The Global Currency Plot

When governments fear the people, there is liberty. When the people fear the government, there is tyranny.
– THOMAS JEFFERSON

What would be so problematic if the states were to come together and create a single world currency? That’s a perfectly valid question. As already mentioned several times, from a purely economic point of view, there would be significant advantages if every region, every nation, every state unit in the world didn’t operate with its own money, but if as many people as possible, preferably all of them, operated with one and the same currency. Not only within an economy, but also for the world economy as a whole, the economically optimal number of currencies is one. Then the economic accounting exercised with money would function in the best possible way; the international division of labor and thus material prosperity would be supported in the best possible way.

However, this statement must be put into perspective at least in one respect: the decisive factor is how the single world currency comes about, who issues it. In a free market for money—in a natural process—a single world currency would emerge from the voluntary agreements of the market participants: the money demanders decide which commodity they want to use as money. It is impossible to predict with certainty what the outcome of the free choice of currency would be; after all, it resembles a discovery procedure whose outcome is not known in advance. However, it could be assumed that a commodity or precious metal currency is created, that gold is chosen as the money base, but possibly also a crypto-unit.

However, if states monopolize money production, there is no free market for money on which a single world currency could develop through voluntary decisions by people. In this case, national fiat currencies coexist for the time being. But this is not a stable equilibrium. Rather, here too, there is a tendency to create a single world currency—because, as I said, it is optimal if everyone in the world trades and calculates with the same currency. This is what democratic socialism takes advantage of.

Creating a single world currency is a means to an end for democratic socialism. Its adherents will recognize that a single world state cannot be established directly. The national resistance that would have to be overcome is still too great. The detour, the indirect way, by which democratic socialism can more easily achieve its goal, is the creation of a single world currency under state control. The eurozone can serve as a “model” for this. It has been possible here for sovereign nations to voluntarily give up their monetary sovereignty and accept a fiat single currency which is issued by a supranational central bank—which in fact can no longer be effectively controlled by the national parliaments.

The shared euro currency creates major problems in and between the participating countries. But the forced euro marriage has not yet been through the “divorce courts” because of the high costs of a euro exit and also because the democratic socialists fight any attempts to withdraw from the euro with all political means available to them. The problems created by the single currency are increasingly forcing participating countries into communization. For example, some nations must pay for the national debts of others; and the cost of saving ailing banks from collapse is borne by all taxpayers and money users.

All these problems only became apparent after the community of destiny was locked in—they received little or no attention beforehand. From the outset, it was not economic rationality that inspired the euro, but political endeavors that can be traced back ideologically, unsurprisingly, to democratic socialism. The end of national monetary sovereignty and the adoption of the single currency were promoted in public by emphasizing the peace and prosperity effects of euro money. The particular problems that one fiat money brings to many different nation-states were overlooked or ignored.

In the light of the experience gained with the “euro experiment,” the question arises: What are the consequences of creating a single fiat world currency? Seen from a logical perspective, a pessimistic view of the future is imposed on us if democratic socialism succeeds in persuading citizens to give up their national currencies and adopt a supranational fiat currency instead. For a state-controlled compulsory world currency would bring with it all the negative characteristics and problems that any national fiat currency would, but it would cause economic, political, and cultural damage that would presumably eclipse everything that national fiat currencies do.

What every single state that has fallen victim to democratic socialism wants is also what a community of states wants: to control the production of money and to expand the money supply at will in order to secure and expand rule. It is a logical step for the states to merge their own fiat currencies into a fiat world currency—especially for small and medium-sized states, whose financial leeway is considerably increased as a result.

The fact that the choice falls on a single fiat currency and not on a commodity money is virtually self-explanatory: the national currencies are already fiat money, and fiat money is also the type of money that the states prefer for their purposes, because it can be multiplied at any time and in any quantity at the lowest cost.

If the national states agree to accept a single fiat currency, issued by a world central bank, then the money users will no longer have any choice or escape options. They will be at the mercy of fiat world money. The world central bank, which issues the fiat world currency, will not have to fear that dissatisfied users of its fiat world money will “migrate” to other currencies—because there will be no other currencies anymore. And because the single fiat world currency has no competition, it also becomes a plaything of political interests. Above all, the states will encourage the world central bank to pursue a monetary policy through which they can finance themselves as cheaply as possible by credit.

