Are Cryptocurrencies a Road to a Denationalization of Money?

This paper was presented at the III. ECAEF/CEPROM Conference on “Concurrent Currencies: Curse or Cure?” in Monaco on Dec. 6, 2018. These academic conferences in honor of Jacques Rueff are planned and organized by ECAEF (European Center of Austrian Economics Foundation, Liechtenstein) and hosted in Monaco by CEPROM (Center of Economic Research for Monaco).

Abstract

Over the last several years very few topics have entered the debate of the financial world more than the entire subject of cryptocurrencies. This new type of monies has sparked a fierce discussion among economists, politicians, financial experts and entrepreneurs over their nature, functions and their value. Creators of these blockchain technology-based currencies believe they are the future of the global monetary system, where all transactions will be executed digitally, in a simple yet safe manner. Their detractors however, simply believe they are the greatest bubble ever seen in the history of finance.

And yet, the proliferation of these currencies hints that a new era is dawning, where private, digital currencies will replace those of issued by the State. This revolution has been envisaged by Friedrich A. von Hayek in his 1976’s book “The Denationalization of Money”, where he backed the idea of a monetary system made of private currencies created by issuers to compete for acceptance on the market, while replacing government issuance of a national currency, use of which is imposed in the form of legal tender laws. Until the advent of the blockchain technology, Hayek’s idea seemed only a chimera. Now, with the technology available to everyone, more and more people realize that the chimera of denationalization of money is turning into reality.

Introduction

In his 1976’s book “The denationalization of money”, Friedrich A. von Hayek backed the idea of a monetary system made of private currencies created to compete for acceptance on the market, while replacing government issuance of a national currency, use of which is imposed in the form of legal tender laws. Hayek’s proposal aimed to create a free market-based monetary system and break up the central banks’ monopoly in money creation.

Hayek did not think of a monetary system made of an infinite number of currencies, as he specified in his 1978 revised and enlarged edition “Denationalization of Money: The Argument Refined”, where he maintained that rather than entertaining an unmanageable number of currencies, markets would converge on one or only a limited number of monetary standards …

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*Emanuele Canegrati is an economist, senior analyst at the London-based Forex broker BP Prime. He is a Faculty Member of the Liechtenstein Academy Foundation. He works as economist at the Italian Parliament and the Italian Ministry of Economy. He is a guest professor of Economics at LUISS University and La Sapienza University in Rome. He was Visiting Fellow at the London School of Economics and at the Luxembourg Income Study Office. This paper was presented at the Annual Conference of the Center of Economic Research for Monaco (CEPROM), held at the Oceanographic Museum in Monaco, 5 – 6 December 2018, Monaco.