If you are looking for an excellent account of the many ways in which Friedrich Hayek shaped the thinking of some inside the broader crypto-money community, look no further than Stefan Eich's essay (a chapter from this edited collection) called Old Utopias, New Tax Havens: The Politics of Bitcoin in Historical Perspective.
The piece did what many previous accounts of Bitcoin failed to do, namely to connect it, through first-rate intellectual history, to the broader neoliberal project that pushed for denationalizing money. (There's actually a funny little clip of Hayek talking about this, with some in the Bitcoin community arguing that this is Hayek's own prediction of something like Bitcoin.)
Stefan has a new book out next May from Princeton University Press (The Currency of Politics: The Political Theory of Money from Aristotle to Keynes). He was kind enough to share an early copy with me in preparation for this interview. Since the book itself delves into many philosophical and historical debates about money, politics, and time, we start our conversation there and gradually progress to the world of crypto.
~ Evgeny Morozov
Keywords: money, time, Keynes, Hayek, Bitcoin, stablecoins
You argue that money and time are intricately related. Moreover, the very notion of fiat money – the favorite target of crypto-enthusiasts – has profound philosophical implications for how we think about the nature of the state, the relationship of its citizens to it, and the very conception of political time. Could you explain the nature of all these philosophical connections between money, time, and the state?
That is indeed the magic triangle: money, time, and the state. And it’s crucial to recognize that all three categories are dynamic and that they continue to develop in entangled and mutually reinforcing ways. Institutional changes concerning the state and money play out alongside profound shifts in how we experience living within time.
One good example for this is the development of public credit in the late seventeenth century and then its rise in the course of the eighteenth century. This is obviously a seminal institutional development in public finance, economics, and politics. But it’s also a profound intellectual and philosophical event. The historian J.G.A. Pocock described it once as one of the most significant but also traumatic intellectual changes of modernity that pointed to something that societies had never possessed before: the vision of a long-term secular future. Public credit temporalized the state which now found itself hanging by threads of credit but also empowered by its new ability to pull in resources across time. Fiat money – that is money backed by the credit, the word, and the tax power of the modern state – is wrapped up in that transformation and it carries within it not only the obvious link to the state but also to language and the future.
So in talking about fiat money today, it’s easy to describe it as “merely” backed by the state but that really fails to reckon with the scope of the deeper transformation as well as the way in which fiat money emerges out of this powerful and mutually reinforcing modern triangle of money, time, and politics. When we say that expectations drive the value of money what we are really implicitly acknowledging is that modern money is inescapably caught up in the temporal politics of the modern state.
You contend that money is the terrain where our different conceptions of the future play out. As such, it’s bound to be an essentially and perpetually contested concept, productive of social and political antagonism. We all know the various visions that the right have of the future – and the role that money (fiat or crypto) would play in it. Somehow, scalability to the global level is always present in such visions. What we get on the left, however, are mostly localist visions, tied to complementary and alternative currencies, and, now, also to blockchain-mediated tokens. There’s, of course, a vague promise that, by means of interchains and DAO2DAO and other mechanisms, some element of globality could still be achieved. Yet, it seems to pale in comparison to the vision from the right. Why do you think it’s so difficult for the left to articulate a technologically-literate – and also global – vision for money? Is turning central banking into a “laboratory of worldmaking” – as you propose in your forthcoming book – one such solution? What would it mean in practice?
I’m not sure I have the answer for why it’s so difficult for the left to articulate a compelling global vision for money. But I think it’s unfortunately absolutely correct as an observation.
As a starting point, I would perhaps point to the kind of history set out in Quinn Slobodian’s Globalists, which captures the way in which it was neoliberalism, after all, that cast itself in the mantle of globalization – and in the process also defined globalization in economic and financial terms. The left has found itself contesting this kind of globalization, but it has been much harder to articulate alternative visions of left internationalism after 1989. And it’s not clear that cosmopolitanism has been able to fill that gap, certainly not on the money question.
I would want to add to that historical point the genuine philosophical difficulty of thinking through the possible meaning of democracy beyond the nation-state. We are still laboring under the mismatch between our domestic democratic institutions and the global nature of capital. Any left vision for global money would have to overcome that contested impasse.
