Gold-Backed Stablecoins: Bridging the Gap Between Crypto- Gold (Part 3)
The Benefits of Gold-Pegged Stablecoins?
Most of the white papers of the existing gold-tied stablecoins exalt the perks of digital currency backed by the world’s most enduring monetary commodity. Many claim the benefits of 1:1 token to gold-backing, low transaction fees, a safe-haven hedge against instability and inflation, low buy-in requirements, low transactional costs for people living in remote areas, and the positive aspects of combing blockchain technology (convenience, decentralization, and honest record keeping) with the enduring value proposition of gold. While all these qualities are maybe enticing, the best way to demonstrate the superiority of golden stablecoins would be to compare them to other similar alternatives.
Standard Cryptocurrency vs. The Midas of Digital Money
The most notable difference between Bitcoin and a stablecoin like Tether Gold would be the value proposition. Jeffery Tucker was bold enough to claim that the use-value of Bitcoin was a combination of trust (immutable transaction and a public ledger )and a universally applicable payment system structure. Tucker’s interpretation of the Austrian Regression Theorem (p. 407) is audacious, but can a concurrent use-value be equated to a past use value? Such an inquiry may be obtusely pedantic. However, what if a form of money could not only have the trust of a blockchain and internationally fluid payment system conjoined with the storied prior use history of gold? This may very well prove to be a superior form of money.
Beyond the intrinsic value of a gold collateralized cryptocurrency, the price stability of gold is far superior to that of Bitcoin, the highest valued digital coin on the market. As previously mentioned uncollateralized cryptocurrencies are highly volatile( 81 percent annualized for Bitcoin), with wildly fluctuating values. Some commentators have claimed that established gold-backed stablecoins such as Pax Gold have a lower degree of volatility when compared to unbacked cryptocurrencies. However, the degree of price fluctuation can also be attributed to how the currency is managed by the firm holding the gold. It would be shrewd of consumers to look for purveyors of stablecoins offering full reserve (1:1) redemption policies or limits on the capacity (to avoid depreciation). Even if an institution has lower reserve requirements, judicially implementing option clauses to prevent bank runs can help maintain customer confidence.
Gold-Backed Stablecoins and Gold ETF Funds
Gold Stablecoins are frequently compared to Gold ETF Funds which are the darling of derivatives markets. Despite the criticisms of experts, there are some advantages that gilded Stablecoins hold over ETFs. Gold ETFs are essentially investment funds possessing gold-related assets. One key attribute distinguishing ETFs from their blockchain-based cousins is the fact that “..most ETFs, upon redemption, do not pay out by providing the precious metal; they instead provide an investor with a cash equivalent..”. In terms of liquidity, this may be a bit more simplified than cashing out a share of a gold-backed stablecoin token, as most stablecoins redeem in gold specie. However, if the point is to obtain money of “high intrinsic” value, the ETFs have to trade easy liquid for lesser money (fiat currency), in return. It would be dishonest not to bring up that gold-tied stablecoins do have counterparty risks, but that is a chance anyone takes with any third party holding precious commodities in their care.
ETFs are purely intended to function as a speculative asset, while in contrast, the smooth settlement and distributed ledger and nationally agnostic nature of blockchain structure make tokens like Pax Gold or Tether Gold better suited for use as a medium of exchange. In all honesty, this will probably best bet for re-establishing a gold standard in the post-Bretton Woods era. The political interests of Federal Reserve officials, banks, and politicians are too embedded in the empty promises of easy money policies of the post-2008 U.S. Monetary regime. The temptation lurks for utilizing Quantitative Easing, bent beyond purely macroeconomic objectives (full employment, price stability), to fund the ends of fiscal policy. (Fiscal QE). The temptation of gesturing such a powerful bargaining chip such as open purse strings would make the idea of a fixed money supply more of an obstacle than a virtue. The number of people who stand to benefit from the current monetary policy of using collateralized debt as money makes a gold standard wide-eyed opium dream. Any transition to gold-backed currency; must come from a private currency; no government would ever revert to such a barbarous relic. It doesn’t matter even if the “End the Fed” crowd gets Ron Paul or Dave Smith in the Whitehouse, a meat grinder of the political process will drown out any monetary reforms.
