This is a continuation of the previous post which you can view by clicking here.
2: Questioning “Trust”
2-0: If someone says “I have trust in the US Dollar,” what exactly does that mean?
2-1: For most people, it probably means that they have trust in the functionality of the dollar as both a means of exchange and a store of value.
2-2: But can we say that the dollar’s functionality is predicated on trust (by consensus) in its value prior to its use?
2-3: If so, what gives the dollar its value?
2-4: After all, isn’t this “value”–whatever it might be–one of the main reasons we have trust in the dollar as a legitimate and reliable currency?
2-5: Do we still view the dollar as a “promissory note”? If so, what does it promise?
2-6: There was a time when the US dollar was backed by gold. The dollar’s value rested on its “promise” of gold convertibility.
2-7: Gold, once considered the ultimate object of monetary value, was seen to possess the primary characteristics of money: durability, portability, divisibility, uniformity, scarcity, and acceptability.
2-8: When convertibility was completely abolished in 1972, so too was the dollar’s “promissory” attributes. Yet trust in the dollar remained.
2-9: But if trust in the dollar was initially based on its promise of gold backing and convertibility, as dollars represented gold, then what values replaced the original promise?
2-10: Did this abolishment transform the dollar from a representation of value into the actual embodiment of monetary value itself?
2-11: As a “legal tender” object, minus gold backing, does the dollar then represent governmental authority?
2-12: Doesn’t this create a weird feedback loop: a “promissory” note whose value rests on government’s “promise” of value?
2-13: Or is value to be found in government’s monopoly over the creation, oversight, and distribution of all monetary assets and activities? (this of course means printing, taxation, surveillance, etc.)
2-14: Let’s back up and consider the implication of money creation (as most recently demonstrated by the Fed’s QE program).
2-15: Doesn’t the “artificial” creation of money violate one of money’s key characteristics: scarcity?
2-16: If you have trust in the dollar, wouldn’t that also require you to have trust in the system of third-party institutions, networks, and processes supporting and facilitating the circulation of dollars (banks, payments systems, technologies, regulatory restrictions, fees, etc.)?
2-17: And the regulations enforcing the entire system?
2-18: At this point, is this “trust” (in the dollar) a matter of choice or coercion?
2-19: If it’s a matter of choice, what is your alternative? (although gold and silver are still “sound” assets, neither make for a convenient means of exchange).
2-20: If it’s a matter of coercion, can we say that the emergence of cryptocurrencies constitutes a movement in which “the market takes care of itself”?
2-21: If so, wouldn’t that mean that at the heart of the cryptocurrency phenomenon is an overwhelming demand for (the creation of) a more reliable, efficient, and effective form of money?
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