It is precisely for these reasons and in light of the enormous obstacles in our way that I find the idea of creating “laboratories of worldmaking” so productive. Not because we have all the answers, but because we don’t. We can’t even be sure we know the right questions to pose. So it is in laboratories – institutional and intellectual ones – that we need to engage in playful experimentation.
And I think one obvious place to start is by thinking of central banking as one such possible “laboratory of worldmaking.” Most immediately, that would mean creatively considering how we can democratize central banks domestically. But in doing so, it would be tragic if we simply end up pitting one national central bank against another. Instead, we have to explore the place of central banks – and indeed of a central bank of central banks – in a more global vision of democracy. The one thing that is clear is that the current global monetary non-system fails us and that we ought to try to improve on it.
Now I don’t kid myself to think that we will see some kind of Bretton Woods 2.0 anytime soon, or that the Bank for International Settlements in Basel can be turned into a democratic vanguard of global solidarity. But we have to pose the question and we have to be open to more institutional experiments. I don’t have a ready-made recipe in my drawer for what the solution would look like. But I do think appreciating the political logic of Keynes’s bancor proposal that was rejected in 1944 is not a bad place to start. If only because it can point us to the constraints of our moment. I also take inspiration from those – such as the 1980 Arusha Initiative – who have in the past called for the need for a more democratic founding of the global monetary order. It is tragic and unacceptable that these calls have fallen on deaf ears.
Our own impasse today is arguably even worse than the crisis of the late 1970s. Even as we go back and marvel at Keynes’s bancor or recover the Arusha Initiative, we find ourselves today in the midst of a violent storm of essentially unconstrained global capital mobility and climate catastrophe. And yet it is precisely this – the globality of our problems from climate to currency – that makes it absolutely inevitable to think about what new democratic solutions and new left global and international visions could look like that would be able to rise to the challenge. We have to embrace experimentation as an acknowledgment of our lack of answers at the moment.
Of the several thinkers you discuss in the book, it’s Keynes who seems to offer the toolkit to imagine a new kind of leftist globalism, at least when it comes to its monetary preconditions. You write that while he was broadly in favor of depoliticizing money, he also understood that depoliticization could only function if supplemented by repoliticization where necessary. Could you explain this dynamic a little bit more and also reflect upon what the lessons that Keynes holds for today’s monetary interregnum, as you yourself describe it?
Keynes is an absolutely fascinating thinker. He is just so extraordinarily capacious and playful in the way in which his thoughts explore and grapple with any kind of problem in a fluid manner. It sometimes reminds me of the tentacles of an octopus exploring an unknown object from all possible sides. To paraphrase a quip by his wife, the Russian ballerina Lydia Lopokova, Keynes’s mind was even more flexible than her legs!
I’m actually writing more on Keynes’s political thought now but in The Currency of Politics I am particularly interested in his evolving political theory of money. Keynes undertakes this extraordinary multi-dimensional balancing act between various positions that one would normally take to be antithetical. But he thrived on these seeming tensions – how to productively navigate the conflicting demands of democratic politics and capitalism; how to negotiate between the need to assert discretionary political control over things like money, and an appreciation for the powerful effects that money can achieve when it operates seemingly beyond politics.
Moreover, Keynes is doing all this not just domestically – asking how capitalism would have to be governed by individual governments in order to make it more compatible with mass politics – but also globally. How would one have to design global institutions of economic governance in a way that accepts the conflict inherent in politics but comes up with ingenious political solutions to politics. Never pitting politics against economics or economics against politics but always thinking about their fluid interplay and interdependence. I should say that I wouldn’t have been able to appreciate any of this without having Adam Tooze as an extraordinarily generous mentor, interlocutor, and friend. This is the Keynes I first got to know through him!
And I do think that there is an enormous amount to learn from this, not least because so much of Keynes’s actual thought is infinitely richer, less known, more challenging, more radical, more troubling than what has come to be known as Keynesianism.
Now I don’t want to hold up Keynes as the key to a new kind of leftist globalism, let alone to portray him as someone straightforwardly on the left. In many ways, his globalism can make him look much more like an ensemble member of Slobodian’s clique of neoliberal globalists. Moreover, it was obviously no coincidence that Keynes’s bancor proposal was extraordinary congenial to the struggling British imperial system.