The Benefits Over Physical Gold
Beyond the benefits of tokenized gold lending itself as a medium of exchange from blockchain technology, it is worth noting that most transactions are now digital. The ease, portability, and divisibility of a digital version of gold are hard to beat; versus lugging around cumbersome bars or pressed coins or employing costly storage solutions. Like ETF exchanges, gold exchanges or reputable storage facilities may not be accessible in rural areas. There is an affordability factor; instead of buying by the gram, ounce, bar, or coin, investors can purchase a fraction of a coin for as little as $1. They are reducing the logistical and monetary costs of investing in gold.
Gold-Backed Stablecoins: Bridging the Gap Between Crypto- Gold (Part 2)
What are Stablecoins?
The term stablecoin is frequently thrown around by those initiated in the crypto-space, but what is it? It is a digital currency value tied to an asset or supply controlled by an algorithm (known as an algorithmic cryptocurrency). This category of digital assets created a cryptocurrency with a stable value. Cryptocurrencies have become popular alternatives to traditional inflation hedges as such money assets are highly volatile, meaning that Bitcoin may not be the best store of value if compared to other monetary assets. In 2014, the first stablecoin, Tether, was established and was backed by the US Dollar and related assets (US bonds). But wasn’t the creation of cryptocurrency an attempt to veer away from the authority and meddling of central banks? There must be a better asset to collateralize private digital money than monetized debate.
Fortunately, there is gold, precious metal that has demonstrated its value retention and salability over the course of human history. In an age of digital transactions, even using gold-pressed coins or promissory notes to redeem specie may be cumbersome in an era of debit cards. The idea of a gold-pegged stablecoin seems like a natural fit, combining the benefits of gold’s superior value proposition with the perks of blockchain technology. The market for the digital token has answered with popular stablecoin such as Pax Gold, Tether Gold, and Perth Mint Gold Token.
Gold stablecoins are valued at a specific amount of gold per token, stored in a secure vault. Per the Pax Gold white paper, each coin is collateralized by one troy ounce of gold. In the example of Pax Gold, any owner of Pax tokens can redeem them for physical gold “… at partner organizations..”. While the reserve ratios for gold to token parity and specifics of redemption requirements may vary by currency, most gold-backed stable coins utilized Ethereum-based smart contracts (ERC-20 protocols).
Gold-Backed Stablecoins: Bridging the Gap Between Crypto- Gold (Part 1)
In mid-June, the value of Bitcoin sunk below $20,000.00, reaching a two-year low; in late 2020. After a slight rebound on June 20th, Bitcoin had still lost 55% of its value for the year and 35% within the month of June. However, Bitcoin was not the only digital currency to suffer turmoil amid this downturn in the market; several other commonly traded cryptocurrencies also experienced a decline in value. As with any speculative assets, there are multiple factors; commentators cited as causing the recent meltdown in the crypto markets. Some commentators suggest that macroeconomic factors such as high inflation and interest rate hikes are potentially to blame. Others claim slumps in trading volume and the failure of several major crypto projects (collapse of Terra-Luna and Celsius) have agitated the market. The recent trouble in the crypto space most likely cannot be attributed to one sole factor but will not be persuading any crypto-skeptics to get on the bandwagon anytime soon.
Although there may be a digital currency alternative that is not only less volatile but still possesses the benefits of blockchain technology, that is commodity-backed stablecoins. More specifically, stable coins collateralized by gold reserves and gold-pegged money seemed politically impossible since President Nixon closed the gold window back in 1971. Now it is feasible to have gold-backed private money that blends the advantages of cryptocurrency with the value stability and historical salability of gold. In the debate between gold aficionados and crypto enthusiasts, this is the ultimate compromise and is a far better alternative to fiat currency. In this series, I will detail the benefits of gold-backed stable coins and suggest that despite the volatility in the cryptocurrency market, tying digital assets to a valuable asset might strike a balance to create a better form of money.
Time to Restore the Gold Standard- Part IV: Cantillon Effects
One concern regarding fiat currency that is appurtenant to inflation is the occurrence of Cantillon Effects. What are Cantillon Effects? The observation is that introducing new money into the economy has “… distributional consequences that operate through the price system…”. Essentially this means that inflation does not occur all at once and does not evenly flow throughout the market. Individuals that receive the money first avoid experiencing price inflation, validating the previous point. Therefore, dispelling the misconception held by the English philosopher John Locke that the nature of money is neutral. Locke suggesting that introducing more money into the economy merely has a numerical impact on prices. The suggestion being that printing more money has little influence on economic behavior. A 17th-century precursor to the contemporary notion of “inflation doesn’t matter”. From a praxeological standpoint, this assumption is wholly false. If it were true, people would not adjust their behavior to account for the inflationary depreciation of their national currency. People would not be investing in gold, silver, or Cryptocurrencies as an alternative to hedge against government money.
