No single country’s currency can really be the reserve for what happens is clear right now. The US lowered it rates to fight the banking crisis and that began a contagion externally. Whatever the US might do with respect to monetary policy for its own economy cannot be isolated purely for domestic use.
QE1-3 produced no domestic inflation because DEFLATION was global and the money was absorbed externally. If the dollar was not the reserve currency, then that policy would have produced inflation as the Austrian School taught. That principle does not apply to empires whose currency is used externally.
The entire problem with cryptocurrencies is the fact that government has ALWAYS profited from creating money known as Seigniorage (“right of the lord (seigneur) to mint money”). Illustrated here is a British protest note.
The king passed a law that anyone passing a counterfeit note was to be sentenced to death. Innocent people were being hanged for simply possessing such a note. They were duped themselves and it cost them their lives. This note protested the sentencing of people for possessing such a note rather than those who produced the counterfeits.
I find it hard to believe that government will allow private currency in any fashion. They lose taxes and profit. They will allow it to exist until all the kinks are worked out and it has been fully tested and accepted in the market place. Then the game is over.
Seigniorage has always been the privilege of the lord since 600BC. I remain skeptical about government accepting private currencies based solely upon history. Governments will turn against them most likely after 2015 when they become really desperate for cash.
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.