Is private money desirable?

Private money is not desirable

The aspirations of some cryptoasset is to reinvent historical ideas of private money issuance, effectively shifting the control of an alleged currency from the democratically elected officials to the unaccountable individuals in the private sector. Unless one subscribes to extreme forms of libertarianism or anarchocapitalism this is not a desirable state and the historical precedence on private money is one of repeated disasters compared to the normal issuance of money.

The so-called Wildcat Banking Era in the United States is the best example of widespread use of private money. There was no single issuer of the dollar and most banks would issue their own bank notes which would circulate in a local economy as a form of money. However these notes had no stable value and would not trade at par with each other, this introduced massive arbitrage opportunities for people to trade more valuable bank notes for less valuable ones. However none of this market for secondary currency exchange was beneficial for the end users or conducive for commerce. Shopkeepers would be forced to do unnecessary currency conversions for their customers, denominate their goods in multiple currencies and incur both price-risk and exchange risk.

Money exists as a platform to enable commerce and disparate competing currencies within one economic region undermine the project and introduce unnecessary friction to commerce. Thus private money is not desirable from a pure capitalist perspective.

References

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