This phenomenon was first observed by Irish-French Political Economist Richard Cantillon, providing its namesake. Cantillon expounds upon the mechanics of such inflationary effects on money through the example of gold mining in his book An Essay on Economic Theory. Cantillon asserts that the point of injection of new currency and the velocity of circulation play a role in its impact. As described below:
If the increase of hard money comes from gold and silver mines within the state, the owner of these mines, the entrepreneurs, the smelters, refiners, and all the other workers will increase their expenses in proportion to their profits. Their households will consume more meat, wine, or beer than before. They will become accustomed to wearing better clothes, having finer linens, and having more ornate houses and other desirable goods. Consequently, they will give employment to several artisans who did not have that much work before and who, for the same reason, will increase their expenditures. All these increased expenditures on meat, wine, wool, etc., 0necessarily reduces the share of the other inhabitants in the state who do not participate at first in the wealth of the mines in question. The bargaining process of the market, with the demand for meat, wine, wool, etc., being stronger than usual, will not fail to increase their prices. These high prices will encourage farmers to employ more land to produce the following year, and these same farmers will profit from the increased prices and will increase their expenditure on their families like the others. Those who will suffer from these higher prices and increased consumption will be, first, the property owners, during the term of their leases, then their domestic servants, and all the workmen or fixed-wage earners who support their families on a salary. They all must diminish their expenditures in proportion to the new consumption, which will compel many of them to emigrate and to seek a living elsewhere. The property owners will dismiss many of them, and the rest will demand a wage increase to live as before. It is in this manner that a considerable increase of money from mines increases consumption and, by diminishing the number of inhabitants, greater expenditures result from those who remain (p.148-149).
It is important to note that Cantillon Effects occur with currencies with a fixed supply. In Cantillon’s example above, he uses the mining of gold ore to describe the disparate impact of inflation on prices. A similar consequence is also observable as a byproduct of Bitcoin mining. However, these examples of Cantillon effects are far less pronounced than those resulting from creating more fiat currency. These disturbances are temporary (p.28) and are not indicative of permanent debasement of either commodity. A continual depreciation of money with no longitudinal guarantee of appreciation makes a currency a poor store of value. Gold, cryptocurrencies, and silver have the possibility of increasing in value. Therefore, neutralizing the short-run inflation generated by a new gold discovery. Fiat currency collective continues to depreciate across time, thereby displaying the validity of the Humean Price-Specie-Flow Mechanism model. Essentially disturbances in the gold supply would naturally adjust and levitate back to equilibrium with no further intervention. Above all demonstrating, that any disparities would be temporary under fixed-money supply standards such as gold. Effectively weakening the validity of the objections that gold is an ineffective policy tool for combating the harmful effects of inflation. Including Cantillon Effects.
The above passage from Cantillon demonstrates how individuals with close geographic or institutional proximity to the point of monetary injection enjoy the benefits. The modern-day equivalent would be working in the financial district of New York City. Financiers on Wall Street may even have connections with staff working at the New York Federal Reserve. Well-connected social networks in the financial sector are advantageous when it comes to acquiring access to money. Even beyond the social networks of well-connected financiers, the privileged position of those benefitting from Cantillon Effects starts with the Central Banks. Upon wielding newly printed money, they possess a profound amount of “.. unearned purchasing power..” (cannot find source) analogous to a counterfeiting operation. The currency flows from the Federal Reserve to the Medium and Large-sized banking institutions that “maintain reserve accounts” at various Fed locations throughout the United States. Smaller banks (e.g. local credit unions) obtain their money supplies from correspondent banks that have accounts with the Federal Reserve. These larger banks supply smaller banks charge the smaller banks a service fee for distributing their allocation of currency. This distribution dynamic illustrates how patrons of neighbor banks are at a clear disadvantage. From a temporal standpoint, the large corporate banks are among the first institutions to receive the newly printed money. Providing access to the new currency to the employees and patrons of these larger well-connected banks. Individuals living in rural regions of the united states are either unbanked or needing travel great distances for banking services. The disparate effect of this geographical allocation of new money is made worse by the higher poverty rates experienced by rural areas of the U.S. The individuals afflicted the most by poverty are the ones who suffer the most from price inflation. Serving to substantiate the consequences of Cantillon Effects as a form of regressive taxation. By the time the rate of inflation has caught up to consumer goods, the government has already funded the programs the politicians wanted to implement. Those with institutional ties closer to point of entry have already invested or spent the money before inflation is reflected in higher nominal costs of consumer goods.
