In the genesis of Bitcoin, Satoshi Nakamoto sought to address the limitations of fiat currency. Over the centuries, some 800 fiat currencies have risen and fallen, their origins often shrouded in mystery. Critics posit that governments birthed this system to perpetuate corruption and fund enduring global conflicts. In essence, most fiat currencies either fueled military endeavors or shielded financial titans reaping the rewards.
Unmasking the Veil: Fiat Currencies and Their War-Torn Legacy
Recently, U.S. presidential contender Robert Kennedy Jr. boldly asserted, "fiat currency was conceived to bankroll war." While a daring statement, history does lend weight to Kennedy’s proclamation. In ancient times, trade pivoted around commodities and meticulously wrought metal coins. This paradigm shifted during China’s Yuan Dynasty (1271-1368 AD) under Kublai Khan.
Fiat currency, fundamentally, is government-backed money not tethered to a tangible asset like gold or silver. Its value hinges on the trust and faith of its citizens. Unlike commodity or representative money, which find their worth in material or a claim to a commodity, fiat currency derives its value from official endorsement. The Yuan Dynasty’s “Jiaochao” stands as a seminal example of fiat's early incarnation.
Did Jiaochao finance wars? Undoubtedly. This fledgling fiat system underpinned monumental military campaigns until 1368. Jiaochao notes financed exploits like the Song Dynasty conquests and forays into Japan, Southeast Asia, and Java. Centralized fiscal dominion granted the Yuan leaders amplified financial authority, frequently channeled into military exploits. Nevertheless, akin to other nascent Chinese paper currencies, Jiaochao suffered from excessive issuance, resulting in rampant inflation.
In the wake of the Yuan era, the ensuing Ming Dynasty resurrected metallic currency, with a marked emphasis on silver. Simultaneously, they reintroduced fiat currency. Confronted with challenges reminiscent of the Yuan epoch, including runaway inflation, Ming’s “Da Ming Baochao” paper currency fell out of favor. These notes principally bankrolled the Great East Asian War (1592-1598) or the Imjin War. Fast forward to 1656, Stockholms Banco in Sweden, acknowledged as the world’s inaugural central bank, likewise employed its fiat money, “Stockholms Banco sedlar,” to fund conflicts.
This Swedish fiat currency fueled conflicts such as the Thirty Years’ War, the Second Northern War, and the Scanian War. Yet, this fiat paradigm proved unsustainable and eventually floundered, thrusting Sweden into its inaugural banking crisis. In the U.S., fiat money buttressed both the Revolutionary War and the Civil War. Whilst the Continental Currency crumbled, Greenbacks, the bulwark of the Civil War, saw a marked depreciation.
Once hinged on the gold standard, the U.S. narrative pivoted with the Bretton Woods conference and the Nixon Shocks of 1971. That year witnessed the cessation of gold convertibility for the U.S. dollar, or Federal Reserve Notes (FRNs). Since then, the U.S. has been ensnared in an unbroken succession of conflicts. Speculation abounds that Nixon's maneuver aimed to fortify the Vietnam War, as France harbored doubts about the U.S.'s gold reserves.
History evinces that fiat currencies frequently intermingle with warfare and malfeasance. Some posit that fiat played a role in seismic events like the 2007-2008 mortgage crisis, the 2020 Covid-19 pandemic, and a litany of financial rescues. Rather than diminishing metal content akin to the Romans, contemporary fiat stewards exert colossal control through money supply and interest rate maneuvers. Kennedy’s observation resonates with many proponents of alternative currencies, sparking fervent calls for a divorce between state and currency, akin to the separation of church and state.
Governments wield the levers of fiat currencies adeptly to fortify the military-industrial complex. Central banks can infuse more currency, directly bankrolling defense initiatives, whilst concurrently setting low interest rates to spur borrowing and military expenditure. Through deficit spending, governments can issue bonds, effectively borrowing to underwrite their military aspirations. A robust currency, fortified by foreign exchange reserves, renders defense-related imports more accessible.
Yet, these fiscal mechanisms, though potent, are not without peril. History illustrates that prolonged reliance on these strategies can culminate in inflation, eroding public purchasing power and potentially sapping faith in the currency. Over time, unchecked manipulation can imperil the overall economic well-being of a fiat currency, ultimately leading to its demise.