After all, debt financing is particularly attractive for every state: the possibility of easy borrowing is a very important motive for states to join a fiat world currency. Unlike with taxation, savers usually give their money voluntarily to the state, because they expect it to be repaid to them plus interest. A world central bank has a free hand to set the market interest rate as it sees fit, to set it at any desired level. It does not have to fear that capital will migrate if there is an extremely low market interest rate—after all, the same market interest rate that it determines will prevail all over the world.

A world central bank, which has the monopoly on the fiat world money, facilitates the worldwide debt economy to an extent probably unknown so far. The relatively bad state debtors, i.e., those who have so far only been able to finance themselves at relatively high interest rates, benefit in particular from a single fiat world currency. If there is only one currency left in the world, there will be a single large, transparent, and liquid world capital market in which there will no longer be any exchange rate fluctuations. This helps to reduce credit costs. The improved debt opportunities, in turn, favor the expansion of state influence. The nationalization of the economy and society is thus promoted.

The single currency will put governments in a favorable position to buy votes. The states will lure with money, and more and more citizens and entrepreneurs will become transfer recipients, beneficiaries of the state. They will benefit from state-financed jobs, social benefits, and profitable contracts. The involvement of states in economic and social life will increase. The culture of collectivism will be promoted, and individualism will be repressed. What is left of the free market economy inevitably gives way to a control and command economy in which the states play a decisive role in determining who produces what, when, and where. Although this development is also progressing under national fiat currencies, it is even more uninhibited under a global fiat currency.

With the single fiat world currency, it will be possible for the world central bank to set an artificial upswing (boom) in motion worldwide and to protect it from the downturn (bust) for a long time. Thanks to the single currency, the boom will affect all economies of the world: the prices of all labor and factor markets will be distorted by the boom—after all, there will no longer be any exchange rate movements between the economies that could shield the monetary conditions in one region from those in all other regions; all economies will thus be “monetarily aligned.”

Companies and investors will continue to favor some regions of the world over others, just as investors in the eurozone see the “northern countries” as less risky than the “southern countries,” and the “northern countries” will continue to be the most attractive region for investors in the eurozone. If, however, the economic developments of the participating nation-states should vary too much, the world central bank can be expected to take political countermeasures: weaker countries will be supported by it. For example, it will buy up government and bank bonds from weak countries; the many experiences of the eurozone with its “rescue policies” can serve as illustrations for this.

In this way, the world central bank can weaken or eliminate the remaining market correction forces, which could otherwise put an end to the boom. The boom it sets in motion can therefore last a long time and can also be driven a long way. However, the longer the boom lasts, the greater the damage (overconsumption and bad investments) will be. And the longer the boom progresses, the greater the costs of the correction crisis. This in turn increases the political incentives to keep the boom going by all means—after all, states shy away from recession and unemployment and the associated social and political consequences.

In order to avert the correction crisis, the states can continue to intervene in the market situation with bans and prohibitions, laws, price controls, labor and expenditure programs, and subsidy payments. Above all, however, they can now make use of the world central bank. If politically desired, it can keep any stumbling debtor afloat with newly created money and prevent the boom from crashing. This leads to the question: Will a single fiat world currency be more inflationary than national fiat currencies? The answer is yes.112

The primary goal that the states are pursuing with a single fiat world currency is to be able to pursue a controlled inflation policy with as little punishment as possible—with all its open and hidden redistributive effects. Controlled inflation plays into the hands of states and powerful groups whose interests are particularly closely intertwined with those of states.

However, even under a uniform fiat world currency there are limits to inflation policy. The world central bank does not have to reckon with the fact that money users will switch from the fiat world money to other currencies when inflation is high, as there are no other currencies left. But if the inflation of the fiat world currency is too high, the money users will lose confidence in it. In an extreme case (a very high inflation, a hyperinflation) people will start to escape from the fiat world money. They will no longer want to use the money, the demand for money will decline, and this could ultimately also seal the fate of fiat world money.