Time to Restore the Gold Standard- Part III
One of the defining arguments for justifying a gold standard is that it guards against inflation. What is inflation? Inflation is the depreciation in a currency’s purchasing power over time, increasing the nominal prices of goods and services. A gold standard combats inflation due to the limited quantity of gold. The cause of inflation is the introduction of money currency into the economy. Abiding by the immutable law of Supply and Demand, the more of a commodity we have, the lower its value will be, which also applies to money. A principle that was demonstrated in the currency crisis afflicting Weimar Germany. The massive supply of German Marks leads the country to experience hyperinflation. The German mark became virtually worthless as a medium change. At the height of this financial disaster, a loaf of bread cost $100 billion! Right before the German mark collapsed.
The astronomical prices and economic penury caused by hyperinflation is the most extreme outcome of overprinting fiat currency. There are several other less severe consequences of inflation. For instance, inflation reduces the incentives for people to save money. If your savings are withering away by the continuous erosion of inflation, there is no in leaving your money in a savings account. One way many wealthy entrepreneurs avoid the stealth tax of inflation is through investments. Real estate, business startups, bonds, stocks, and securities have the potential to increase in value. In comparison, an inflationary dollar can only decrease in value. The stock market may be a gamble, but hedging on a fiat currency is a losing strategy.
The customer suffers dearly due to the harmful effects of inflation. The most obvious consequence is inflation resulting in higher prices. Functioning as a paradox because one would expect prices to decline because of increased efficiency from technological innovation. Since inflation increases the price of all goods including input the price of consumer goods rises. A continuous increase in the money supply also results in a “cheapen” of consumer goods. Producers feeling the pinch of inflation on productions goods cannot directly transfer these costs to the consumer. However, producers elect to reduce portion sizes or reduce overall product quality. Restaurants using downgrading the grade of meats they serve, readymade food producers reducing packaging sizes, clothing manufactures using less durable fabrics. Not only are we paying more for everyday goods, but we are also paying more for inferior goods!
The inflationary monetary policy enabled by a fiat money standard impacts more than thrift and prices. Money creation being disconnected from the constrain of fixed assets backing the currency has led to several troubling practices in macroeconomics. One of the most notable examples has been the manipulation of interest rates. Typically interest rates are artificially lowered to encourage consumption during economic lulls. Achieved through expanding the money supply, with the injection of liquidity it becomes less expensive to lend money (remember the concept of supply and demand). Even exponents of this tactic acknowledge that this alteration to the interest rate is only temporary. Interest rates below the market rate are unsustainable. Influencing people to makes investments that they cannot afford at natural interest rate levels, creating economic bubbles. Those who can no longer afford the real interest rates end up defaulting on their investments. One of the most salient examples in the recent history of such disastrous collective malinvestment was the 2008 Housing Crisis. The housing market and adjacent industries were decimated by the burst bubble. Overall, resulting in over 2 million foreclosures in 2008 alone. Demonstrating the hazards of institutionally endorsed market distortions that could only be executed on a pervasive scale under a fiat currency standard!
The tight constraints of a currency pegged to a precious metal have often been expressed as a concern. Frequently, being used as an argument against a gold standard. Particularly the need for liquidity during a supply shock. It could be theoretically justifiable to have some flexibility in the money supply to fund unexpected expenditures. One example being emergency funding for implementing measures to combat COVID-19. However, the purse strings have been loose for decades. Featuring only brief periods of modest austerity measures implemented. The inexhaustible need for more government funding has developed into a deeply rooted dependency. That not only adversely impacts the character of our governing institutions but also that of the citizens. The people begin to demand more entitlement programs. Typically, with little regard for the costs of such initiatives. Arguable making inflationary monetary policy cleverly camouflaged form of fiscal illusion. The American people already have social security and several other federal entitlement programs, but this is not enough! Now universal health care and free college tuition are mainstream policy talking points. Illustrating America’s growing and insatiable appetite for publicly-funded entitlement programs. Simultaneously, displaying the hideous character flaws of thievery, profligacy, and gluttony.
