Flash Loans

What is a Flash Loan?

Flash loans are a feature designed for developers, due to the technical knowledge required to execute one. Flash Loans allow you to borrow any available amount of assets without putting up any collateral, as long as the liquidity is returned to the protocol within one block transaction. To do a Flash Loan, you will need to build a contract that requests a Flash Loan. The contract will then need to execute the instructed steps and pay back the loan + interest and fees all within the same transaction.

The interesting thing about this type of loan: It is done without a need of a third party institution. It is a de-centralized transaction. This is a primary appeal of the world of cryptocurrency.

Here is a video describing the concept:

The Difference between a Cryptocurrency and a Token

In the cryptocurrency universe, the terms–cryptocurrency coin and token–are used interchangeably. While on the surface, they appear the same, they are different. Yes, both are digital assets, using the blockchain technology, however, the differences are detailed in this video below.

A hint: Cryptocurrency coin is the native to the actual blockchain protocol(e.g. Bitcoin, and Ethereum, and the like). Whereas a token is built from smart contracts from the original blockchain protocol.

An article to read more about the differences…link here:

Positive and Negative Liberty

Negative liberty is the absence of obstacles, barriers or constraints. One has negative liberty to the extent that actions are available to one in this negative sense. Positive liberty is the possibility of acting — or the fact of acting — in such a way as to take control of one’s life and realize one’s fundamental purposes. While negative liberty is usually attributed to individual agents, positive liberty is sometimes attributed to collectivities, or to individuals considered primarily as members of given collectivities.

The idea of distinguishing between a negative and a positive sense of the term ‘liberty’ goes back at least to Kant, and was examined and defended in depth by Isaiah Berlin in the 1950s and ’60s. Discussions about positive and negative liberty normally take place within the context of political and social philosophy. They are distinct from, though sometimes related to, philosophical discussions about free will. Work on the nature of positive liberty often overlaps, however, with work on the nature of autonomy.

As Berlin showed, negative and positive liberty are not merely two distinct kinds of liberty; they can be seen as rival, incompatible interpretations of a single political ideal. Since few people claim to be against liberty, the way this term is interpreted and defined can have important political implications. Political liberalism tends to presuppose a negative definition of liberty: liberals generally claim that if one favors individual liberty one should place strong limitations on the activities of the state. Critics of liberalism often contest this implication by contesting the negative definition of liberty: they argue that the pursuit of liberty understood as self-realization or as self-determination (whether of the individual or of the collectivity) can require state intervention of a kind not normally allowed by liberals.

Many authors prefer to talk of positive and negative freedom. This is only a difference of style, and the terms ‘liberty’ and ‘freedom’ are normally used interchangeably by political and social philosophers. Although some attempts have been made to distinguish between liberty and freedom (Pitkin 1988; Williams 2001; Dworkin 2011), generally speaking these have not caught on. Neither can they be translated into other European languages, which contain only the one term, of either Latin or Germanic origin (e.g. liberté, Freiheit), where English contains both.

The rest of the analysis can be read here.

The Chinese Philosopher: Huang Zongxi. A Champion for Private Property Rights

by Paul Meany

Huang Zongxi argued for a constitutional model of government designed to benefit all people, not just the ruling class, and which stressed the importance of respecting private property rights.

Many libertarians admire the Enlightenment as the time when early liberals laid down the intellectual foundations on which were built our flourishing modern world. At times, this can lead some libertarians to believe that a system which emphasizes free enterprise, constitutional government, and personal liberty can only be achieved through what is often dubbed ‘western values.’ However, the truth is more complex. The concepts of personal and political freedom were not unique to Enlightenment Europe. People from different parts of the globe, a variety of religions, and across many eras have theorized about the value of freedom and how to best preserve its benefits.

One thinker belonging to this long list of non‐​western practitioners is the Chinese philosopher Huang Zongxi. He argued for a constitutional model of government designed to benefit all people, not just the ruling class, and which stressed the importance of respecting private property rights.

HUANG’S LIFE

Huang was born in 1610 in Zhejing province in China. His father Huang Zunsu was a high ranking official of the Ming Dynasty. Thanks to his father’s high ranking position, Huang was able to study history and philosophy extensively. He was introduced to the scholar Liu Tsung‐​chou, under whom he studied for a number of years. Zunsu’s works show that he was well versed in philosophical matters and did not wholly subscribe to any particular school dogmatically. Instead, he drew from different traditions as he saw fit.

