it in fixed weights of specie, fiat money's value is unrelated to the value of any physical quantity.
-A feature of all fiat money is its acceptability to the government for payment of taxes and charges.
Bitcoins don't have intrinsic value, but they are not legal tender either. So, I think the author of the article equates fiat money with money that is not backed by an agreed upon physical entity.
I would say that it's not the physical entity that we are interested in, but the labor required to produce that physical entity. However, there is no way to conveniently "store" labor for trade in the future, so physical entities (like gold) act as a proxy.
The interesting feature of the Bitcoin seems to be that no human is involved in determining its supply. This is left to a computer algorithm. The algorithm, I guess, is not open to tinkering. Its parameters must have been set at the beginning. I have not read anything else about the Bitcoin, so I need to do that before I continue with the discussion.
The experiment is very interesting and we may learn a lot from it. For example, this passage is of interest to me:
"Forster began charging 75 Bitcoins for each pair in February and has since had to lower the price to 5 due to extreme appreciation in the currency's value. "I wish I had kept all of them," says Forster, who traded his Bitcoins on the way up for cash and web services."
"The 50 years of war left England in financial ruin. The government officials went begging for loans from guess who, and the deal proposed resulted in a government sanctioned, privately owned bank which could produce money from nothing, essentially legally counterfeiting a national currency for private gain.
Now the politicians had a source from which to borrow all the money they wanted to borrow, and the debt created was secured against public taxes.
You would think someone would have seen through this, and realised they could produce their own money and owe no interest, but instead the Bank of England has been used as a model and now nearly every nation has a Central Bank with fractional reserve banking at its core.
These central banks have the power to take over a nations economy and become that nations real governing force. What we have here is a scam of mammoth proportions covering what is actually a hidden tax, being collected by private concerns.
The country sells bonds to the bank in return for money it cannot raise in taxes. The bonds are paid for by money produced from thin air. The government pays interest on the money it borrowed by borrowing more money in the same way. There is no way this debt can ever be paid, it has and will continue to increase."
Look at Pheight's comment below. Assume a user-independent mining algorythm which ties digital gold coins to actual physical gold output. That anchors any virtual supply to a real base and may overcome the weaknesses (trust, circuitry-dependence) of a stand-alone digital currency.
Jim Turk's GoldMoney comes to mind. Does that fit the bill?
It seems that some are busily attempting to figure out how fiat currency can be replaced with yet another fake, difficult to understand, system that reflects the age of electronic communications. It’s just more smoke and mirrors of the same old central bankster system of creating digits on a computer screen.
Enough with these attempts to defraud through various currency schemes. The US Constitution had it correctly. PM miners present their output to governments, who in turn assay what is presented to them. If the assay is of sufficient purity the ingots are turned into coins, be they gold, silver or copper. Governments need to be involved only to the extent that they guarantee that the coinage meets specifications. The Coinage Act of 1792 created the required sanctions to ensure that specifications of purity were met.
If others wish to experiment at their own risk with “Bitcoins”, that should be their decision. No one should step in to save them from losses due to fraud. That, of course might be the biggest risk, a la TARP, if the “Bitcoin” crowd gets their way.
Nice try though, attempting to convince those who can see beyond the complexities to where “Bitcoin” money will eventually make headlines, and not in a good way.
Visits to this website, and threads authored by the bunch who seem determined to find a way to discover (and perhaps be part of) the next currency scam in the age of the Internet, are truly enlightening. However, you should realize that your view of the general level of human intelligence is highly underestimated.
As far as comments by Adam Smith are concerned, one thing that he emphasizes continually is “exchange”. When he wrote “An Inquiry into the Nature and Causes of the Wealth of Nations”, through his grasp of history he undoubtedly understood fraudulent fiat monopoly money currencies. But it is unlikely that he foresaw the level of central bank fraud that exists today, including the usage of said fiat money by a current central banker in the news, Dominique Strauss-Kahn to have his way with a hotel maid. Of course, having to claim one’s rights in such a situation against such a well known figure is probably an unlikely positive outcome, as high profile figures such as OJ Simpson and a number of others are testament to.
Doesn't Adam Smith's economics depend on unlimited, or at least readily available, resources?
...what happens to gold and fiat currency when the world really starts to run out oil? wait, not oil, something that we actually need...hmmm, perhaps food and water?
What would Adam Smith say to an entrepreneur who hasn't had anything to eat in almost a week?
The Medici perfected the Bills of Exchange system, basically designed to conceal usury outlawed by the church.
"Quidquid sorti accedit, usura est"
Not only did they embed the interest by discounting the bills, they also basically invented fractional reserve banking in my opinion, way before the British goldsmiths and here is how they did it:
Holographic Bills of Exchange...LOL
Basically, a sham deposit certified by one Medici branch and cashed at discount (by arbitraging currency exchange rates, an easy thing to do for a multi-national bank in those days) by another.
What's the upshot?
Not only is the Bill of Exchange System easily manipulated into a paper shuffle, it actually is the forerunner of fractional reserve banking.
According to Antel Fekete, your view of fractional reserve banking coupled with Bills of Exchange is misinformed, unless your take on the issue has been misunderstood. Are you referring to “finance bills”, which are distinct from “real bills”. See below for the differentiation.
Per Antel Fekete:
The chimera of fractional reserve banking
This explodes the blanket condemnation of fractional reserve banking. Detractors are barking up the wrong tree. They should condemn the practice of discounting finance bills. ACTUALLY, 'FRACTIONAL RESERVE' AS APPLIED TO BANKS WITH NOTHING BUT REAL BILLS IN THEIR PORTFOLIO IS A MISNOMER. (emphasis added) The reserves are gold plus bills maturing into gold. The reserves are not fractional, as they fully back the note and deposit liability of the bank. By contrast, if the bank portfolio has a component of finance bills, the designation 'fractional reserve' is appropriate. Finance bills are not maturing into gold like real bills are. It may not be possible to get gold in exchange for them when the crunch comes.
The process of retiring bank notes, after the merchandise serving as the basis for their issue has been removed from the market by the ultimate gold-paying consumer, is called 'reflux'. Some authors, including Ludwig von Mises, have ridiculed the concept of reflux calling it deus ex machina. They argued that banks were only interested in credit expansion, not in reflux. Not for one moment would they entertain the idea of voluntarily withdrawing bank notes from circulation when the underlying real bill matured. Instead, they would lend them out at interest again and again, to enrich themselves at the expense of the public.
This is not a valid argument. For the stronger reason, you could also ridicule the entire legal system in asking the rhetorical question: "what is the point of making laws when they will be broken anyhow?" YOU CANNOT JUDGE THE MERIT OF AN INSTITUTION BY THE BEHAVIOR OF THOSE WHO ARE SET UPON DESTROYING IT. (emphasis added)
The entire discussion by Antel Fekete can be found at:
tinyurl com/REALbills (replace the space with “.” on the address line to access)
>So you say, “Unfortunately, your response is unrelated to the
>question.”, but according to Wikipedia and the U. S. Constitution,
>and your original post which is really non-specific (no question
>was posed) the answer you received, despite unspecified
>expectations, was right on the mark.
Let me try for the third (and last) time. Here again is what I asked: