Currency Wars¶
Currency wars represent the modern evolution of currency debasement into the realm of information warfare, economic sanctions, and digital monetary competition. As money has transitioned from physical commodities to digital data, the battleground for currency dominance has shifted from mints and treasuries to cyberspace and information networks. The history of money, traced through the Agrarian, Industrial, and Information Ages, reveals that monetary policy and its effects on currency have always been intertwined with the nature and objectives of political and economic warfare.
Money Across the Ages¶
In the Agrarian Age, the pursuit of wealth was achieved through territorial expansion for resource acquisition. Kings, emperors, and warlords aimed to conquer and control territories to increase their wealth and power. The weaponization of food through siege warfare was prevalent: agrarian societies dependent on food were starved into submission. Monetary policy as understood in modern terms did not exist, but the acquisition of resources and wealth through warfare was closely tied to economic prosperity through controlling fertile lands and storing wealth in precious metals.
In the Industrial/Manufacturing Age, warfare was directed at destroying the means of production and distribution. Kinetic warfare meant that weapons produced in factories were used to destroy other factories that produced weapons. Central banks and governments issued debt, printed money, or raised taxes to finance conflicts. Funding a conquest could be much easier if money were simply printed out of thin air -- and so it was.
With the Information Age, we enter a realm of virtual money based on data and bloodless warfare based on the corruption of information. As Elon Musk put it, "Money is just data that allows us to avoid the inconvenience of barter." Warfare in the Information Age manifests as asymmetric conflict with the goal of information superiority. If money is just information, then money is now simultaneously an objective and a weapon.
The Tenets of Money¶
The currency regimes of the past share common tenets that remain relevant:
Good Money: Currency must have all the properties of good money, or it will fail. One study of 775 fiat currencies found the average lifespan to be just 27 years: 20% failed through hyperinflation, 21% were destroyed through war, 12% through independence, 24% were "monetarily reformed," and only 23% remain in circulation.
Acceptance: Acceptance plays a crucial role in giving money its value. Network effects are a key mechanism: the dominant currency is the one with the most users supporting the largest economic networks. Feedback loops create size, and size creates value through convenience, establishing a Schelling point and lock-in. Once dominance is secured, it is practically unbreakable.
Work: Money, in any form, must represent work to have value. The work can take the form of physical labor, energy expenditure, productive output, or information containing value about work itself. If money is issued without corresponding work -- or if its face value is less than the value of work it embodies -- it is cheapened or counterfeited. Money can be issued based on future work (lending), so long as the present value of that work is consistent with the value of money created. If the data is modified in a way that dilutes the economic value of work represented, the money is debased and inflation is the result.
Congruence: The money supply must align with the size of the economy. The principal problem with gold is that there is not enough of it to support the global economy -- it cannot expand enough to match growth. Bitcoin will eventually face this same limitation. Consequently, these currencies suffer as media of exchange but excel as long-term stores of wealth. The problem with fiat currency is the opposite: it expands too quickly.
Natural Self-Interest: Gresham's Law is a formulation of natural human behavior. In a multi-currency system, individuals evaluate currencies based on perceived value, stability, acceptance, and potential for appreciation. If no exchange rate is fixed by law, people adopt good money and shun bad money. If governments fix exchange rates, people hoard good money driving it from circulation. There are no examples of this policy's success in the entire record of human history.
Inflation Creates Wealth Disparity¶
Keynes warned that inflation by debasement "impoverishes many... enriches some." Copernicus scolded the Prussian government's debasement for worsening impoverishment of the lower classes. Gresham, Thier, Franklin, and others expressed the same sentiment -- they witnessed it firsthand.
Money debasement is a vacuum that sucks wealth from the lower classes and deposits it in the coffers of the rich. The poor must use more money to buy fewer goods of necessity, while the wealthy benefit from increased indirect seigniorage that debased currency brings.
Cycles of Debt Beget Violence¶
The cycle of debt, debasement, revolution, and currency reform is a recurring pattern. It begins with the accumulation of unsustainable debt, which strains the economy. Governments resort to debasing the currency, diminishing its value and eroding public trust. Debasement leads to socio-economic discontent, and rebellions follow as people demand change. Currency reform becomes necessary to restore stability and rebuild trust.
Rational thinkers will state that government debts are repaid through either taxes or inflation. This is incomplete. Taxes and inflation only delay the reckoning. History says the debt serving as bad money will be repaid with blood by future generations. One strains to find exceptions.
Debt: The Debauchery of Currency¶
In 2023, U.S. government debt stood at $33 trillion with approximately 4.5% interest. The interest accumulating over 10 years amounts to approximately $17.5 trillion -- $4.8 billion per day. The total net worth of all U.S. billionaires ($3-4 trillion) could service just one to three years of interest payments. The per capita debt burden of approximately $99,000 represents about 10% of gross income over a 40-year career -- manageable via taxation. But debt grows at 7.9% per year while population grows at 0.5% and incomes at 4.5%. The individual burden doubles as a percentage of income approximately every 20 years.
This trend is unsustainable. Taxation in excess of 50% is impractical. How will the debt be paid? Mostly with currency debasement in the form of money-printing inflation. It is a mathematical certainty. As Keynes wrote, "The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose."
