By Tho Bishop*
El Salvador became the center of the bitcoin world recently with the announcement from President Nayib Bukele that the country will embrace a bitcoin standard. While criticisms may exist about details of this specific proposal, a state actor effectively challenging the dollar-based global monetary regime is a cause for celebration. While it remains to be seen if other countries will attempt to replicate Bukele’s handout to the bitcoin community, there are important lessons here for other political leaders trying to respond to the global uncertainty that has resulted from the Federal Reserve’s reckless abuse of the global reserve currency.
Among those who would benefit from seriously engaging with the question “What has government done to our money?” is the American right.
While the reckless fiscal and monetary policy that has eroded the security of the American dollar is unquestionably bipartisan in nature, the Biden administration may end up being the unfortunate winner of inflationary hot potato. With annual inflation reaching 5 percent, the Federal Reserve will face a level of scrutiny it has not faced in a decade—and inflation is a particularly problematic political hurdle given the daily toll it takes on average consumers. The corporate press will do everything it can to try to gaslight the American public about the costs of inflation, but not even the Communist Party of China has the power to prevent average consumers from feeling the pain of rising consumer prices.
While the Republican Party may look forward to the politically advantageous environment an inflationary environment may provide at the ballot box, ultimately policymakers are going to have to seriously deal with the underlying issue: the absolute failure of the modern PhD standard.
Historically, abuses of a country’s currency have typically resulted in some sort of value peg. In America, both FDR and Richard Nixon ordered a deliberate devaluation of the dollar against a weight of gold—an effective default by the Federal Reserve that no Fed chair wants to acknowledge. Some analysts, such as James Rickards, have mentioned this as a potential remedy for the Fed’s current problem.
Another approach has been to embrace the use of another form of currency restraint, such as a currency board, favored by scholars like Steve Hanke. The problem is that a currency board requires the existence of other stable currencies—and the problems that face the dollar are global in nature. It is precisely the fact that almost all other fiat currencies have followed—or surpassed—the monetary hedonism of the Federal Reserve that has helped maintain its global dominance over the past decade.
This does, however, open up one of the most terrifying outcomes that could emerge: the rise of a globalist-imposed currency. The potential for an instrument such as the IMF’s special drawing rights (SDR)—which have increasingly been used by the International Monetary Fund as a means to bailouts and foreign aid—to be used as a new global reserve currency is an idea that has been discussed since the aftermath of the 2008 financial crisis.
In 2009, the Federal Reserve Bank of Cleveland acknowledged that
persistently bad U.S. economic policy could push people into a new international currency. If foreigners suspected that the costs of holding dollars in terms of lost purchasing power would soon exceed the network benefits of transacting in dollars, they would migrate to an alternative international currency.
It’s worth noting that US economic policy has been bad enough that some central bankers have voiced concern that the Fed has abused the dollar’s position as a global reserve currency—and not only the usual suspects of China, Russia, or Iran. In 2019, former Bank of England president Mark Carney denounced the dollar as “destabilizing” and called for it to be replaced by a global digital currency. Such a move would also fit neatly with various attempts to engage in a war on cash, and would radically increase the ability of authorities to track and control economic behavior.
As was the case with Treasury secretary Janet Yellen’s call for a global minimum corporate tax, the natural response by our failed technocratic elite is to further consolidate their power over society. What better way to help them solve the Very Big Issues—like climate change—than to give even more power to those we are told are our intellectual superiors?
Doesn’t someone like Christine Lagarde deserve her own saint candle?
Ultimately, if the international populist moment is ultimately about a defense of national sovereignty against globalist institutions, then it is inevitable that the monetary issue will become a defining battle. Just as it has been with the EU and the euro. Should a major global financial crisis undermine confidence in fiat currency, the result will either be the consolidation of power within a globalist institution like the IMF, or a revolutionary shift to private money—such as bitcoin or gold.
Those stakes really couldn’t be higher.
If the American right recognizes the significance of this issue, there are steps that can be taken immediately to better prepare red America for the future. Just as economic policy—amplified by differences in covid response—has made red states more attractive than Democrat-controlled ones, proactive state action on the dollar dilemma could greatly benefit their citizens in the face of a flailing failing Fed.
Some have already been leading. Texas, for example, opened a state-backed gold depository with the aim to repatriate Texas-owned gold from the vaults of the Federal Reserve. As Ryan McMaken has noted, a US state getting serious about gold would allow it to effectively secede from the Federal Reserve’s monetary regime.
An alternative approach would be for a state to focus on cryptocurrency, such as bitcoin. An early leader is Wyoming, which has created the most crypto-friendly legal environment in the United States, including allowing state-charted banks to legally hold crypto. Imagine if every Republican-led state implemented Caitlin Long’s work at the state level? Not only would it effectively demonstrate a state-by-state “no confidence” vote against the technocratic frauds at the Fed, but it would significantly undermine any attempt to utilize the empire’s levers of power against bitcoin in the future.
After all, what better lobbyist is there than a senator with laser eyes?
Even if Donald Trump rails against bitcoin, the populist movement he has inspired may be more serious about opposing the technocratic class. Given the stark differences in vaccination rates by political party, it is clear that even Trump’s endorsement isn’t enough to overcome red America’s awakened hostility to powerful institutions.
The ability of American politicians to avoid facing any serious consequences for reckless debt and spending has allowed a degree of economic nihilism to dominate the political landscape. What happens when that changes will have a profound impact on human civilization going forward.
As was the case with covid, the residents of the states most skeptical of the federal regime will have a major advantage.
*About the author: Tho is an assistant editor for the Mises Wire, and can assist with questions from the press. Prior to working for the Mises Institute, he served as Deputy Communications Director for the House Financial Services Committee. His articles have been featured in The Federalist, the Daily Caller, and Business Insider.
Source: This article was published by the MISES Institute