Time to Restore the Gold Standard – Part II
Many arguments are defending maintaining a monetary regime centered around fiat currency. However, what are some of the justifications for returning to a gold standard? The current money creation operations guided by the Federal Reserve do not serve the best interests of the American people. Even in monetary regimes that utilize constraining rules such as Nominal GDP Targeting, this only limits the amount of percentage of debasement allotted per a specified time frame (typical a year). But this does little more than slow down the accumulated rate of inflation. Although, such a measure is reflective of overall annual economic growth. Despite the fact production has become more efficient, we still experience an increase in nominal prices year over year. The concern is expressed in George Selgin’s monograph Less Than Zero (1997).
Overall, very few people benefit from the inflationary monetary policy enabled by fiat currency. The concerns regarding liquidity and deflation under a gold standard may have some validity. These concerns are not pressing enough to justify a fiat standard. Inflation reduces the incentives to save money, making it an opportunity cost to holding U.S. Dollars in your savings account. At least investing your money in stock, bonds, real estate, or even cryptocurrencies has the potential of positive return. Whereas Dollars only stand to decrease in value. Various talking heads posturing as financial gurus (Dave Ramsey) tell you to save, save, save! Given the current state of modern monetary policy, there is little incentive to do so. Countries such as Japan have implemented negative interest rate policies eviscerating any incentives to save. Under such conditions, even frivolously sinking money into consumer goods and entertainment may serve as a strategy to hedge against inflation.
The core arguments for why we should return to a gold standard include: avoiding inflation, Cantillon Effects, and more stability. The concern of inflation is self-evident, along with Cantillon Effects acting as an abstract form of regressive taxation. The last argument may seem counterintuitive because there is a well-perpetuated myth about the volatility in the value of gold. In the absence of hard constraints, monetary institutions can keep producing money with impunity leading to hyperinflation. Also, if gold is unstable, would Alan Greenspan even attempt to emulate such a standard while heading the Federal Reserve? Unfortunately, his fidelity to this endeavor is questionable.
Time to Restore The Gold Standard- Part I
August 2021 marks the fiftieth anniversary of the Nixon administration ending the Bretton Woods Agreement. The conferenced strived to establish a stable global monetary regime in the post-World War II era. Through centering fixed exchange rates around a gold-backed U.S. Dollar. The U.S. permanently closed the gold window in 1971. A gold standard made the money supply inflexible, thus making it impossible to fund the Vietnam War and other government initiatives. Instead of tightening spending when faced with a lack of gold reserves. Nixon declared us all Keynesians, forever divorcing the U.S. dollar from gold for good.
The Bretton Woods Agreement was not flawed. A clear departure from the classical gold standard (1834-1933) in America; it was still better than a pure fiat standard. The fixed supply of gold in the vaults provides hardline constraints on inflation and government spending, a lesson learned by cryptocurrency creators. Limiting the amount of money produced helps it retain its value. Helping us refrain from reducing our currency to being a worthless piece of “Monopoly money” (think Weimar Germany). Some argue that the threat of hyperinflation in the United States is hyperbole; it is crucial to remember how much the dollar has depreciated since eliminating the fixed-gold standard. Since 1971, the dollar has suffered from a rate of cumulative inflation of 570.90%! Now might be the ideal time to start arguing for a return to the gold standard. This argument is not merely a knee-jerk reaction to the 2008 financial crisis.
Bootleggers and Baptists-XVIII- Fiat Currency
August 15th marks the fiftieth anniversary of the end of the Bretton Woods agreement. An economic treaty was forged in July 1944 with delegates from forty-four countries converging upon Bretton Woods, New Hampshire. Effectively establishing a global monetary regime where the U.S. Dollar was the reserve currency and was backed by gold. However, this was not the same gold standard that existed in the classical gold period ending in 1933 (p.1). A quasi-gold standard where government institutions (central banks) held the price of gold at a fixed amount (p.17). In the efforts of creating a “.. fixed currency exchange rate system..”. Even after this thin attempt to revive the gold standard imploded on itself, its vestiges still exist today. Banking institutes such as the IMF and the World Bank were established to manage this fixed exchange rate system.
In August of 1971, President Richard Nixon forever severed the U.S. Dollar from Gold. By abolishing the Bretton Woods system. Terminating gold convertibility of the dollar. Essentially setting the stage for the modern global monetary landscape; a 100 % fiat currency standard. The Nixon administration panicked by the lack of gold reserves to cover various rounds of foreign aid and wartime spending decided to terminate the agreement. Succinctly expressing this coercive declaration in the infamous proclamation “.. We are all Keynesians now..”. Officially signaling the formal death of the gold standard. Even though some commentators and economists view the end of Bretton Woods as more figurative than literal death as it truly died at the end of the classical period of the American gold standard.