Huang’s father, Zunsu, had opposed the unchecked authority of eunuchs at the Chinese royal court. Indeed, Zunsu died after being imprisoned by his political opponents in 1626. Huang boldly protested the death of his father, at the capital city of the Ming Dynasty, he then returned home to dedicate himself to his studies.

By 1644 the ascendant Manchu Qing dynasty had taken control of the former Ming territories. Huang spent many years as part of a guerilla resistance against the Manchu Qing dynasty which he regarded as foreign invaders. Eventually, Huang abandoned the fight against the Qing dynasty, although he refused to cooperate or take any government positions that he was later offered. Instead, Huang dedicated the rest of his life to studying history, politics, and philosophy. During his retirement from public life, Huang produced arguably his finest work in 1663, Waiting for the Dawn: A Plan for the Prince, an extensive criticism of the Ming regime and a comprehensive set of proposed reforms.

THE FIRST RULERS

Huang believed that before there was any government, people tended to their affairs with no acknowledgement of the common good. This was not an idealized state of nature, but nor was it complete anarchy. According to Huang, looking after one’s own interests is entirely natural, and he deemed selflessness to be a rare and fickle virtue.

For Huang, the primary issue which plagued the Ming regime was the excessive greed of those in power. To rule is to take into account the interests of others and to selflessly pursue what other people wish for; that, however, is difficult given that “to love ease and dislike strenuous labour has always been the natural inclination of man.” The first people who ruled did so with extreme reluctance knowing how difficult it would be to rule in the common interest of all. Some even tried to quit but were forced to continue. The first rulers understood that to rule correctly was an immense effort that was, for the most part, a thankless job.

However, as time passed, new rulers decided that since they did so much for their people, it was perfectly justifiable to rule for their own benefit. They began to use the state to benefit themselves, and because of their selfishness, these rulers made their subjects miserable and downtrodden. Therefore, according to Huang, “He who does the greatest harm in the world is none other than the prince.” The solution to this miserable state of affairs is for princes to rule justly with true laws.

WHAT IS LAW?

Huang states that there has not been true law since the end of the Three Dynasties over a thousand years previously. Since then, all rulers had cared about was preserving their dynasty, they had refused to look to the common good of the people. Huang referred to the laws established after the three dynasties as “dynastic law.” But he did not believe that dynastic law could be called true law as it was narrowly based upon the interests of the rulers, that “what they called ‘Law’ represented laws for the sake of one family.” For any law to be true law it must conform to the dictates of “all under heaven” (or what can be broadly termed the will of the people). Huang writes that “in ancient times all under heaven were considered the master and the prince was the tenant.” The state existed to serve the people, not vice versa. True laws, for Huang, must not favour any particular group over another. Instead, laws must conform to a higher standard of justice which had been originally embodied by the sage kings of the past. Laws are not just, simply because a ruler has established them. If law does not conform to a higher standard of justice, it can hardly be called true law.

GOVERNANCE BY LAWS

Huang believes that first and foremost we need laws before we need leaders. By contrast, earlier philosophers such as Xunzi in the third century BC had written: “There is only governance by men, not governance by law.” To which Huang replied, “Only if there is governance by law can there be governance by men.” However, law alone is not enough; Huang had seen how knowledgeable men like his father were ousted from government positions due to entrenched and unchecked power. We cannot count on virtuous rulers alone to guide us and to preserve true law. Thus Huang believes that we need institutions to put checks on power and to stop any individual dominating all others.

Huang had no time for the idea of divine rule, and he questioned those whom he called “petty scholars” who insisted that the duty of the subject to his prince is utterly inescapable.”The sage kings of the past deserve praise and respect but the princes of today deserve little if any praise,” Huang argues, further asking, “Could it be that Heaven and Earth, in their all‐​encompassing care, favor one man and one family among the millions of men and myriads of families?” While Huang did not wish to abolish the emperorship entirely, he strove to desacralize the state. The state is neither quasi‐​divine nor should it command the total obedience of its people. As we have already seen, the relationship for Huang between sovereign and citizen is actually inverted; the people are the masters, and the state is the tenant.

