The denationalization of money: the real-world asset (RWA) road to money without banks or inflation
Written by Antony Abell, Co-Founder of TPX™ Property Exchanges in Partnership with Cheyenne Mint (USA).
Denationalized banking is where banks are free to issue their own currency whilst also being subject to no special regulations beyond those applicable to most companies. In a denationalized banking system, the market controls the total quantity of currency and deposits that can be supported by any given stock of assets or fixed amount of currency. Historically, these assets have consisted primarily of either a precious metal (e.g. gold), government bonds or real estate mortgages. In denationalized banking, there is no role at all for a central bank. There is no government agency who can ‘print’ or provide unlimited fiat currency. De-nationalized banking was the standard in the US prior to its civil war. Before the US Civil War, there were almost 1,400 US state-chartered banks in operation with no government insurance for banknotes or bank deposit accounts. Banknotes were denominated in Dollars, not US Dollars, redeemable on demand for gold. Decentralization enabled individual city or state banks to issue their own banknotes. These banks were solely responsible for the creation and distribution of currency for their particular geographic area surrounding the municipality or within the state. Their worthiness and credibility were monitored and measured by their city’s or state’s inhabitants, not a central bank.
North Berwick Bank, Maine, USA 1860 - Obverse: depiction of farmers having a good time with family and friends
Source: TPX
End of denationalized money
During the US Civil War, the federal government famously financed its expenses through the printing of pure fiat currency, duly named the “greenback”. It heavily taxed denationalized money (effectively removing it from circulation) and coerced US banks to deposit their gold assets in the US Treasury and compelled the use of a national money scheme. This ended approximately 90 years of denationalized banking in the US.
Digital wallets with 10 square feet of London Property: bearer, ‘armoured’ secure wallets holding digital assets
Source: Cheyenne Mint, TPX™
Supporters of a return to denationalized banking have included Nobel Economists, Friedrich Von Hayek and Milton Friedman, both who espoused the virtues of Neolibralisum. Recent events in countries such as Argentina are demonstrating the practical advantages of this type of banking. In Argentina, the Central Bank has increased the number of Peso from 711billion in 1090 to 2.5trillion in 2020 so, “the Argentine government nearly quadrupled the amount of money in circulation over a 30-year period”, thus destroying the purchasing power of its own currency. After reducing the Central Bank’s control of the Peso, its diminished purchasing power has now rebounded. In all, almost 65 countries currently peg their currencies to the US Dollar (USD). These countries have used USD to denationalize their central banks’ control of their local currencies. Long term contracts, mortgages or other financial instruments are denominated in USD then paid in corresponding local currency. The local currency’s exchange rate is continually updated to reflect its current value in USD.
Currency is “not equal” to money
Fiat ‘currency’, that is the nation state currency that our governments and banks issue to us, is subject to different types of inflation and is distinct from ‘money’. The largest form of inflation (and most un-declared) is monetary inflation, which is the inflation directly proportional to the amount of M2 money supply created (or ‘expanded’ e.g. ‘expansion of the money supply’) by our central banks, commercial banks, treasuries and governments. Various reported retail or core inflation figures are varying degrees of a lesser reporting on the effect of monetary inflation and shifts in the pricing of goods and economic inputs.
‘Money’ unlike ‘currency’ is a measure of real value and a medium exchange of that real value
Titles of real assets, with their own distinct global supply and demand curves, and measured in all currencies in real time or with other real assets with similar real value / real time profiles, are effective measures of real value or ‘money’. In an asset-based economy, such measures of real values are distinct from a nation state’s fiat currency and have inflation-resistant characteristics or historical profiles. These ‘real values’ of inflation resistant assets, or real money, are a core proposition of the ‘real’ world asset based (RWA) economy. The key driver to a return to de-nationalized money is desire to have direct ownership of ‘real value’ money. Direct ownership of such money reduces monetary inflation, arbitrary controls and increases the amount and viability of economic activity. The example from Argentina on inflation exemplifies the key difference on why the return to denationalized money is happening. Titles are the legal right of ownership of private property. This takes multiple forms, both tangible and intangible - e.g., real physical property, precious metals, automobiles, patents. With regards to “currency”, this is an IOU or an entitlement to previously created debt, this is not private property. Central banks can treat currency in any manner they deem e.g., inflate it, control its use, determine who gets to create/use it, etc. Central banks have no obligation to respect the purchasing power of their currencies.
Entitlement is “not equal” to title
Prior to the gold standard being renounced in 1971 by the Bretton Woods Accord countries, money was “title” to a fixed amount of precious metal (e.g. gold or silver). After 1971, when the ‘value of currency’ became distinct from the ‘value of money’, currency then became an “entitlement” of a contractual claim on a debt that had been used to create the currency. The images below of certificates and notes illustrate US money versus US currency or “title” versus “entitlement”. Notice the certificates of “title” for gold and silver in the first two examples. The last note is only an “entitlement” to pay debts.
US Treasury silver certificate of “title” for ~5 ounces of silver
Source: TPX
US Treasury gold certificate of “title” for ~1 ounce of gold
Source: TPX
The current US one dollar note
Source: TPX
Federal reserve note or “entitlement” for tendering debts
The rise of denationalized money is the rebirth of the asset-based economy where the real value of money and capitalism is retained for the use by the many and not just by the few. By enabling fractional ownership of assets, that historically had been the preserve of the wealthy - such as real estate, private equity, data, derivatives, many debt instruments, etc - not only should it increase the liquidity of these assets, but it should also democratize many aspects of the financial services sector. Whether indeed we will see countries return to backing their currencies with assets such as gold, we will have to wait and see. However, as digitization gathers pace, will we see countries back their currencies with a basket of assets both tangible and intangible? While this would remove the ability to simply print money and also the risk of monetary inflation, it could put a premium on a currency and so enable a lower long term interest rate. The trouble is that this takes a huge economic tool away from governments and central bankers but, given the booms and busts we have experienced in the last 100 years, is this no bad thing?
The rise of denationalized money is indicative of a rapidly emerging asset-based economy. The advantages of keeping assets in a secure digital wallet allows the assets’ real value to continually increase with respect to increasing levels of global fiat monetary inflation. Furthermore, digital wallets allow for the determination on what asset will be converted into local fiat currencies depending on asset value profile (e.g., short term extrinsic value Bitcoin or long-term intrinsic value real estate titles). This allows the real-time implementation of coherent asset portfolio strategies optimizing returns for digital wallets assets. The ability to maximize the value of real-world assets on a continual and instantaneous mark-to-market pricing basis opens up a new world of real-world value for this and future generations of people.
I'm not sure I buy this decoupling banks and currency argument at all - one of the reasons the bank-issued notes fell out of circulation was because it was a pain to use in normal time and a nightmare for the holder during banking crises (unless you'd be willing to tell me that a dollar from JPMorgan is the same as Silicon Valley Bank in 2023). You've essentially killed the fungibility of currency and introduced private credit risk just to cut the central bank out of the equation, ignoring the facts that the local commercial banks are likely going to be forced by the same local market factors (e.g. government overreach, weak/underdeveloped local currency, balance of payments issue)
I'm extremely bullish on the tokenization of real world assets but it appears evident to me that any type of Deposit Tokens being traded outside commercial bank walls is a long shot IMO both from a regulatory and justifiable economic perspective. Better use of tokenized real world assets would be tokenized deposits/securities/assets within banks/private institutions and a wCBDC for wholesale settlement