But Keynes understood a couple of absolutely crucial things about how money, time, and modern politics operate and how their respective relations can be calibrated to reflect radically different political projects. Moreover, these projects can entail new visions of globality that we can point to beyond empire and the nation state, while articulating a critical assessment of a different kind of globalization that points beyond the neoliberal dream of “encasing” democracy and instead embraces new makeshift laboratories of democratic governance. This will not only be crucial if we want to tackle the shortcomings of the global monetary system but also if we want to get serious about acting collectively on climate change.
One of the key arguments of your book is that, over the last few centuries, money has gradually become invisible in political thought, so that, by the time we arrive at the financial crisis of 2007-2008, we didn’t even have adequate political theories (on either left or right) that would link money to political institutions. Could you explain the reasons for this invisibility? Who are the main culprits? Would you say that money has suddenly become more visible after the crisis? If so, apart from your own work, what kind of intellectual resources are now available to make sense of the politics of money?
I think it is important to first of all flag the way in which your question helpfully refers to the invisibility of money in political thought. That is exactly right! Money is never beyond politics, nor was money beyond the confines of political thought. But looking backward it can sometimes seem that way, especially in periods of apparent stability.
So what I was interested in exploring in the book were not just the moments of crises, in which the politics became violently visible, but also the ways in which political theories of money could – and did – paradoxically contribute to the politics of money becoming less visible. This is something that is perhaps most explicit in the case of John Locke, who in the late seventeenth century argued on political grounds against the ability of governments to interfere with the monetary standard. Now that political argument is so successful that it almost ends up erasing its own political quality. By the time Adam Smith is writing, a little less than one hundred years later, it’s common to praise Locke for his defense of “sound money” but to insist that this was not so much a political argument but one that simply respected the “nature” of monetary value. Locke’s argument obscured its own logic when successful! And I think we can detect traces of this kind of position, this kind of political argument for the political invisibility of money, in much of nineteenth-century liberalism and its long shadow into the present in various shades of libertarianism and economic conservatism.
Nor has the left been entirely immune either to an analogous paradoxical elision. The Currency of Politics emerged originally out of me following the footnotes in Marx’s Capital, where so much of the history and theory of money is buried. And in doing so, I ran into the observation that it was through a study of the political history of money and through vicious polemics against the monetary reform proposals of French utopian socialists that Marx ended up arguing against the political possibilities of monetary politics, both monetary reform and what we would call monetary policy. But Marx’s roots in the politics of money are easily missed. Over time his argument instead easily morphed into an elision of the politics of money tout court. Solely focusing on the capitalist mode of production could easily mean ridiculing any attempt to reform money or have a different monetary policy. Just as with Locke, what had been itself a political argument (steeped in the political history of money and the history of monetary thought) contributed to the invisibility of the politics of money on the left, which simply wasn’t too interested in the inner workings of central banks. But as Marx himself acknowledged, one can obviously insist that even the most ingenious monetary reform alone could never amount to an overcoming of capitalism and nonetheless appreciate the way in which monetary politics was a core aspect of politics and class struggle under capitalism.
So, in short, I think there is on a certain level of abstraction an interesting parallel between Locke and Marx. Not because Marx was a Lockean or because he was somehow enamored with the gold standard. That’s bogus. Marx’s account of money is very subtle and complex. Moreover, whereas Locke pointed to the limits of the politics of money positively, Marx’s observation was precisely critical. But if we look at their respective effects – if we look at the long shadows cast by Locke and Marx over subsequent disciples – I think we can detect two parallel elisions of the politics of money that still hold some sway over us today.
There have been many efforts to oppose fiat money in history; today’s moment doesn’t feel so exceptional to those well-versed in financial and economic history. Yet, somehow, the intensity of today’s anti-fiat sentiment, backed by the technological capabilities offered by crypto, does seem to create a unique historical situation. Apart from purely technological factors – e.g. the publication of the Bitcoin whitepaper in 2008 – what other big, structural “conditions of possibility” made this historical moment possible? How can we position this anti-fiat sentiment in a long durée kind of view?
Before I answer your question about the conditions of possibility for the anti-fiat sentiment of cryptocurrencies, it’s first of all worth stating that not only have there always been hysteric pronouncements about the fragility of fiat money, but that we might actually want to look at these voices as themselves part of the politics of money.
