Gold Standard, Bitcoin, Free Banking: The Ideal Money Debate

Gold Standard, Bitcoin, or Free Banking: The Battle for Ideal Money

The question seems like casual dinner talk, but it has been ongoing for 983 days: what is the configuration of ideal money? The starting point is uncomfortable. Those who raise it argue this should be the first topic debated in any society, yet it remains taboo. Everything else, they add, is just discussing curtain colors. The discussion begins with a survey of options ranging from private commodity-backed currency competition to the pure gold standard, passing through bitcoin and fiat with zero printing. This is not a minor debate: it touches on credit, taxes, state planning, and the role of savings.

What is the Gold Standard and Why It Returns to Center Stage

The most repeated proposal is the gold standard. It is defended as the only truth that cannot be manipulated without consequences, ensuring zero inflation. The underlying argument is that money is a medium of exchange and a unit of value; the closer it is to real value and the further from imposed value, the better. Precision of the instrument matters, they say. Bitcoin, conversely, must earn something gold already has: trust.

Criticism arrives quickly. If money is a store of value, people hoard it. It’s like asking for a 500-horsepower car and then complaining it goes too fast. There is also a more practical objection: how does a planner fund strategic sectors without a printer? The answer is uncomfortable: with high taxes or transparent decisions, but not lies. The printer, they claim, is a form of fraud.

The Credit Problem and Free Banking

Gold does not provide credit, which is a problem. The proposed solution is free banking or complementary private issuance. The idea is that credit does not come from savings and that Cantillon effects are temporary and self-purging because there is no lender of last resort. It acts as the car’s shock absorber. With private issuance, they argue, you force the government to defend itself with its gold standard to avoid disappearing.

The objection is that if issuance is not backed, it is counterfeiting, the same system we have now. The response is that without a lender of last resort, those who do it wrong go bankrupt. And if they go bankrupt, they stay bankrupt: no one rescues them. Risk does not fall on society, unlike with fiat. The derived debate—how they are regulated, whether private insurers exist, if users bear the risk—remains open.

Competition of Commodity-Backed Private Currencies

Another current proposes competition among private currencies backed by commodities. Competition forces currencies to become better. Being private eradicates manipulation by profligate politicians. Backing by commodities provides support and flexibility: if it were only gold, major producers would have an unfair competitive advantage and the money supply would be constrained, as in the Middle Ages. With commodities, the supply can expand as needed.

Some go further, proposing competition among free private currencies without mandatory backing. Let everyone issue what they consider and operate. Time and the market would bring the optimal one to the forefront. From this would emerge a basket: some with strong backing and high reserve ratios for locked savings, others highly speculative where money velocity is key.

Bitcoin, Energy, and Other Proposals

Bitcoin appears as an option, albeit with nuances. It is acknowledged that in some countries it is used for payments and taxes, and El Salvador or Palau have adopted it, but these remain exceptions. Trust is the pending issue compared to gold.

There are also more heterodox proposals. One is energy in the broadest sense: you are energy, it is argued. The problem is quantifying it as capital. Another is fiat with zero printing: if the money quantity were fixed, there would be no interest rate manipulation or economic cycles with political objectives. The currency would be deflationary, which is how paper should be, since it is only credit.

Monetary Expansion and Deposit Theft

The shared diagnosis is that the problem is monetary expansion. To stop credit expansion, two things must happen: stop printing and start considering the use of demand deposits as theft, as was considered in Roman law. The reference is Huerta de Soto’s book, which explains this at an accounting level.

The gold standard is defended as deflationary, preventing the State from stealing, because the banking rate stays below the natural rate. Gold’s liquidity, it is argued, is unsurpassable: it is stored and barely used in jewelry. Gresham’s Law says all gold goes into credit, so the claim that there is no credit is a legend. In a poor economy, rates are very high and gold prices equal, because savings are needed.

Where the Analysis Stalls

The discussion gets tangled in a technical detail no one closes: whether private issuance distorts or not a gold standard. Some argue that if all issuance is backed by gold, there is no problem. Others reply that an unbacked currency is nothing—it’s worth the paper—and the same problem exists issuing unbacked paper money as with fractional reserves. The debate on what constitutes a valid private currency is left for another session. And there it stays, exactly there, unresolved.