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Author Topic: Cryptocoins for Good - How cryptocurrencies can change the balance of power  (Read 566 times)
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April 29, 2014, 12:49:33 AM

For many years currency exchange control has been a distinctive feature of dictatorships, from the “control by the ruble” of the Soviet Gosbank, to the dual currency system in Cuba, China’s overvaluation of the Yuan, or the exchange controls in countries like Venezuela and Iran, regimes of all types have relied on these kind of controls to rein, or at least try to rein, capital flights, inevitable when -sooner or later- markets try to correct the excesses committed by money-hungry “revolutions”.

Sadly, citizens are usually the most affected by such currency controls: as a pseudo-monopoly is established, a black-market is instantly created and exchange rates climb inexorably, specially in left-leaning regimes where the government aims for greater control of all aspects of the economy, affecting the efficiency of the production system and pushing the trade-balance the wrong way, increasing in consequence the amount of foreign currency required to cover internal demand. In short, more expensive currency is required to buy each time more stuff, the result? Rampant inflation and even more poverty.

Basic Marxist theory says that the structure of society must be based in keeping people in poverty, ruled by an upper class with certain rules, norms and such in order so they can keep people like that. This old-proven-wrong-policy is still used by many governments today, in February 2014, for example, some education minister of a Latin American country said that the government “wasn’t going to take people out of poverty so they can become political opponents”. This proves that currency controls are not a consequence of failed economic policies, but tools for the governments to exert repressing power over its citizens.

Now, what would happen to oppressive regimes if they were to lose control of the currency exchange, so the people is free to manage their wealth beyond the power of government currency controls? Currency decentralization is not new, 20th century economist and Nobel Prize Winner, Friedrich August Von Hayek (F.A. Hayek), theorized extensively on this subject, and though polemic, his writings provided an important part of the theoretical framework for modern economics, specially in areas such as theory of money and economic fluctuations.In his book Theory of Liberty he wrote:

The experience of the last fifty years has taught most people the importance of a stable monetary system. Compared with the preceding century, this period has been one of great monetary disturbances. Governments have assumed a much more active part in controlling money, and this has been as much a cause as a consequence of instability. It is only natural, therefore, that some people should feel it would be better if governments were deprived of their control over monetary policy. Why, it is sometimes asked, should we not rely on the spontaneous forces of the market to supply whatever is needed for a satisfactory medium of exchange as we do in most other respects?
It is important to be clear at the outset that this is not only politically impracticable today but would probably be undesirable if it were possible. Perhaps, if governments had never interfered, a kind of monetary arrangement might have evolved which would not have required deliberate control; in particular, if men had not come extensively to use credit instruments as money or close substitutes for money, we might have been able to rely on a self-regulating mechanism. This choice, however, is now closed to us. We know of no substantially different alternatives to the credit institutions on which the organization of modern business has come largely to rely; and historical developments have created conditions in which the existence of these institutions makes necessary some degree of deliberate control of the interacting money and credit systems (my emphasis). Moreover, other circumstances which we certainly could not hope to change by merely altering our monetary arrangements make it, for the time being, inevitable that this control should be largely exercised by governments.

But, what if it was no longer inevitable? During the 20th century creating and managing currencies was only possible for governments, so it was in essence exclusively a political matter, but technology is changing that, money issuing is not only government turf anymore, they now must compete with cryptocurrencies. In governments with an effective rule of law, this can be fair competition, for example, currencies can be somehow regulated -as the IRS recently did in the US- and a legal framework can be established so everyone can play by the rules. But, there are many countries where the line between state and nation is blurred, these countries may also take two additional paths, they can prevent financial institutions or businesses from transact with cryptocurrencies (e.g. Colombia and China) or they can declare an outright ban (as it is rumored about China every single day). In both scenarios cryptocoins could have a very important role, in the former -while remaining legal- they can create a new channel for the flow of foreign currencies, in the latter they can work as a relief valve, as an alternative for the black market. In any case, by increasing the supply of foreign currency, these coins can effectively push prices down, with all the benefits that comes with it.

For once, the development model that could arise from an efficient cryptocoins market presents a development plan that is not based on plain charity, in giving away something with the hope that the recipient will make a good use of it and luckily return it back in future productivity. People cannot only mine their own coins but they can rest assure that the value of such money will be subject to fair rules of supply and demand, not to devaluation-based political planning; and most important, they may not be held hostage in poverty by exchange controls, giving back to them a little of that sovereignty that dictators keep claiming or themselves.
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