Information Warfare: The Next Frontier of Currency Debasement¶
As digital currencies rise, the battleground for currency success has shifted to information warfare. Competing digital currencies, including Bitcoin, face erosion of acceptance through tactics employed in the information landscape. Governments utilize mainstream media to associate Bitcoin with illicit activities, volatility, and economic instability. They enact regulatory barriers, impose stringent reporting requirements, or ban certain cryptocurrencies outright. By targeting exchanges, financial institutions, and businesses that facilitate digital currency transactions, they undermine the infrastructure necessary for widespread acceptance.
These actions amount to a debasement of digital currency by striking at the indirect seigniorage and perceived quality held by those systems. Central Bank Digital Currencies (CBDCs), issued and regulated by central banks, have an inherent advantage in credibility but also represent an unprecedented tool of financial surveillance and control.
The Nigerian CBDC Disaster¶
On October 25, 2021, the Central Bank of Nigeria introduced the eNaira -- the first CBDC in Africa. Months prior, the CBN had forbidden banks from supporting cryptocurrency transactions, despite Nigeria having the highest cryptocurrency usage globally (roughly one-third of the population). Nigeria's persistent inflation (often 10% or more) and currency devaluation had fueled crypto adoption.
To force adoption, the CBN pulled 1.9 trillion naira of old notes from circulation, replacing them with only 300 billion new notes -- the gap was supposed to be filled by CBDC adoption. One year after launch, less than 0.5% of Nigerians were using the eNaira. The government imposed limits on cash withdrawals: 100,000 naira ($225) per week for individuals, with ATM withdrawals capped at 20,000 naira ($45) per day.
The result, consistent with Gresham's Law and the entire history of money, was predictable: traditional cash was hoarded and driven from circulation. For weeks, rioters attacked ATMs, blocked roads, and burned banks in multiple Nigerian cities. At least three people were killed in clashes. The entire debacle demonstrated that when forced to use a central bank digital currency, the Nigerian people opted to burn down the banks.
CBDCs: The Threat to Financial Freedom¶
CBDCs represent what some consider the single greatest threat to individual financial autonomy since Communism. At the push of a button, authorities can impose transaction limits, spending restrictions, or even time-bound expiration of funds. As Agustin Carstens, Head of the Bank of International Settlements, stated: "The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that."
The primary objective of a CBDC is to comprehensively observe and track financial transactions with the intention of wielding influence over behavior through incentives and penalties. In China, facial recognition systems detect jaywalking and automatically deduct fines from digital wallets while downgrading social credit scores. This system is already operational.
When the Federal Reserve sought public input on CBDCs, more than two-thirds of respondents expressed concerns about risks to financial privacy, personal freedom, and banking system stability.
Bitcoin: The Currency of Crisis¶
Of all possible use cases for Bitcoin, none has offered as much value yet been so underreported as its use in times of crisis. In 2023, the combined population of the ten countries with highest inflation was over 400 million people with average inflation of 60%. Venezuela experienced inflation exceeding 60,000% in 2018. Turkey reached 85% in 2022. Argentina exceeded 100%. Lebanon hit 260%.
In these countries, Bitcoin is not just an option -- it is the only option. Gold is difficult to acquire and spend. Conventional financial instruments and banking systems risk failure. Real estate is costly and illiquid. When the price of food doubles every month, Bitcoin provides a means to preserve wealth and income.
In Japan, negative interest rates imposed by the Bank of Japan in 2016 eroded savings, leading people to buy physical safes for cash storage. Against this backdrop, Bitcoin gained popularity -- the Japanese understood it immediately as ledger money given their history with rice brokers and ledger systems. Japan became the first country to officially recognize Bitcoin as legal tender in 2017.
The most compelling case unfolded during the Russian invasion of Ukraine. Nearly $70 million in crypto donations were made to Ukrainians since February 2022, providing vital humanitarian aid. An additional $56 million went directly to the Ukrainian government for wartime capabilities. The Ukrainian case serves as a testament to the transformative potential of decentralized digital currencies in crisis.
The Economic Warfare Frontier¶
The Russo-Ukrainian conflict demonstrated how economic warfare has evolved. The United States and allies implemented sanctions, financial restrictions, and export controls targeting Russia's economy -- disrupting banking, energy, technology, defense, and transportation sectors. Russia, coordinating with BRICS nations (Brazil, India, China, South Africa, and others), has moved to disconnect from the global dollar network and establish an alternative, presumably digital, currency.
Blockchain technology makes such alternatives easier to implement, but multi-currency systems have a history of failure. The struggle between dollar dominance and emerging alternatives represents the latest chapter in a war that has been fought since the first coins were minted -- a war not just over money itself, but over the power that control of money confers.
What We Do in Life¶
Debasement has plagued economies throughout history. However, an educated population that understands its detrimental impact can act as a bulwark against its consequences. New forms of money, particularly cryptocurrencies like Bitcoin, are designed to be resistant to debasement. Transparency in monetary and fiscal policy reduces the potential for hidden manipulation. Financial literacy empowers individuals to recognize warning signs, demand transparency, and hold authorities accountable.
In all likelihood, Bitcoin breaks the cycle of debt, debasement, and violence because it deprives governments of a potent tool through which they have historically gained and wielded power. Perhaps with Bitcoin, "this time is different."