Money is something that everyone needs, but it is not always easy to come by. The monetary system is complex and riddled with issues, from inflation and unpredictable monetary supply to corruption and middlemen. With the ever-growing demand for money, these issues have become more pronounced and have caused a variety of problems, including the Cantillon effect, fees, censorship, devaluation, confiscation, the unbanked, and lack of transparency. These issues have been around for decades, but with modern technology, there may be ways to address them and create a more stable and secure financial system. In this article, we will explore the various issues associated with the monetary system and discuss potential solutions.
Inflation and unpredictable monetary supply
When the amount of money circulating in the economy outstrips the demand for it, inflation takes place and this has been a persistent problem in the financial system over the years. It occurs when the government prints more money than what is needed in the economy. When this happens, the value of money decreases, and this is detrimental to the economy. If a country has a high inflation rate, people will put off spending and the economy will drop. Inflation is difficult to control, but it is possible, and countries have done it in the past. In the U.S., the inflation rate, as well as the monetary supply, was highly volatile. This was due to the gold standard, which gave the government no flexibility when it came to printing more money. When the gold supply decreased, the government could not create more money to stimulate the economy.
Corruption and middlemen
When money is transacted through a middleman, such as a bank or a financial institution, there is no way to avoid paying fees. When money is held in the bank, the bank charges a fee for the service of safekeeping the money. If the money is spent, the bank will charge a fee for withdrawing the money and transferring it to the payee. These fees are charged for a service, but there is no guarantee of good service, and the fees may be too high or unfair. Corruption is also a problem in the monetary system. The government may print more money than it should, and the money may be used for illegal activities or go to government officials for bribes. If the government prints more money to fund wars, fund a space exploration mission, or fund a project that is wasteful, that money will lose value, and the country will suffer.
The Cantillon effect
The Cantillon effect occurs when money is transferred from one part of the economy to another. For example, when the government prints more money, money is transferred from the banks to the government, and the banks have less money. The banks then have less money to loan out, and businesses are unable to get money they may need to expand their business. Simultaneously, the government has additional funds to allocate and may amplify investments in the economy. This will bring money to various industries and may create more jobs. However, not everyone will see an increase in their income or a rise in jobs. The government may spend their money on programs that are not helpful. The government will also spend their money on items that are not necessary, such as unnecessary wars.
The unbanked and lack of transparency
Everyone needs money and most people need more than they have. The unbanked are people who do not have access to a bank account. A lot of these folks are employed but do not possess the necessary paperwork required to establish a bank account. This means that they are unable to receive payments into their account and/or pay others who do not have bank accounts. Because the monetary system is mostly centralized and the banks hold most of the money, it is very difficult for the unbanked to access money. This is especially true if they work in the informal economy and do not have the necessary documentation to open a bank account. This is problematic because the unbanked people are unable to access the money that they have earned.
Potential solutions for the monetary system
In order to create a more secure and transparent monetary system, the government may need to relinquish control over the money supply, which will be a difficult task. One solution is to implement a new monetary system that is decentralised and peer-to-peer. Such a system would not rely on a central authority, but the money could still be secured through the use of smart contracts. Another solution would be to improve the existing monetary system by using a type of cash that is not physically printed. The government could issue digital money that can be transferred between individuals, businesses, and government entities. A third solution would be to create a monetary system that is based on the internet, i.e. blockchain technology. Blockchain technology can be used to create a decentralised and transparent monetary system where all transactions are recorded.
Benefits of blockchain technology
The advantages of blockchain technology are numerous. It is extremely transparent, secure, and not under the authority of any one entity due to its decentralised nature. Its design is open for everyone to observe, and its decentralised state means that no single person or body has control over it. Because of its decentralised structure, there is no need for a third-party, which allows individuals to transfer funds to each other without any hassle. Additionally, its decentralised nature makes it immune to shutdown by any one nation, regardless of motive. Additionally, blockchain technology is unalterable and secure, making it unhackable since all transactions are encrypted.