I obviously disagree with the underlying anti-fiat sentiment and in the book I try to reframe the anti-fiat sentiment as an attempt to de-democratize money. But I am actually somewhat comforted that we are at least no longer in the long 1990s when money was widely seen as simply neutral. At least now we are talking about power, states, and democracy – as well as radically different vision of the future depending on whether we conceive of money as a private commodity or a public good.
Precisely that makes it all the more important to spell out the democratic (or inversely anti-democratic) implications of these divergent political theories of money. That is surprisingly difficult, I think, since we first need to cultivate a new vocabulary for that purpose. It is also deeply frustrating and frequently infuriating. But that kind of disagreement should actually be part of a healthy and inevitable struggle over our shared monetary imagination.
Now in terms of what led to the current moment I think we can point to three factors: First, the long economic malaise since the 1970s with its experience of lagging productivity growth and even more lagging real wages; second, the long shadow of the financial crisis over the past decade with its the perverse logic of the bank bailouts and the realization that neoliberalism failed to point a way out of the crisis of the 1970s; and, thirdly, the global shock of Covid and the monetary measures once more deployed in response in 2020.
The shock of the financial crisis forced many to learn more about the modern monetary system and also the banking system, especially the ways in which banks are tethered to the state, and I think it’s not too misleading to describe the pro-fiat money MMT position and the anti-fiat cryptocurrency position as essentially two divergent outgrowths of that crisis. Finally I would add, via Covid, that the broader moment we are in is characterized by a set of pressing, unresolved questions concerning global governance and the incoherence of the global monetary system that hang over all our debates, from corporate taxation to Covid vaccines to climate politics.
You offer an interesting heuristic to think about the politics of money. You urge us to move beyond the conventional framework of “depoliticization” vs. “repoliticization” of money, pointing out that, in many cases, calls to “depoliticize” money (and, I assume, central banking) are actually carefully concealed efforts to “de-democratize” monetary politics. You thus insist not only that money is always political but that we should be mindful of the politics of monetary depoliticization. We’ll get to the details of your critique of cryptocurrencies shortly but, at this point, could you give us some broad hints as to what kind of politics are embedded in the efforts of the crypto community to replace central banking with mining and minting and smart contracts?
Yes, that is an absolutely crucial point. Rather than speaking about the “depoliticization” or the “repoliticization” of money, we would be much better off appreciating that the politics never goes away; and that, instead, much of what passes as the “depoliticization” of money is better understood as the “de-democratization” of money.
This can help us begin to pierce the ideological smoke screen that surrounds crypto and that is actively fueled by the crypto community. Theirs is a deeply peculiar kind of politics and one that forces us to grapple with the deep incongruities between their outward ideological rhetoric and the underlying actual political logic.
On the level of rhetoric, we can distinguish between two distinct strategies. The first, closely associated with Bitcoin and its early adopters, offers a vision of money not just beyond the state but liberated from all politics. This is the original Bitcoin vision of money beyond trust and hence beyond any form of power or politics. It draws heavily on what Fred Turner has called the anti-political side of the counterculture that morphed into cyberculture over the course of the 1980s. Much of the early cypherpunk vision of electronic money drew on that anti-political strand of the counterculture.
But, and one cannot stress this enough, this is obviously a complete delusion and a very dangerous one. Power, trust, and politics will always form part of money and the same is true for cryptocurrencies, including Bitcoin, as anyone will attest who has spent any time studying them.
From the oligopolistic power of miners, to the associated energy consumption, to underlying questions about the design of the consensus protocol, to disputes over so-called forks in the blockchain, politics and power don’t disappear and their imprints can be found all over crypto.
A second set of strategies essentially grants as much and is no longer wedded to the claim of crypto is beyond politics, but it adds a different perverse twist. Decentralization is on this account no longer presented as allowing us to transcend politics, but instead as allowing for a new democratization of money. Where the first rhetorical strategy is a (self-)delusion, this is a sleight of hand based on a bizarre understanding of democracy. Democracy on this reading is a libertarian fiction opposed to the state and any form of mass politics. Alongside crypto, much of FinTech and decentralized finance today has adopted the slogan of “democratizing money” or “democratizing finance.” Not only is that an empty meaning of democracy, but it’s one that conflicts directly with what political theorists actually consider essential to democracy: namely, forms of collective decision-making based on the egalitarian principle of “one person, one vote.”
