The “right” money: A question of worldview?

The question of what the perfect money should look like is strongly linked to one’s own worldview. As much as we might wish for some sort of scientific objectivity in how we shape our money, this process is more tied to economic and fiscal beliefs.

Money is a social construction and not a natural science. A new technology that is able to change our monetary system is therefore always in tension with the prevailing ideology; Or to put it another way: money is political. The financial innovations Bitcoin, cryptocurrencies and digital central bank money must always be able to assert themselves in the current political environment.

Are the states at an impasse?

The level of government debt or the interest rate level therefore also has an impact on how we perceive token-based currencies and, above all, on how companies and the state design them. The focus of the current 1920s is the expansive monetary policy of the central banks, which is necessary in order to provide over-indebted states and, in some cases, companies with sufficient liquidity.

Despite ever lower economic growth and a demographic development of fewer births and longer life expectancy in the industrialized nations, the system can still be kept stable at the moment. In particular, the outbreak of the corona pandemic at the beginning of 2020 and the Russian war of aggression in Ukraine in March 2022 have brought about a new level of central bank and state interventionism.

The Modern Monetary Theory (MMT)

In the meantime, it is no longer just so-called crash prophets, but also renowned economists who are increasingly pointing out the side effects of Modern Monetary Theory (MMT). This theory sees itself in the tradition of Keynesianism and, with its monetary policy, aims primarily to create or maintain as many jobs as possible. In the conflict of objectives between monetary stability and jobs, the central bank tends towards full employment. The colloquial “money printing” is seen as a reasonably legitimate and sensible solution to economic well-being.

This is based on the assumption that monetary stability can be maintained despite the inflationary monetary policy. Accordingly, it is not so much the quantity of the expansion of the money supply that is decisive, but rather how it is controlled. However, critics such as the US economist Paul Krugman point out that this cannot go well for long. Instead of being able to solve fundamental economic problems through the expansion of the money supply within the framework of the MMT, such an expansive monetary policy, as it was already used after the financial crisis in 2008, leads to inflation, according to Krugman and other critics of the MMT.

Gold-Based Money: Just Nostalgia?

This point of view is represented in particular by representatives of the Austrian school and people with an economically libertarian attitude. They share the conviction that money should be as hard as possible and not regulated by the state. Hard money is money that is not arbitrarily expanded or inflated.

An example of hard money would be the gold standard, which provides for a fixed exchange rate between units of currency and the amount of gold. If the exchange ratio is strictly taken into account, greater monetary-driven inflation is prevented in this way and monetary stability is achieved.