Our Current Monetary System, Paper Currency, Central Banks, and Dept


In this our modern monetary system, our use of paper money issued by centralized banks is a tiny, teency weency blip. So small is that blip, in fact, that most of the world has only been issuing money this way for less than 100 years. This isn’t to say that debt is anything new – we’ve always had that, from the world’s first “I’ll pay you back” verbal promise, there has been debt, although the ways in which we go into debt now have become very widespread and debt is no longer considered such a horrible thing, unless there’s too much of it.

However, the issuance of paper currency that is backed by nothing except people’s faith in it and how much of it is in circulation is incredibly new, because up until 1972 most of it was backed by gold. During this time, there were so many different currencies floating around and it was confusing – some gold, some silver, some other base metals. Longdistance trade and tax payment was complicated to say the least. Medici was a money exchanger in that he converted currency using bills of exchange.

When centralized banks such as The Bank of England first began, it was still developed under the international gold standard, which meant that paper currency could be exchanged for gold or silver and vice versa. The paper currency was similar to a promissory note, much like those old Mesopotamian clay tablets. Even better, is that it allowed people to deposit their money within the bank, and when they needed to pay someone, they could simply debit the account to their creditor (a system that many of us take for granted today as we can easily transfer money in between accounts using online resources and pay merchants using our debit cards).

Most people didn't agreed with centralized banking recently. In fact, one well-known country began a bloody revolution to get away from any kind of central bank. Some know it the USA America. The Americans, has the opportunity to say the main thing, very wary of any kind of centralized banking system because they didn’t like the idea of money being controlled by a few people, nor the idea that the money would be lent to the American government to be paid back with interest using taxpayer money, which is essentially what a central bank is (we’ll not go in details).

In 1783 the American colonies won their independence from England, however the government would continue to battle with the concept of a Central Bank. Let’s look at what essentially a central bank does – it is an institution that produces the currency of an entire nation or region. This Central Bank controls the interest rates and controls the money supply (inflation). Remember – what makes money valuable is scarcity, desire, and the faith people have in it. If too much money goes into circulation then prices go up, and the value of that money goes down.

What Central Banks seek to do is control a nation’s money supply bylending a certain amount to the government on interest and controlling the amount of money that can be circulated at any given time. In effect, the thought process is that inflation will rise slowly over an even period of time rather than rapidly.

However, in just over 80 years of most of the world being under a centralized banking system, wild uctuations have occurred, huge spikes in in ation have occurred, bubbles have formed and bubbles have burst, most of the world is tied up in crippling debt they will never truly get out of, and the only response to these things is to print more money, which will forever cause prices to continue rising and currency to continue losing it’s value. This has caused many people to question central banking and desire something more tangible and predictable and large respected groups are actually calling for a return to the gold standard.

All in all, at this point in time during our modern economy, it seems unlikely and frankly unhealthy to return to a pure or alternative gold standard, especially considering that the current amount of floating currency in circulation FAR outweighs the amount of gold on the planet. However, at the same time it seems worrisome to allow a private centralized bank with low levels of congressional oversight or governmental control to solely determine how markets work, how much currency is circulated, and the rate of inflation, especially when these decisions are made behind closed doors because this limits the amount of security individuals have while strengthening the amount of security the banks have.

So, here’s the relevant and crucial question....

But my question is if it possible to organize the stuff outside entire system? Is there a place to keep your money where government and central banks cannot touch it regardless of whatever kind of inflation or scams or bailouts are going on in the world? In addition to that, is there some kind of investment you can make that will go up in value, instead of down in value?

This, ladies and gentlemen, is where Bitcoin comes in… Tomorrow, we will talk about what bitcoin is. Thanks for reading through today's lecture note.Have a cool week ahead

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