Instead of this basic democratic principle, the crypto conception of democracy is essentially the old neoliberal aspiration of “one dollar, one vote.” Contrary to egalitarian conceptions of democracy as a form of rule based on collective agency, the FinTech fantasy of democracy as decentralization is simply the freedom of the strong trumping that of everyone else – only now wrapped up in the gibberish of blockchain-speak.
Hayek’s 1975 address at a London free-market think-tank – expanded into a remarkable brochure titled The Denationalization of Money – made a case for the complete removal of the state from the process of issuing money. Money issuance would, thus, be completely privatized, in order to “protect money from politics.” Before we discuss the influence of this essay on the proponents of Bitcoin and other crypto-currencies, could you give us some context to Hayek’s intervention? What were the historical conditions (e.g. the demise of Bretton Woods, skyrocketing inflation) that made him take such a position – something of a departure from his earlier stance, which still granted the state some authority over monetary matters?
It’s in the context of the Great Inflation of the 1970s that Hayek gives up his prior acceptance of central banking and essentially becomes radicalized. In his 1974 Nobel speech and in his correspondence, one can find him making grand pronouncements about how inflation will lead to the collapse of Western civilization and the loss of the Cold War. For him the perceived stakes could not have been higher!
As important as his change of mind is, however, the change in perception among his audience is probably equally important. By 1976, these kinds of pronouncements – which would have been shrill beforehand – had arrived in the mainstream. In the fight against inflation, politicians had gradually adopted a military language of combatting a skilled enemy and the ground was prepared for Hayek to launch a radical missive that would have been shocking a decade earlier.
All that happens, of course, in the wake of the collapse of the Bretton Woods system and a disorienting new global economic world in which exchange rates are now freely fluctuated. This uncertainty was further compounded by attempts on the part of first OPEC and then the G77-backed New International Economic Order (NIEO) to fundamentally alter global economic relations. Finally, on the level of theory, there is the rather violent breakdown of the postwar Keynesian consensus, which opens the door to radical ideas in economics, such as monetarism, that had been seen as crude and fringe beforehand. Hayek is able to capture all that anxiety and uncertainty when articulating his proposal to rob states of their ability to issue money.
You juxtapose Hayek’s project for denationalizing money with the now mostly forgotten Arusha Initiative coming out of the Global South. It was almost opposite in spirit. Could you describe what it was and what its members were trying to achieve?
Yes, this is almost the complete inverse of Hayek’s call for money to be fully privatized. Many of the G77 countries who in 1974 had been involved with the NIEO began to push in the course of the 1970s for a refounding of the global monetary system. After all, the Great Inflation was not just a phenomenon of the Global North; it hit the South arguably the harder. Furthermore, while many of the recently decolonized countries had not been part of the Bretton Woods negotiations, the Bretton Woods system had at least tied the hegemony of the US dollar to certain obligations and constrained the ability of hot money to flow without constraints.
Where Hayek sees the end of Bretton Woods as an opportunity to complete the privatization and thus the de-democratization of money, countries in the Global South propose addressing the impasse of the post-Bretton Woods non-system by democratizing money on a global scale.
One concrete demand in that direction is put forward in 1979/1980 by Tanzania and Jamaica, two of the first countries to undergo the IMF’s conditional lending and structural adjustment programs. Locked into a political struggle with the IMF, Tanzania’s President Julius Nyerere and Jamaica’s Prime Minister Michael Manley first of all leak internal IMF documents to counter its claims of merely acting as a non-political agent of technocratic adjustment. On top of that, the Arusha Initiative – named after the Tanzanian city of Arusha where the second gathering took place in 1980 – also put forward a set of radical proposals for a new Bretton Woods conference, but now on the floor of the UN General Assembly, where all the recently decolonized countries that didn’t even exist in 1944 during the Bretton Woods Conference would actually have a seat at the table. So contrary to Hayek’s proposal for domestic de-democratization, in the Arusha Initiative we can find a proposal for a global democratic vision of money.
In a sense, the Nakamoto vision was even more radical than Hayek’s, in that Bitcoin sought to remove control over money creation both from the state and from the banking system, entrusting it to a well-defined and regulated algorithmic process. Do you think Hayek himself would be a Bitcoin advocate if only he had imagined the kinds of technological opportunities that would be available? To me, it seems that, schematically at least, and aside from the volatility and speculation, Bitcoin does seem to impose a certain algorithmic discipline that one would previously have associated with the Gold Standard. So, in that sense, perhaps, Hayek himself would be mining crypto now?
