“Fiat Lux!” rings one of the most famous phrases from ancient literature, arguably of all time.
If the phrase sounds like, well, Latin to you, you are spot on. Putting the phrase into context, however, will give you a first inkling of the meaning of the term ‘fiat currency’.
One of the most well known and referenced occurrences of the phrase “Fiat Lux!” is in the opening lines of the first book of the Hebrew Torah and the Christian Bible (Latin translation), Genesis, where the spirit of the divinity commands creation into existence. Faced with the earth — formless, dark and void at this point — the Divine Spirit decrees:
“Let there be light.”
And in response, according to the ancient text, there was light.
The intention of my exploration of this phrase here is certainly not to discuss theological or mythical interpretations thereof, though it sets us off to a good start in understanding the concept of fiat currency.
Just as the Latin noun in the context of Genesis denotes an authoritative command or order that could be translated “let it be” or “let it be done”, so it is with the origin of all fiat currencies.
Fiat Currency (Noun) Definition: Money that is created and given legal tender status by government decree.
Now that we understand fiat concept within original context, would it be too much of a leap to say that governments claim a near godly position for themselves by creating fiat currencies? Let’s think it through:
A government’s sole right to create money (a right claimed and protected by laws also established by them) gives it a monopoly to control an immensely powerful system that affects the lives of every one of its citizens.
For citizens of countries where governments have proven a high level of trustworthiness, notably Malta, Denmark, Sweden and Germany, the power commanded by their federal authorities might be unproblematic for the majority.
For the more than 50% of the world’s population that live under authoritarian regimes, on the other hand, fiat currency monopolies often bring insecurity, disruption, institutionalised plundering and even terror to their lives.
One of the more recent examples of the impact of the fiat currency monopoly system is that of India’s shock ban on large banknotes in November 2016. On 6 November, Prime Minister Narendra Modi announced that from midnight that very day, 500 and 1,000 rupees would cease to be legal tender for transactions other than exchanging them at banks for smaller notes.
Reuters reported on the resulting chaos (emphasis my own):
“The biggest disruption in decades to cash transactions, which power much of the rural economy, comes months before a series of state elections including in India’s most populous Uttar Pradesh state.
Critics have warned that ordinary people who do not have access to the banking system will be hardest hit, and that Modi risks upsetting his ruling party’s support base of small traders and businessmen who largely deal in cash.”
While the Indian government claimed that they were flushing out illegal cash with their campaign, data from the central bank’s annual report of 2018 showed that 99.3 per cent of the banknotes were returned “suggesting there was hardly any unaccounted wealth held in cash.”
Are failing economies like Turkey, Argentina, Venezuela, and Zimbabwe simply ‘bad eggs’, exceptions to the rule of successful national monetary systems? The currency fraud and monetary manipulation committed by even the most stirling world economies against their citizens hint that the opposite is true.
Legalised scams such as Quantitative Easing (a yet unproven monetary policy) and the daylight robbery of inflation are the first to come to mind. While it’s commonly accepted that governments design and enforce such monetary policies for the advance of the nation and the benefits of the system, the fact is that they often have “a direct and negative impact on the value of the money you are earning and saving — a form of modern-day slavery.”
Let’s say we cut governments slack for legal mechanisms that manoeuvre people out of their hard-earned cash. Even then, it doesn’t take long to list a litany of ‘political scandals’ attesting to corruption in some of the world’s top economies:
In 2017, Priti Patel was forced to resign as Britain’s international aid minister when it came to light that, off the books, she’d been meeting with foreign national powers promising them a chunk of money, compliments of Britain’s overseas aid fund.
In 2016, the Iraq Inquiry (also known as the Chilcot Inquiry) cast serious doubt on the Blair government’s grounds for joining the United States in invading Iraq in 2003. The military expenditure in Iraq and southern Afghanistan ended up costing the UK taxpayer more than £29 billion and 453 British personnel their lives (in Afghanistan alone). Up to 75,000 more were left injured or ill.
In Spain, almost 1,500 politicians and business leaders faced trial on charges of corruption between July 2015 and the end of 2016. Around 70 per cent were found guilty.
In 2015, former British Foreign Secretaries Jack Straw and Sir Malcolm Rifkind were secretly filmed offering their services, including influencing the change of EU rules, to a private company for cash.
2011 Cash for Influence Scandal: a Vienna court found former Austrian MEP Ernst Strasser guilty of attempting to change laws in the European Parliament on behalf of a business offering to pay him €100,000 a year. It was his second conviction for the same offence.
What shall we propose as an alternative to leaving the politicians in charge of a centralised monetary system? Shall we demand a shift of power to a more trustworthy authority with better policies?
“Power corrupts, absolute power corrupts absolutely”, warns the proverb and I doubt that there are many exceptions to this rule.
The first part of the Bitcoin antidote to fiat currency is to fragment the power of the monetary system. Where fiat currencies are controlled by a central authority, Bitcoin is operated by a distributed network of operators that maintain the integrity of the network. As power is distributed, it prevents any single participant (individual or organisation) from having enough power to manipulate the system. Through Bitcoin’s consensus mechanism, operators are tasked with validating transactions and refusing transactions from rogue operators that try to alter or manipulate the system’s rules.
The second part of the Bitcoin antidote is to record its time-stamped transaction history in an immutable and publicly available ledger. Because the ledger is available for anyone to see, potential and active network participants don’t have to trust in the integrity of a third-party - they can verify the transaction records themselves!
With fiat monetary systems, governments can give us no more than the word of an accounting firm to prove their financial dealings. In just the last year, American accounting firm KPMG was caught facilitating major political corruption in South Africa, and Goldman Sachs employees in Malaysia helped politicians pull of a multi-billion dollar scam. The Bitcoin antidote to fraud and mismanagement of funds lies in the Bitcoin ledger’s transparent and immutable (unchangeable) nature. This is why, when Bitstocks raised funds to provide relief for hurricane victims in 2017, we could prove our own donation and the transfer of raised fund by simply linking to the blockchain record.
Need to give an account of your finances? There’s no more final an audit than a review of the transaction record in the blockchain.
Bitstocks is kicking off our first meetup for 2019 with a hard-hitting, eye-opening discussion. Sponsored by CoinGeek, the Bitstocks CryptoTalk evening will focus on the massive potential of Bitcoin and cryptocurrency - its inherent capacity to reshape power and money as we know it.
This is also a perfect opportunity to hear about Gravity, the BitcoinSV Banking Ecosystem that Bitstocks is launching this year. You don't want to miss it!
Join us on Tuesday 15th January 2019 from 6:00 pm to 9:00 pm at WeWork, Waterhouse Square, 138 Holborn, London, EC1N 2SW. MeetUp is free, but registration is required.