REINSTATING THE PRIME MINISTER

In theory, the Ming dynasty was ruled by an emperor and supported by a court which was composed of ministers and civil service members. The reality was a departure from this ideal. Emperors resented and resisted any check upon their power. To cement their position, emperors tended to promote only those civil servants who were wholly servile, especially eunuchs, who had long been a crucial part of the Chinese government. They tended to the emperors household and his personal needs, which gave them immense influence as they were naturally intimate with the emperor and increasingly infringed upon the administration of civil affairs.

To this end, Huang argues that the previously abolished office of prime minister should be reinstated. While one man should act as prime minister, he would have multiple vice premiers, all of whom are scholars with whom he would consult. Huang had three critical reasons for arguing for the reinstatement of the premiership:

Firstly, no matter how wise or hardworking, no one man can rule alone. While Princes may have been created initially to rule, “All under Heaven could not be governed by one man alone.” To remedy this, the prime minister aids the prince. Secondly, the emperor is decided by hereditary succession. Huang states that in ancient times “succession passed, not from father to son, but from one worthy man to another.” A person being handed a position based upon their lineage is no guarantee that they will rule justly. While Huang does not specify precisely how the prime minister will be chosen, he believes that the role will act as a buffer in case the emperor is not a competent ruler given that the Prime Minister’s power will be equal to that of the emperor. Thirdly, by reviving the position of the prime minister, the government affirms the principle that no man should hold supreme power and that instead, power should be divided and shared in order to serve the people best.

Huang’s reforms aim not only to make government more effective but, by putting qualified people in power, it also serves to check the power of the emperor who, without constraints, would have little stopping him from becoming tyrannical. Thus Huang’s approach can be described as constitutional in its fundamental nature. Constitutionalism, as a broad idea, is a set of rules, principles, and norms which define the limits of government authority to avoid arbitrary despotism.

HUANG AND PRIVATE PROPERTY

For Huang, it was essential that the government did not encroach upon property rights. According to Huang, during ancient times there was no private property. The sage kings distributed land through what was known as the well‐​field system. Huang explains that during this time “land was granted by the king to the people. Therefore, such land can be called the king’s land.”

However, after the sage kings subsequent rulers no longer distributed land to the people. Instead, people acquired land through sale and purchase. By the second century, private property had been established. Because the land was purchased by the people and not granted by a king, Huang concluded that “the land is the people’s land and not the king’s land.” For Huang “all land is either official or private.” The difference between the two is that official land is owned by the state and cannot be bought or sold, while private land can be traded and belongs to individuals.

Huang argues that that private property ought to be protected since people have a moral right to keep what they own. However, Huang does not stop there. He also argues that property rights set limits on government power. By protecting property, it underpinned the principle that emperors should not view “the world as an enormous estate to be handed on down to his descendants, for their perpetual pleasure and well‐​being.” Instead, emperors should respect the rights of their subjects and refrain from appropriating property.

AGAINST REDISTRIBUTION

Not all rulers in history were selfishly trying to expropriate property. Many genuinely wished to redistribute wealth in order to help the poor. To achieve this, some believed in limiting or equalizing the distribution of property. Huang replied to this proposition saying that “doing even one act that is not right” should not be allowed. People have a right to their property and this should not be violated even in the event that the motivation is to help those in need. Huang wonders why “should one needlessly make a big thing out of causing the well‐​to‐​do to suffer?” He proposes instead that the state should redistribute official property, which had been established for the emperor’s family and allies, and should be given to the poor. For Huang, it was perfectly natural to pursue one’s own self‐​interest and to accumulate property. He supported individuals autonomously pursuing their own interests.

SIMILARITIES BETWEEN HUANG & JOHN LOCKE

Huang’s political thought bears a striking resemblance to the influential English philosopher John Locke’s Second Treatise on Government. Locke has been referred to as the Father of Liberalism, his political thought centred on his arguments for natural rights, government by consent of the people and his theory of private property has been massively influential on classical liberalism.

As we have already seen, Huang was sceptical of the claims of divinity that emperors had made throughout history. Much later, Locke would argue against divine monarchy by saying that even if God had given the right to rule to someone, such as Adam from the bible, there would be no way of determining who are his rightful descendants. Thus Locke concluded, “that in the races of mankind and families of the world, there remains not to one above another the least pretence to be the eldest house, and to have the right of inheritance.”