During the 1980s, Hayek quickly realizes that his call for the denationalization of money is a political non-starter and destined to become a libertarian utopia at best. He essentially accepts that most states will never give up issuing their own currency and will not allow having privately-issued competing currencies physically circulating. Indeed, in a lecture given to Visa executives in Athens in 1981, he described his own proposal as a kind of “bitter joke.”
But he doesn’t give up on the underlying vision. On the contrary, he insists that what is needed now is a “practical proposal” and he gets very excited about the leeway banks have in creating accounts and creating credit, essentially their ability to create money of account out of thin air. But rather than creating credit in existing currencies, Hayek begins to pitch bank executives the idea that they should consider creating accounts in their own new currency units. There are some extraordinary speeches on this to the boards of London banks from the early- to mid-1980s in Hayek’s personal papers.
In some sense this was merely pushing the logic of so-called Eurodollars even further. In the case of Eurodollars, non-US banks or the foreign branches of US banks issued loans denominated in dollars even though these dollars existed outside of the Fed-supervised US monetary system. If that’s possible, Hayek asked, why not issue them in a new currency unit? Some of his interlocutors immediately comment that perhaps such a new unit should be called a “Hayek.” Hayek himself hilariously insists to the executives of banks in the city of London that he already has the perfect name, and that it would be worth millions of pounds, but that he is being prevented from telling them since intellectual property lawyers had advised him that the name could not be patented. So Hayek places an extraordinary amount of faith in banks as his allies to liberate money from the tentacles of the state and its central bank.
Crypto is fundamentally different in that regards. The crypto perspective is here fundamentally shaped by the bank bailouts of the financial crisis of 2008 – remember that the Bitcoin genesis block includes a headline by the London Times about bank bailouts. In some sense, what the financial crisis revealed to the crypto community – as it did to so many else – is that banks are not strictly speaking private companies, but that they live in close relation – symbiotic or parasitic, depending on whom you ask – to the state. The updated proposal for de-democratizing money in the form of cryptocurrency is directed as much against banks as it is directed against the state.
In your essay on the utopian politics of Bitcoin, you emphasize that both the cryptocurrency but especially the underlying blockchain are radically underdetermined – in that, despite their technological specifications, they can be reinserted into political projects of various configurations, including those involving the state (as we are now observing in El Salvador, where some of the most extreme followers of Hayek and Mises are cozying up to state power, as it wants to use their favorite Bitcoin). Yet, I’m wondering if this indeterminacy is precisely what accounts for the immense political and ideological success of crypto, for the core members of its most radical groupings can always denounce any mainstream adoptions as a deviation from the “true” vision of Nakamoto or Vitalik Buterin or whoever. In other words, it is almost impossible to prove that crypto will most likely simply reinforce existing power structures, as its most radical believers would just say that it would only be so because we are currently not doing crypto “right.” How does one get out of such rhetorical predicaments?
Yes, I think it is important to remember that technology does not have specific politics deterministically built in. Now, of course, it’s not exactly neutral either. Instead, its outcomes and implications are shaped by the power structures in which the technology is embedded and by the ways in which we use technology.
This underdetermination might contribute to some of the ideological obfuscation but I think it actually empowers us politically and helps us to realize that we have more agency than we often realize. From that perspective it’s absolutely crucial to call out regressive and plutocratic attempts to portray deep societal and political changes as somehow the inevitable outcome of technologies. That’s just not true, that's ideology in the purest sense.
Now, that doesn’t rule out that some proponents of such a crude technological determinism are themselves victims of their own ideology. They might genuinely believe this and might even defend their “true” vision against various corruptions. But at this point, it’s helpful to remember that holding up some undiluted ideal that has to be defended against anything that actually exists is, of course, a long-standing trope in the maintenance of ideological purity that allows one to hold onto a utopia even against all evidence. As Polanyi observed with regard to the utopia of a self-regulating market, every piece of evidence that would seem to indicate that the utopia is impossible can be reinterpreted to mean that one simply has to overcome more external obstacles, be even more ruthless. So this is nothing new, we are familiar with this pattern from numerous other examples.
