It might be useful to explain the difference between 'non-currencies' and 'currencies'.
Regular currencies are also imagined-up things which have only a few practical differences. The one difference is usually various government contracts/taxes are only payable with specific currencies and therefore have value because they are 'needed' to pay obligations.
Well, usually with state currencies, their worth is directly tied to the states ability to levy taxes (which is often very real). With independent currencies, no such obligation exists.
Their worth is not tied to the government's ability to levy taxes. The currency's advantage over others may be that the government only accepts that form of payment but that still doesn't give the currency value.
Look at any country with hyperinflation that still collected taxes and you'll see the true worth of the currency. The government's backing of a currency, even through taxes, does not inherently give it value as we've seen before.
One description I saw said that while it's not really part of the definition of a currency, useful currencies are usually issued by a state because tax payments provide a built-in base of demand.
Currencies generally have value because people are forced to pay tax in them. I started trying to write something witty, but there really isn't anything else to add.
Taxation does create demand for government currencies, but it doesn't necessarily make it more usable in commerce. You could do all your transactions in other currencies, and only convert to the tax currency when you need to pay taxes.
The ability to pay taxes with a currency is indeed one of the reasons people will demand that currency, but this doesn't mean its value is maintained by the government. History has shown repeatedly that a currency's value can collapse while people are still required to pay taxes with it.
The difference is the currency value due to demand and recognition as a legal tender. It's a token of recognition that other parties do need your goods and services and hence are backing your currency. You can ask yourself a similar question to get an intuition about it: what's the difference between IRS accepting payments in Bitcoins or dollars vs accepting only dollars?
It's the same when currencies around the world stopped using the gold standard and became floating across each other.
I'd say the value of currencies is that you have to pay your taxes in one that is legal tender. In that case, the value of Eth is that you have to pay transaction fees in Eth. You decided how valuable those transactions are.
Heh, good point. I suspect that one of the features of these currencies is that they're not taxed in practice, even if the letter of the law says that they should be(?)
"Money is purely a social construct. It only has value because people collectively find it useful. There is no backing."
You're missing a very important point: US dollars are special because they are the only thing accepted to pay US taxes.
No matter how valuable of a thing you own - gold, euros, a truck full of mona lisas, shares in TSLA ... it will not be accepted as payment for US taxes.
Understanding where the value of money comes from and what it is actually used for and what the nexus is between financial entities and physical force ... it all starts with understanding what it means that the government will not accept anything from you, no matter how valuable, for payment of taxes other than the currency it issues.
No, they are not currencies, they are payment methods for dollars. A note that you owe someone some amount of dollars is entirely different from saying, repeatedly, in advertisements, that you're an "alternative currency".
The entire concept of currency is that there's a single shared medium of value used for exchange. "Competing currencies" is an oxymoron. Plus, once the government decides which currency is used to pay taxes or to pay damages after a civil suit, you're pretty much set.
Normal currencies are backed by sovereign governments, are controlled by regulatory regimes, and don't get pitched as a way of anonymizing transactions/avoiding government interference in shady dealings.
Regular currencies are also imagined-up things which have only a few practical differences. The one difference is usually various government contracts/taxes are only payable with specific currencies and therefore have value because they are 'needed' to pay obligations.
reply