It can be stated that the dollar significantly depreciated in its purchasing power since the end of Bretton Woods. The dollar experienced an approximate cumulative rate of inflation of 570.9% since 1971. One U.S. dollar in 2021 is equal to $6.71 dollars in 1971! These numbers are unquestionably jarring. It is easy to see why there has been a renewed interest in re-establishing a gold standard since the 2008 market crash. An initiative that has led to a modern renaissance for Austrian Economics. Also, has lent itself to supporting the activism of the Tea Party movement and the political career of Ron Paul. Despite the spirited rallying of the pro-gold camp, the Federal Reserve still exists. Our currency is still nothing more than monopoly money. That only continues to plummet in value. There are many defenders of a fiat currency standard within the political establishment. Ranging from journalists to the wonkish economists and experts exalting the virtues of stable money and currency liquidity. Much like another policy prescription, there are always silent beneficiaries lurking around the corner.
The Bootleggers and Baptists of Fiat Currency
The Public Choice economist Bruce Yandle provided us with the perfect framework for analyzing the odd couple coalitions of modern monetary policy. That is the powerful lens of the Bootleggers and Baptists paradigm. One-half of the coalition acts as the moralizing agent, providing a normative defense of the policy position. In contrast, the Bootleggers quietly reap the benefits of the policy’s consequences. In terms of maintaining the status quo of fiat currency, the Bootleggers and Baptists should be quite obvious. The Baptists are clearly the commentators, academics, journalists, etc. stressing the benefits of fiat currency. Conversely, emphasizing the dangers of a gold standard. Some of our fiat currency Baptists include several luminaries in the fields of journalism and economics. Including Ezra Klein (former Washington Post editor and co-founder of Vox) and Tyler Cowen (chairman and faculty director of the Mercatus Center) (p.2 & 6) [1]. Both gentlemen are far from the only detractors when it comes to re-establishing a gold standard for currency. However, they are respected and high-profile dissenters. Carefully pointing out some of the potential hazards of implementing a gold standard. Arguments including price stability, liquidity issues, deflation, and rigidity in the money supply to just name a few concerns (p.3-20). All these concerns (regardless of their veracity)[2] could be classified as normative concerns, despite these arguments being functional in nature. Through adopting a monetary policy that would be detrimental to the economy, it would be placing the livelihoods of people globally in jeopardy. This concern for the wellbeing of others could be categorized as an ethical concern, making both individuals and their like-minded cohorts Baptists.
The Bootleggers would clearly be the federal government and all adjoining agencies. If you remember early, I mentioned that the main reason for ending the Bretton Woods agreement was that a gold standard was too rigid. Effectively placing a firm constraint (at least in theory) on government spending. By its very nature, a gold standard is quantitively tighter than a fiat system because you can only print redemption notes corresponding with the number of gold reserves on hand. While not ideal, even a fractional reserve gold standard would operate as a better limitation [3] than a pure fiat currency. Not having flexibility in the money supply keeps government spending in line, preventing the implementation (or expansion) of federal entitlement programs and unnecessary military conflicts. Through lifting this hardline limitation, the federal government is no ability to have ability to spend more money. This means more jobs/ job security for bureaucrats. This also means greater opportunities for various pork-barrel pet projects and other superfluous initiatives. Not to mention more perks for public sector employees.
Yes, the Federal Reserve has implemented various monetary rules to attempt curtailing inflation. One example being Nominal GDP Targeting, set up in an attempt to narrow the risk of inflationary volatility. However, such a policy does little to improve the overall longitudinal currency debasement that has accumulated over the past five decades. An over 500% loss in purchasing power is a shocking figure to come to terms with. Nominal GDP Targeting only slows down this process, it does not prevent it.
Foot Notes
- I would have included George Selgin. However, being an exponent Free-Banking, he prefers a centralized monetary system. Selgin has been a longtime critic of the United States returning to a gold standard. Often citing the concern of the inflexibility of the money supply in the event of a supply shock.
- Free-Banking co-founder Lawrence H. White demolishes these arguments in his paper of the Cato Institute, Recent Arguments against the Gold Standard (2013).
- This claim would hold true providing the proper monetary rules are implemented. For example, having high reserve ratio requirements. Current reserve requirements are dismally lax. Back in 1992, reserve ratio requirements were lowered to 10 percent.
Inverted logic 