Huang believed true law serves the common good and does not favor any particular group. Similarly, Locke argued that the principle of “let the welfare of the people be the ultimate law” is such a fundamental rule that “he, who sincerely follows it, cannot dangerously err.” Both Huang and Locke based the legitimacy of the law upon how it served the interests of the governed not the rulers.

Huang wished to see the position of the prime minister reinstated to check the power of the emperor. Locke proposed that government ought to be composed of legislative, executive, and federative powers. This separation of powers allowed not only for a more effective government but also one which would not quickly descend into tyranny.

Finally, Huang and Locke both argued that the government ought to protect the institution of private property. Locke, like Huang, believed that property was once commonly owned but that when people mixed their labour with the land they appropriated what belonged to nature and made it their own. While Huang’s theory of how land becomes privately owned is not exceptionally robust, it is clear that, akin to Locke, he believed that people have a moral right to hold onto what is rightfully theirs.

Despite living on opposite ends of the world, Huang and Locke came to very similar conclusions on the proper ends of the state. Possibly it is because both had fathers who fought against incumbent regimes and both men lived through civil conflicts which resulted in regime changes. Huang Xongxi is an excellent example of how quite different philosophical traditions have arrived at broadly classical liberal ideas without being part of the same so‐​called ‘western tradition’ or ‘western values.’

There is much to admire in the Western tradition of philosophy, but this does not mean we cannot praise and synthesize other traditions. Thinkers like Huang remind us that all cultures, religions, and peoples have traditions which advocate for the freedom of the individual.

What Pinochet Did for Chile

by Robert A. PackenhamWilliam Ratliff

Pinochet directed the coup of September 11, 1973, and presided until 1990 over a military regime that violated human rights, shut down political parties, canceled elections, constrained the press and trade unions, and engaged in other undemocratic actions during its more than 16 years of rule. These facts are important and widely recounted.

A number of other important truths about the Pinochet period and its legacy are equally well documented but less well known. Indeed, they are often not acknowledged at all. (A notable partial exception to this rule was the Washington Post editorial of December 12 that bore the headline “A dictator’s double standard: Augusto Pinochet tortured and murdered. His legacy is Latin America’s most successful country.”) We will focus on the generally neglected, discounted, distorted, and sometimes falsely denied or suppressed aspects of the Pinochet legacy that have truly made Chile, despite its continuing challenges, “Latin America’s most successful country.”

What Kind of Democracy Did the Coup Displace?

The 1973 coup is often represented as having destroyed Chilean democracy. Such characterizations are half-truths at best. In the late 1960s and early 1970s, Chile’s democracy was already well on the road to self-destruction. The historian James Whelan caught its tragic essence when he wrote that Chile’s was a “cannibalistic democracy, consuming itself.” Eduardo Frei Montalva, Chile’s president from 1964 to 1970, who helped to bring in Salvador Allende as his successor, later called the latter’s presidency “this carnival of madness.” Freedoms increasingly overwhelmed responsibilities. Lawlessness became rampant. Uncontrolled leftist violence had also been escalating during the government of Christian Democrat Frei Montalva, before Allende became president and long before Pinochet played any role whatsoever in Chilean politics.

In 1970, Allende won 36.2 percent of the popular vote, less than the 38.6 percent he had taken in 1964 and only 1.3 percent more than the runner-up. According to the constitution, the legislature could have given the presidency to either of the top two candidates. It chose Allende only after he pledged explicitly to abide by the constitution. “A few months later,” Whelan reports, “Allende told fellow leftist Regis Debray that he never actually intended to abide by those commitments but signed just to finally become president.” In legislative and other elections over the next three years, Allende and his Popular Unity (UP) coalition, dominated by the Communist and Socialist parties, never won a majority, much less a mandate, in any election. Still Allende tried to “transition” (his term) Chile into a Marxist-Leninist economic, social, and political system.