Cryptocurrencies promise a world liberated of institutions but also of basic social mechanisms such as trust; the presence of such mechanisms in the current and earlier monetary systems is presented, rather, as the consequence of human frailty – something to be “fixed” and “solved” by crypto-technologies (in my own work, I describe such redefinitions of enabling mechanisms as technical “bugs” to be eliminated under the concept of “solutionism.”) Yet, you argue that cryptocurrencies are money in name only. Why not? And are there any antidemocratic elements in this striving to avoid all relations and power that animate the crypto community?
It's worth distinguishing here, first, between the early vision of cryptocurrencies and how they have played out so far. Contrary to the early pronouncements by Bitcoin supporters, it’s pretty clear by now that most existing cryptocurrencies, and certainly Bitcoin, have largely failed as money. The irony here is that it is precisely their wild appreciation over the last five years that has sealed their fate as currencies. A unit of account that goes up 5000% or down by 2000% is simply not what you want as your money.
Interestingly, even the Bitcoin community itself seems to largely accept that by now. Most boosterish predictions of Bitcoin as the future of money have by now been replaced by naked advertisement of its wondrous qualities as a speculative asset, able to achieve wondrous returns and, moreover, to the delight of hedge funds, entirely uncorrelated with any other economic activity. That at least provides some conceptual clarity. But the cryptocurrency label continues to protect these speculative assets from some of the regulatory and tax legislation that would have long been applied if they had been perceived as what they are: speculative securities.
The global public seems to be somewhat stuck between two rather unappealing vision: reliance on Bitcoin-like crypto-currencies or going with Libra-like, Facebook-endorsed “stablecoins.” What, in your opinion, is the best case to be made against the latter?
That has to be distinguished from so-called stablecoins which have dropped some of the core features of early cryptocurrencies (such as a decentralized ledger or a consensus protocol based on cryptography). Instead, stablecoins are themselves backed by fiat currencies and are essentially what used to be known as currency boards. On the one hand, this means that stable coins don’t even promise novelty or technological prowess. They are very old fashioned. It’s just a currency board consisting of a mix of fiat currencies put together into a basket by a private corporation. Stablecoins promise the security of fiat money with the ease of an app and, in doing so, they essentially offer a parasitic form of freeriding. Consequently, Ssme economists and regulators have rightly compared them to wildcat banking. These are attempts to benefit from a lack of regulatory oversight while banking on the principle of “too big to fail” in moments of crisis.
But through stablecoins the delusional vision of private money continues to live on. This is a much more serious worry and we are up against a much more serious foe. It is not the privatization of money in the sense of an end of fiat currencies, but instead privatization as freeriding: freeriding on the services, the infrastructure, and the knowledge of the central bank-run fiat money system. It’s a form of freeriding because it’s clear that in the case of any instability – anything that even vaguely looks like a run or a panic of people converting their Facebook Diem tokens back into yen, euros, or dollars – it would be the national central banks that would have to step in and essentially provide liquidity.
There is another twist to this. While initially the promise is that every Facebook Diem token would be backed by one dollar worth of fiat money (or whatever the basket composition might be in the end), one doesn’t have to be a conspiracy theorist to wonder what will happen if Diem actually comes to be accepted and widely used by a substantial share of Facebook’s two billion users. Once it has reached a certain size, a Facebook stablecoin not only becomes untouchable on regulatory grounds as well as “too big to fail” in the case of a crisis. At a certain point of acceptance, it also becomes possible for Facebook to gradually dilute the 100% backing with fiat money. Even a small reduction would essentially mean that Facebook is for all intents and purposes able to print its own money. This is not just some wild speculation. The authors of the original Libra whitepaper themselves included this possibility in their own sketch! They have since learned their lesson in Congress and are no longer so foolish as to actually say this part out loud, but one would have to be extraordinarily naïve to think it is no longer in the back of their mind.
Stefan Eich is Assistant Professor of Government at Georgetown University. His research is in political theory and the history of political thought, in particular the political theory of money and financial capitalism. He is the author of The Currency of Politics: The Political Theory of Money from Aristotle to Keynes (Princeton University Press, May 2022). Stefan is also, with Martijn Konings, co-editor of a book series at Stanford University Press on “Currencies: New Thinking for Financial Times.”