Of crucial importance for the inflation of the fiat world currency is which forces gain the upper hand in the decision-making body of the world central bank. In the first case, the governments of the states have a direct influence on the world central bank. In democracies, the rulers are known to have short-term goals: their power is only temporary. Therefore, they are anxious to maximize their current income during their term of office. Those in power do not participate in the long-term prosperity of the community, in the capital value of the economy, and consequently have no (great) interest in making decisions that maintain or increase the net present value of the community beyond their own term of office. In other words, the cow is not milked here, but slaughtered. Inflation, which the world central bank council is responsible for, will be comparatively high in this case.

In the second case, the council of the world central bank has decision-makers who are particularly close to the interests of banking and finance. Such a world central bank council’s interest is that its “product,” its fiat world currency, remains permanently marketable. It will not frivolously jeopardize the fiat world currency through implementing an exaggerated inflation policy. The world central bank council would therefore not want to slaughter the cow, but to milk it for as long as possible. This case implies that an oligarchized democracy will prevail in the world central bank council.

It is precisely then that there is a very high probability that the world central bank will above all serve the special interests to which the party oligarchs are closely linked. These are, of course, big banks and big industry (big business). The interests of the general public take a back seat and are only taken into account if they do not jeopardize the continuation of the world central bank’s special-interest monetary policy: the world central bank will therefore endeavor not to let inflation become too high so that the population does not become dissatisfied and rebel against the “establishment.”

Under a self-referential oligarchized democracy, in which the functionaries recruit their successors from a self-proclaimed pool, the fiat world money is even granted a particularly long stay. The democratic oligarchs will make every effort to ensure that the fiat world money system can continue to exist for as long as possible, that crises, when they occur, are effectively tackled, in such a way that the fiat world currency does not suffer, and that a “flight from money” is avoided.

In view of the over indebtedness problem that fiat money necessarily creates, we cannot exclude the idea of a negative interest rate policy. For example, a negative interest rate policy means that the central bank sets the interest rate at -4 percent per year: of a bank balance of €100.00, only €96 are left after one year, and only €66.48 euros after ten years.113 What harms the saver benefits the debtor: he makes a profit by taking out a loan if he can borrow money at negative interest rates! Savers and investors will not tolerate this. Wishing to avoid the losses, they will go to the bank and demand that their assets be paid out in cash (notes and coins)—and the negative interest rate policy will fall on stony ground. Therefore, as long as there is cash, the effectiveness of a negative interest rate policy is limited.

However, a world central bank can easily enforce the abolition of cash by shutting down cash production. Without cash, the money is “trapped” in the accounts and can no longer be withdrawn from the banking sector. The negative interest rate policy can now be implemented unchecked. Money holders no longer have the opportunity to evade the devaluation of money and savings.114 Individual states will welcome the abolition of cash for another reason: they will be able to track the financial dispositions of citizens and companies, which will only be able to make payments electronically at every turn: banks will be requested to provide full information on the payments and financial assets of bank customers at all times. As a result, the taxation possibilities of the states will be increased immensely.

As long as there is still cash, there are limits to taxation: if market participants feel that the tax burden is too high, they can carry out their transactions anonymously with cash. This in turn encourages states not to tax citizens and businesses too heavily. But when the taxpayers no longer have an alternative because there is no more cash, the political reluctance, which still stands in the way of increasing taxation in a world with cash, decreases. And if the financial privacy of citizens and businesses is lost, states can easily subject citizens and businesses to full monitoring.

THE DESIRE TO ABOLISH CASH

In the first half of the twentieth century, probably few people could have imagined that the US dollar and all other major currencies in the world would eventually no longer be redeemable for gold. Looking back, however, it is anything but astonishing from a logical perspective that the state has acquired a monopoly over money production and that it has also replaced the existing commodity or gold money with its own fiat money. Similarly, it can be understood that the state is seeking to abolish cash.