Allende’s closest UP allies were the Communists, the right wing of the UP, but both were pressed to move faster than they wanted by the left wing of the UP, mainly members of Allende’s Socialist Party, and by ultraleftists (the term used by the Communists) to the left of the UP. Violence escalated rapidly, with the extreme left, including many members of the president’s own party, seizing properties and setting up independent zones in cities and the countryside, often contrary to what Allende and the Communists thought prudent. In the process Allende, his supporters, and extremists they could not control virtually destroyed the economy, fractured the society, politicized the military and the educational systems, and rode roughshod over Chilean constitutional, legal, political, and cultural traditions. Thus by July 1973, if not earlier, Chile was looking at an incipient civil war.

Pinochet’s 1973 coup was supported by Allende’s presidential predecessor and by an overwhelming majority of the Chilean people.

Many on the left had long believed that capitalism and democracy were incompatible. In a brazen demonstration of its contempt for majority wishes, and for the institutions of what it called “bourgeois democracy,” the pro-Allende newspaper Puro Chile reported the results of the March 1973 legislative elections with this headline: “The People, 43%. The Mummies, 55%.” This attitude and the actions that followed from it galvanized the center-left and right, whose candidates had received almost two-thirds of the votes in the 1970 election, against Allende. On August 22, 1973, the Chamber of Deputies, whose members had been elected just five months earlier, voted 81–47 that Allende’s regime had systematically “destroyed essential elements of institutionality and of the state of law.” (The Supreme Court had earlier condemned the Allende government’s repeated violations of court orders and judicial procedures.) Less than three weeks later, the military, led by newly appointed army commander in chief Pinochet, overthrew the government. The coup was supported by Allende’s presidential predecessor, Eduardo Frei Montalva; by Patricio Aylwin, the first democratically elected president after democracy was restored in 1990; and by an overwhelming majority of the Chilean people. Cuba and the United States were actively involved on opposite sides, but the main players were always Chilean.

Authoritarian, Not Totalitarian

The Chilean military regime from 1973 to 1990 was authoritarian, certainly, but not totalitarian. This distinction is fundamental in comparative political analysis. Totalitarian regimes legitimize and practice very high degrees of penetration into all aspects of the economy, society, religion, culture, and family, whereas authoritarian regimes do not. Totalitarian regimes have dominant single parties; coherent, highly articulated, widely disseminated ideologies; very high levels of mass mobilization and participation directed and manipulated by the regime; and a strict control over candidates, when there are any, and policies. Authoritarian regimes have mentalities more than ideologies, low levels of political participation, and limited pluralism and competition of policies and political actors (including the press), with some constraints on regime control and manipulation of the polity, society, economy, family, religion, culture, and the press.

Consider also the two types of regimes’ different propensities to enable a transition to democracy. Totalitarian systems—once in place and short of external military conquest and occupation—are much harder to change than authoritarian ones. Pinochet’s authoritarianism in Chile ended after 16 years in a peaceful and constitutional transfer of power, permitted by a constitution passed in 1980; Castro’s totalitarian regime in Cuba has lasted 48 years so far. Chile’s democracy after 1990 has been vigorous and stable. As reported by Hector Schamis in the Journal of Democracy (October 2006), Chile’s current foreign minister, Alejandro Foxley, recognized early in the first post-Pinochet democratic government that “the constitutional rules left by Pinochet had ‘somewhat ironically fostered a more democratic system,’ for they forced major actors into compromise rather than confrontation and, by ‘avoiding populism,’ increased ‘economic governability.’”

The Economic Legacy

It has become fashionable in some quarters lately to claim that Chile’s successful record of economic development in recent decades actually began in 1990, during the first civilian government since 1973. That claim is false. The historical record is clear. President Pinochet and his civilian advisers, after an elaborate and lengthy process of deliberation and decision making in 1973–1975, in which various alternative courses of action were considered, put in place the radically new set of market-oriented structures and policies that have been and remain the foundations of Chile’s subsequent three decades of economic and social development. This new model, which we call social capitalism, was adjusted, revised, and supplemented during the Pinochet years, most importantly in response to an economic crisis in the early 1980s and also in the post-1990 civilian years. But its main elements have not changed, and thus far no post-1990 government has proposed or seriously considered going back to either of the two previous, failed models, namely, state capitalism (1938–70) or state socialism (1970–73).

