Bimbo Money and Economic Volatility

The US Dollar, the basis for much of the economy of the world, has become a bimbo. A skank, a tramp, a slut. Easily manipulated, swayed, and counterfeited. Would you want to marry a slut? Then why would you put a slut in your wallet or bank account? High oil prices and food prices that are pushing the global economy toward dangerous inflation, are just a part of the mounting misery that a bimbo dollar can cause.

Aschwin de Wolf of Depressed Metabolism blog looks at the huge problem of "fiat currency" and suggests possible solutions.

During the 20th century, government has acquired almost unlimited power over money. This coincided with a move from a commodity based currency to a fiat currency with no underlying intrinsic value. As humans evolve, it is questionable if such a currency will be sustainable...The most obvious alternative for a government-controlled fiat currency is a commodity based currency. For such a commodity to be used as money it should be homogeneous, easy to subdivide, and have a high value to weight ratio...

A major advantage of using such a commodity bundle instead of a single commodity is that changes in monetary and non-monetary demand for a single commodity in the bundle (for example, gold) will only have a small effect on the bundle as a whole. In the context of advanced nanotechnology, commodities that can be produced by physical arrangement of common atoms may need to be excluded from such a commodity bundle to increase stability. Therefore, the most plausible candidate to be used as the standard for money would be a bundle of commodities that cannot be created by advanced molecular technology...The most important feature of a future money is that it should “not rely upon legalistic governmental imprimatur” and be immune to advanced molecular technologies. __DepressedMetabolism

This is a very important issue. The well-being of a society depends upon the stability of its economic system. Take a look at Zimbabwe or North Korea to understand the problem in extreme form.

The global economy is staring the possiblity of hyper-inflation in the face--largely due to the lack of any firm currency base. The US dollar has slipped badly due to irresponsible US government policies, contributing to the global commodities price runup.

Here is a short excerpt from Robert Freitas' "Tangible Nanomoney" (via Aschwin de Wolf):

What Is Money?
Assuming some form of physical specie will still be useful in a nanotechnology-rich society, what form should it take? We recognize that money generally serves two well-known primary functions: A store of value, and a medium of transaction. As a result, we can postulate that in the ideal form:

1. Money should be an efficient store of value, having high value per unit volume or per unit mass.
2. Money should be available in small enough physical sizes to be readily portable, even in the largest denominations, by human users, thus facilitating exchange transactions and specie warehousing.
3. Money should be physically stable for a duration of time spanning at least the maximum intended period of transactions and/or the maximum value storage horizon.
4. Money should not be inherently physically dangerous to its owner (e.g. radioactive, poisonous, explosive, etc.).

But money must also be trustworthy, which has several additional implications:

5. Money should be difficult to counterfeit.
6. Money should be difficult or impossible to replicate at a cost less than its cost of manufacture even by the most efficient means possible. That is, production costs (aka "intrinsic value") should approximate face value; seigniorage should be minimal to nil.
7. Money should be immediately recognizable as the intended denomination of the intended specie. Once revealed, the intrinsic value of the specie should be difficult to disguise. If unrevealed, the specie should still be compact enough to hide (from thieves or tax authorities) on one's person or elsewhere; see (2) above.
8. Money should be self-validating by its own physical form, and not rely upon any legalistic governmental imprimatur, easily-altered surface stamping, or monopoly minting authority to partake of value (e.g., no "fiat" specie).

It is easy to see that modern currencies including the US Dollar, all fail to satisfy the minimal criteria for "good money." Freitas then goes on to explore the topic of "nano-money" more fully.

As global markets become more critically volatile--due to several factors including fiat currencies, and the extreme complexity of the markets and their derivatives--the need for a tangible form of currency becomes rapidly more important.

Update: Aschwin de Wolf also wants to know what the impact of singularity induced widespread abundance will have on current economic systems--based as they are on fiat currencies, and the economics of scarcity.

Commenter Will Brown published a piece two years ago on that very topic, titled "Strategy of the Singularity Model of Economics". Discussion of this post can be found in the main postings and comments at Event Horizon and The Speculist. Robin Hanson's piece "Singularity Economics" also deals with the issue and contains useful links. Fiat currencies are already under significant stress now. As the extreme economic turbulence of singularity technologies begin to hit the global economic system, all bets are off, economically. I do not expect to see rampant catastrophe and doom when the technologies of abundance collide with the economics of scarcity, except in the parts of the third world that are typically prone to such--and in top-heavy anti-democracies such as China and Russia.