Cash sets limits to taxation. If people have the opportunity to carry out anonymous cash transactions, the state must exercise restraint when taxing them. If the rate of tax is too high, the market participants avoid paying it. Payments are no longer made via bank accounts, which the state can control, but with cash, which the state cannot easily track. As long as there is cash, the state must be moderate in taxation.

Therefore, cash is a thorn in the side of the state. But above all states want to get rid of it because economies are now facing an over indebtedness problem, and cash stands in the way of the “solution” they prefer. It is important to know that in the fiat money system debt grows faster than income, so that at some point debtors are crushed by credit burdens. One way of solving the over indebtedness of states and banks is through a negative interest rate policy. If the state central bank imposes a negative interest rate, debtors can reduce their debt at the expense of creditors. An interest rate of -5 percent per year, for example, reduces the value of a debt security or a bank credit of €100 to €95 in twelve months.

The savers won’t put up with that. They will avoid the negative interest rate by having their bank balances paid out in cash. Cash is not devalued by a negative interest rate. As long as people have the opportunity to exchange bank balances for cash, a negative interest rate policy cannot be effectively implemented.

Cash is still very popular with many people—despite the technical innovations in payment transactions. Obviously, there are transactions where cash is preferred to electronic money. And it should not be forgotten that cash is not only in demand for payments, but also for precautionary reasons: unlike book money, which is held at banks, cash bears no risk of default. How can the state withdraw cash from circulation?

For example, by making the use of cash more expensive. Banks are encouraged to charge their customers for increased cash handling costs. Or the state can withdraw banknotes with large denominations (such as the five hundred-euro banknote). Or the state can charge maximum amounts for cash transactions. It can also devalue the cash by means of a government-fixed exchange rate for electronic book money. If the central bank charges an interest rate of -5 percent, for example, a cash withdrawal of €100 would debit the customer account €105.

As long as there is still a large number of countries in the world competing with each other for companies and talent, going it alone in abolishing cash is unlikely to be successful. A single state can do away with cash. However, the chances that it will achieve its goal in this way—by implementing a negative interest rate policy—are not too great, because those affected can switch to foreign cash. Investors’ interest in a currency that is subject to a negative interest rate policy would also dwindle. Capital would be withdrawn and transferred abroad, weakening the productive forces of the economy in international competition.

The picture changes when all states move in step to withdraw cash from circulation. Money users will then no longer have any alternative options, or they will have to resort to types of money such as gold and silver or crypto units that have not previously been used on a daily basis. In order to abolish cash everywhere, however, a disciplined state cartel would have to develop. However, as has already been discussed, this is unstable. If, on the other hand, a world government with a world central bank and a fiat world currency were formed, the abolition of cash could easily be carried out.

A global central bank will claim the supervision of the banking and financial sector. It will want to prescribe how commercial banks must operate in business terms: for example, what liquidity and capital requirements they must meet and how they must assess their credit risks. The world central bank will also want to decide whether and under what circumstances failing banks will be recovered, or closed and liquidated. The right of national governments to have their say will increasingly dwindle in favor of the supranational world central bank and supranational supervisory authorities and bodies. The consequences are far reaching.

The pressure for a unification of regulation, to which all banking and financial enterprises are subject, increases—and is determined by the large and powerful interest groups. National or regional peculiarities are not taken into account if the large and powerful interest groups have asserted themselves in the political negotiation of the regulatory provisions. For many small countries, this will force far-reaching adjustments—not only in their banking and financial economies, but also in the structure of their production of goods and services. There will be winners and losers in this process: adjustment costs will be higher for some regions and lower for others. This creates conflicts of interest between the nation-states.

A fiat world currency used by people in many countries will fuel further conflicts. It is well known that the expansion of the money supply means that a few are made better off at the expense of many others: the first recipients are the beneficiaries, the late recipients the disadvantaged. This is already resulting in disputes in nation-states, which are usually characterized by a relatively homogeneous population structure in terms of culture, language, and tradition. The conflicts over redistribution become even more acute when the effects of redistribution are felt across borders: when people in one country realize that they are being bled in favor of people in another country.