As the then finance minister, Alejandro Foxley, said in a 1991 interview: “We may not like the government that came before us. But they did many things right. We have inherited an economy that is an asset.” All four civilian governments since 1990 have maintained the new, more market-oriented economic and social models inherited from the military regime. Although there were changes at the margins after 1990, the point of sharpest and deepest positive change was unquestionably 1973 and immediately thereafter, not 1970 or 1990.

The Neoliberalism Myth

It is often said and widely believed that Pinochet’s economic reforms eliminated any significant role of the state in the economy. The claim is that he introduced a neoliberal model, that is, raw, savage capitalism of the kind attributed to Chile in the nineteenth century. The facts are otherwise. Chile’s largest industry and biggest foreign-exchange earner by far is copper, which was nationalized in the late 1960s and early 1970s and has remained so ever since. Domestic banks were deregulated in the late 1970s but reregulated with vigor in the early 1980s. Poverty had increased enormously during and in the wake of the UP’s disastrous economic policies, and it decreased only as a result of the state-led stabilization policies, structural reforms, and targeted social programs of the Pinochet period. Major state expenditures for direct action social programs targeted to the poorest of the poor were initiated in the middle 1980s, not after 1990. Poverty levels, as high as 50 percent in 1984, were reduced to 34 percent by 1989. They continued to fall after 1990 to 15 percent in 2005. The Concertación, the alliance of political parties of the center and left that has won the past four presidential elections, deserves some credit for the post-1990 years, but so does the Pinochet government. It created the underlying economic policies and structures in the 1970s and 1980s that the Concertación maintained and that produced jobs for the poor and an economic surplus to enable targeted state antipoverty programs.

Legacies for the World

The innovations in economic and social policy of the Pinochet government had significant influences on, and implications for, not only subsequent governments in Chile but also the rest of Latin America and the wider world. Today almost the entire globe relies on the state less and on markets more than in 1973. The first country in the world to make that momentous break with the past—away from socialism and extreme state capitalism toward more market-oriented structures and policies—was not Deng Xiaoping’s China or Margaret Thatcher’s Britain in the late 1970s, Ronald Reagan’s United States in 1981, or any other country in Latin America or elsewhere. It was Pinochet’s Chile in 1975.

What once looked like a reactionary economic model is now the standard in much of the world.

At that time the Chilean economic model was considered anathema almost everywhere—partly because of its association with Chile’s military regime but also because it was viewed (wrongly, as it turned out) as an unthinkable, reactionary model per se, especially for developing countries. (Of the many military regimes in Latin America in the sixties, seventies, and eighties, the only one to break with state capitalism was Chile’s.) But global perceptions of the Chilean economic model changed, slowly at first, more rapidly and massively after the mid-1980s. By now, the economic policies of most countries of Latin America; North America; Western, Central, and Eastern Europe; China; India; Russia and its former republics; much of Africa; and many other places around the world have followed the Chilean lead rather than fled from it.

The autumn of Two Dictators

Pinochet’s death occurred just as Fidel Castro was lying gravely ill in Cuba. Have commentators described and evaluated them with equal accuracy and fairness over the decades?

Castro killed at least as many Cubans as Pinochet did Chileans. Pinochet’s government has been justly condemned for engaging in some terrorist activities abroad, from Argentina to the United States. Amnesty International strongly supported the Chilean leader’s extradition to Spain in 1998 for a trial it thought would enact justice. But Castro trained thousands of guerrillas from countries all over the world and sent hundreds of thousands of Cuban troops to many countries on at least three continents to launch and wage wars that brought untold death and destruction. We can’t recall human rights organizations agitating for his extradition, or for his being brought to justice even posthumously in Cuba. Finally, Chile is the most successful case of economic, social, and political development in Latin America and a pioneer in the global shift to enlightened social capitalism. Cuba is a dismal, impoverished, dynastic totalitarian anachronism.

All four civilian governments since 1990 have maintained the new, more market-oriented economic and social models inherited from the military regime.

How many nations a decade or century from now will aspire to the “successes” of Fidel Castro—or of Salvador Allende? A much more positive case can be made for major parts of Pinochet’s legacy. It’s time to acknowledge that the legacies of the Pinochet years are a much better mix than they are usually said to be.

