If governments no longer regulated and controlled currencies and exchange markets, it would accelerate existing trends as well as revitalize age-old systems of barter and credit.
Multiple mediums of value, storage and exchange already exist and continue to evolve. Paper money and coins, electronic transfer of fiat money, commodities, real estate, cryptocurrencies, stock exchanges exist and function in many nations, as well as internationally. Exchange and barter systems would split into local, regional and international systems.
People have never ceased trading goods and services directly, without the use of money. Now they are empowered by technology in a hyper-local way as well as around the world. Person-to-person and company-to-company exchange would increase dramatically with the technology platforms that already exist. Simultaneously, capital is international and seeks returns around the world via electronic and paper transactions. If money were no longer regulated, then commerce would likely develop parallel tracks of direct barter/exchange and currency based commerce. Alongside current international capital flows are local commercial and social networks such as Buy Nothing, Offer Up, or Facebook Marketplace. People and companies trade services directly for many reasons, including lack of bank and credit access, as well as regulation avoidance and tax avoidance. If government regulation ceased, these trends would simply continue.
Eichengreen, Mehl & Chitu show in “How Global Currencies Work: Past, Present and Future” that multiple reserve currencies have coexisted in the past, and will continue to exist in the future. The same dynamic will extend beyond government controlled currencies. Since there are multiple systems in a largely regulated financial world, it stands to reason that multiple systems will remain, even if regulation loosened or stopped. That will mean multiple stores of value, multiple exchanges and multiple currencies will continue to exist. “...In a world of multiple international currencies, other governments can similarly issue claims that are regarded as safe and liquid, and that are willingly held as a store of value and accepted as a means of payment by central banks, private financial institutions and nonfinancial corporations in a variety of countries.”1
Regardless of the level of regulation, commercial systems rely on stability and predictability for optimal functioning. See the recent and current examples of countries that rely on other nations for that stability. Ecuador’s adoption of Bitcoin follows several Central American nation’s “dollarization,” where they adopted the US Dollar as their currency. 2 These are all examples, with varying degrees of success, where nations have deregulated or relinquished control of their currency. These experiments reflect the regional devolution that I mention, and they have already shown that nations can adopt or use currencies not controlled by their own government.3
Couple the historical experience of nations using other countries' currencies, or even the transnational Euro, with the rise of “crypto-currencies”, and it seems well within the realm of possibility, if not likelihood, that alternative systems of finance and currencies will grow ever more influential and accepted. Besides the theoretical question of the essay topic, governments will not need to abandon regulation for these trends to continue, forming parallel systems.
Regional economic development and regional systems has always been the historical norm. During the Cold War, the Soviet Bloc formed a massive economic trading zone that was controlled largely from Moscow, without following market forces. It was “regulated” by command and control. While it wasn’t a market driven economic system, it was a system that spanned a large part of the globe and lasted for nearly a half century. I note the historical experience, not because it was a successful system, but simply to point out that systems can exist with or without current modern regulation. This goes for whole economies, not just currencies. An older, yet geographically closer example was during and after the United States Civil War. North America had multiple currencies circulating as the war was still going on, and after the war ended it took a decade to evolve into the Hamiltonian system that is the basis for much of our modern American system.4
In third world countries, as cell phones become more widely available before brick and mortar, financial transactions are taking place wirelessly, with few or no banking or government intermediaries. Technology has already largely supplanted even fiat cash with electronic funds in developed nations. Mobile phone banking in Africa has already taken off. Millions of Kenyans, Nigerians and Ugandans who never visit a bank move “money” via mobile phones. 5
Just as Americans rarely go to the post office or bank like they used to, millions of people around the world “point and click” to shop or “swipe” their phones and cards. The end users and consumers of “money” are ever more divorced from the governments that currently control or regulate them. At the end of every transaction chain, there must be some agreed upon store of value or functionality.
The stores of value, as well as the mediums of exchange, have changed more in the last 20 years than in the prior 200 years. Blockchain technology behind crypto-currencies seems to have solved, or evolved the trust in transactions tracking better than many other systems, but it doesn’t appear to have much success in the financial trust equations.6 7 Look at the problem of lost coins and wallets, as well as the continuing use of Bitcoin in illegal activity and crime.
I do not believe crypto-currencies like Bitcoin are actual currencies. I view them as a different, mainly speculative, asset class. The technology behind crypto has already evolved and is in use widely enough that it must be considered. Blockchain technology will have many applications. It will, no doubt, continue to evolve, and I mention it in the context of this essay which asks what deregulated currencies and economies will look like, because it parallels in many ways the evolution of modern international finance. Dr. Eichengreen details in Chapter 1 of Exorbitant Privilege8 how letters of credit for international trade, from transnational banks, paved the way for international currencies and reserve currencies. Technologies, including blockchain, appear to have upgraded the age-old process of insuring transoceanic cargo and ships to electronic transactions that can be recorded and verified instantly.
Economic and money systems continue to be based on trust and functionality, yet functionality already exceeds trust in many cases. Money is a store of value and a medium of exchange. Many things, like commodities, can store value, as well as appreciate or depreciate. It can be hard to trade houses and titanium, though. Commodities like frozen concentrated orange juice and pork bellies have lots of value to supermarkets and restaurants, but not much for individual people. Catalytic converters are valuable to the owners of cars that use them, as well as to the thieves who steal them for the metals they part out and sell.
The technological revolutions that we have already witnessed, and continue to live through, will continually drive adjustments to commercial and financial markets worldwide. Governments and international institutions continue to be well behind the changes driven by technology and other market considerations. Future changes, loosening or abandonment of regulation for currencies and markets must take into consideration that markets thrive in stability and predictability. Multiple parallel systems will continue to evolve, regardless of the level of regulation. Regardless of a person’s views about fiat money and government regulation, we all have a vested interest in a stable and functional financial system. In many cases, multiple reserve currencies and stores of value will help accomplish that stability. We must be watchful and prepared for the destabilization caused by those factors that technology or bad regulation, or no regulation, propels.
1 Eichengreen, Mehl, and Chitu, How Global Currencies Work: Past, Present and Future (Princeton University Press, 2017) Page 197 2021
8 Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (Oxford University Press, 2011) Pages 14-20