A world central bank has a free hand to set the world interest rate at will. Not only can it keep it artificially low to set a boom in motion and keep it going for a long time, it can also bring about something unnatural: a negative world interest rate. One reason for pursuing a negative interest rate policy has already been mentioned: the over indebtedness problem caused by fiat world money can thus be “solved” politically. Another motive for forcing world interest rates into negative territory is the democratic socialists’ desire to better steer and control the economy and society, or to shatter what is left of the free market economy.

The fact that exactly this is possible with a negative interest rate policy becomes apparent when one considers the consequences of the negative interest rate for the credit market. The commercial banks receive credit from the world central bank, say, -2 percent, on condition that they lend the money to consumers and companies. For example, if they borrow €100 at -2 percent and lend the money at, say, -1 percent, their profit is €1.115 Under these circumstances, however, the demand for credit would grow enormously: after all, everyone wants to profit from the negative interest rate loans.

The world central bank must ration the loans so that the creation of credit and money does not get out of hand. It is no longer the market interest rate that balances supply and demand, but the world central bank that gives a certain amount of credit and allocates it. But what criteria should be used to allocate the loans? Should all those who ask for loans get them too? Or should labor-intensive economic sectors be preferred? Or should the loans go only to sunrise industries? Or should weakening branches of industry be supported with additional loans? Or should the south get more than the north?

The world central bank has a decisive influence on who can finance and produce what, when, and where. Like a central planning authority, it—or the interest groups who control it—determines the fate of the economies in the regions of the world: which industries are promoted or pushed back; which economies grow stronger and which weaker; which banks are allowed to survive in which countries and which are not. Welcome to the centrally planned economy! However, a negative interest rate policy would not be possible in the long term; it would lead to the end of division of labor in the economy. This can be explained as follows.

First of all, lowering the interest rate inflates the prices of existing assets: stocks, houses, and land, everything becomes more expensive. The lower the interest rate, the higher the present value of future payments and thus also the market prices of the assets. The speculative bubble, which is inflated, initially provides investors with high returns. At the same time, however, the outlook for future returns deteriorates. The reason: the zero and negative interest rates cause the prices of stocks and houses, for example, to rise until the expected yield that these asset classes then promise has approached the low or negative interest rate set by the central bank. In extreme cases, the expected market returns will fall to or even below the zero line.

But once the world central bank has pushed all returns to or below the zero line, the free market economy (or what is left of it) is on the verge of collapse. Without a positive market interest rate, without the prospect of a positive return, saving and investing cease: after all, every consumer and entrepreneur has a positive originary interest rate. And when there is no more return to earn, there is no more saving and investment, only consumption. The economy based on the division of labor comes to a standstill. Replacement and expansion investments fail to materialize, capital consumption begins, and the modern economy falls back into a primitive subsistence economy. The existence of billions of people would be wiped out. A horrible, extreme scenario.

The very process in which the world central bank lowers the world market interest rate to or below zero (something it can do as a monopolist of money production) is extremely problematic. It artificially pushes people’s time preference up. As Friedrich Nietzsche (1844–1900) put it, there is a “revaluation of all values,” a devaluation of the future. The here and now is “made” even more important than tomorrow. The consequences are far reaching. For example, life on credit is promoted. The virtue of thrift goes out of fashion. “Permanent debt” becomes morally acceptable. Achieving short-term goals becomes more important for people than achieving longer-term goals. For example, the willingness to achieve decreases, because, compared to the “disutility of labor,” leisure time rises even higher in value. Divorce also becomes more attractive as a “solution” to marital problems; efforts to overcome relationship difficulties are increasingly shunned. The quality of education suffers: if the here and now is so important, then we will also spend less time on time-consuming ways of cultivating and maturing for the future. Morals decay: consideration and manners are costly activities in interpersonal relationships and often only pay off in the long term. Aesthetics degenerate: it is easy (or easier) for passing fads to find buyers; breaking away from “proven classics” is made easier. A world central bank that issues fiat money has decivilizing consequences worldwide.

The idea that states could remain sovereign and independent once they participate in the fiat world money system is illusory. If the same money is used in different countries, this will help to make the best possible use of the efficiency potential offered by the international division of labor. The commodity and factor financial markets of the national economies increasingly dovetail. And the closer the ties between them, the stronger the incentive of the nation-states to surrender sovereignty to supranational authorities. This applies both to economically good times—then the willingness to share, to make compromises is relatively high—and to economically bad times—then a way out of the economic problems is seen in moving closer together, in jointly pursued “emergency policies.”

A fiat world currency promotes the political centralization tendencies within the group of states that uses it. The “urge” to establish a unified government, a world state, is strengthened, especially under the ideological leadership of democratic socialism. If economic and financial ties become ever tighter, why not create a single world state that can more effectively implement the desired policies—such as prevention of economic and financial crises as well as tax fraud, policies for environmental protection, counter terrorism, etc.—than a multitude of independent states that can only agree on and enforce their common policies, if at all, laboriously and by protracted means? The world central bank, which issues the fiat world currency, becomes a particularly sought-after political power and control center in this concentration process.

Drawing on Robert Michel’s “iron law of oligarchy,” it is to be expected that a relatively small, assertive group of people, which originates from the party and government structures of the participating states, will try to put the world central bank under its control and make it serviceable for its own purposes. Against this background, it would be unrealistic for something to emerge that could be described as a “democratic world central bank.” The representatives of the participating states may (at least initially) endeavor to “chain” the world central bank, i.e., to design the rules and regulations to which the world central bank is subject in such a way as to prevent abuse of power.

However, what happens in the hierarchy of parties also happens in the hierarchy of a community of states: the most determined, tireless, ruthless and relentless advocates of democratic socialism prevail—above all government representatives from the participating countries, but also and above all the “experts” in the central banks and bureaucracies. The aim of the oligarchized elites will be to make the world central bank serviceable and, above all, to enable the creation of a world government, a world state, which democratic socialism must necessarily strive for.

A world state, equipped with its own fiat world money monopoly, would open a dark chapter in the history of humankind and lead to a civilizational catastrophe. It would have no more competitors to fear. No one could escape from it. Emigration would be impossible; the world state would be everywhere. The hope that the expansion of the power of the world state could be effectively curbed by democratic electoral acts would prove to be illusory as soon as an oligarchization of democracy set in—and this is to be expected, of course, as already impressively illustrated by the expansion drive of the nation-states in recent decades, and as follows from the logic of action.

It is downright absurd to think that a world state with its own fiat world currency would not sooner or later mutate into a totalitarian tyrant. One therefore does not overshoot the mark when, in the context of the dramatic consequences of a fiat world currency, one thinks of the novel The Lord of the Rings published in 1954 by the British writer J. R. R. Tolkien (1892–1973). In a reference to the original text, one could say:

One fiat world currency to rule them all, one to find them,
One to bring them all and in the darkness bind them.

But are there perhaps—as in The Lord of the Rings—good forces that challenge the states regarding the money monopoly and thereby effectively prevent the ideas of world money and a world state from being put into practice? One possible good force is technological disruption, which could revolutionize the global monetary system or show people that better money than that offered by states is both necessary and possible. There is no doubt that cryptocurrencies hold such potential for disruption. The following chapter is dedicated to this idea.

• 112Ludwig von Mises wrote clairvoyantly as early as 1912 in Theorie des Geldes und der Umlaufsmittel: “The single world credit bank or the world cartel of credit banks will have the power in their hands to increase the circulation of credit funds without restrictions.” (Mises, Theorie des Geldes und der Umlaufsmittel [1912; facsimile of the first ed.; Auburn, AL: Ludwig von Mises Institute, 2007], pp. 475 ff.)
• 113Who benefits from the bank customers’ loss of interest? The banks debit 4 percent of customers’ credit balances and transfer the money to the central bank, which then transfers the money (in the form of a profit distribution) to the state account. So it is ultimately the state and its privileged groups that earn the money from expropriating savers.
• 114An individual money holder can exchange his sight deposit for, say, company shares. However, the seller of the shares then becomes the owner of the sight deposit; it does not disappear from the monetary system.
• 115By borrowing from the world central bank they gain two euros (they borrow €100 and pay back €98 after one year) and by lending they lose €1 (they borrow €1 00 and get €99 back after one year).