China’s Monetary Tradition and the Origins of Money

Written by Joseph T. Salerno

In the introduction to this book, first published in English in 2010, I wrote: “The idea of sound money was present from the very beginning of modern monetary theory in the works of the sixteenth-century Spanish Scholastics….” Recent research has shown that the seeds of the theory of sound money were already present in Chinese writings centuries before the Scholastics.1

China was one of the first countries to develop a metallic money that was valued and exchanged by weight. Evidence suggests that this monetary regime originated during the Shang Dynasty (1766–1122 BC) or the Zhou Dynasty (1122–221 BC). China was also one of the first countries to use precious metals as money and may have invented coined money. The long experience with a purely metallic monetary system naturally stimulated Chinese state officials, royal advisers, and philosophers to investigate and debate the origins and functioning of such a system and the policies appropriate to its smooth operation. It is therefore not surprising that China developed a rich tradition of monetary thought, which extended over nineteen centuries (roughly 700 BC to 1200 AD). This literature on monetary theory and policy embodied ideas, insights, and controversies that would appear in European writings only centuries later. In particular, some contributors to this Chinese monetary tradition formulated the conceptual foundations of the theory of sound money, the topic of the present book.

While ideas about the development of money were expressed as early as the seventh century BC, the most prevalent view of money’s origin is attributable to a politician of the sixth century BC. Shan Qi (b. 585 BC) contended that money was invented by one of the ancient philosopher-kings to measure the value of goods. However, several Chinese writers later disputed this story and argued that money originated as a market phenomenon. Sima Qian (104~91 BC), Luo Mi (1165~1173 AD) and Ye Shi (1150~223 AD) basically argued that money grew out of the trading of commodities and could not have emerged in the absence of commodity exchange. Money was only later adopted by kings as an aid in ruling their countries. 

The first step in theorizing correctly about money is to understand that the value of money, like that of commodities, is never fixed and unchanging. Chinese philosophers who published the earlier Mohist Canons(468 BC~376 BC) grasped this crucial point. They recognized that metallic money, such as the “knife coins” then in wide circulation, was valued and exchanged by weight and argued that the real value of money, despite its fixed face value, was not stable but fluctuated inversely with the prices of commodities. When commodity prices were high, money was “light” or its purchasing power low; when prices were low, money was “heavy” or its purchasing power high. Thus, if monetary conditions were such that the nominal prices of commodities were abnormally high, the real prices of commodities were not high but rather money was “light” or depreciated.

In investigating the market conditions that determined the purchasing power of money, two eighth-century Chinese writers, Liu Zhi (734 AD) and Lu Zhi (794 AD), clearly formulated the quantity, or supply-and-demand, theory of money—eight centuries before the theory was introduced into European thought by Jean Bodin and the Spanish Scholastics. Liu Zhi argued that if population grew more rapidly than the money supply, the purchasing power of money would rise. Zhi reasoned that the growth of population would produce an increase in the labor force and, therefore, in the supply of commodities. As a result, the demand for money would grow in excess of supply and raise the purchasing power of money. He also deduced that high prices were a result of an “excess” of money and advocated a reduction in the quantity of money to increase its purchasing power. Liu Zhi’s contemporary Lu Zhi argued similarly that the quantity of money is a prime factor determining the prices of goods and the purchasing power of money. Thus, goods are cheap and money “heavy” when the quantity of money is relatively small, whereas goods are expensive and money “light” when the quantity of money is large. Lu Zhi inferred from his theory that government is therefore able to affect the height of prices by altering the quantity of money. 

Chinese monetary writers also focused on the proper institutional arrangements for coining money, because coinage affected the quantity and quality of money in the economy. At least four major debates on the coinage question occurred during the period 175 BC–734 AD. The main point at issue was whether the coining of money should be a private and decentralized business or a royal prerogative monopolized by the central government. Of great interest is the fact that in the third (457 AD) and fourth (734 AD) debates government ministers heroically proposed private coinage as a means of ridding the realm of a shortage of money.

My book is a small contribution to this great Sino-European tradition of sound monetary theory. I hope that its translation sparks interest among contemporary Chinese scholars in recovering and extending this tradition as first presented in the brilliant writings of their ancient predecessors. 

1.Zheng Xueyi, Yaguang Zhang, and John Whalley, “Monetary Theory from a Chinese Historical Perspective” (NBER Working Paper 16092, June 2010). The following discussion is drawn from this research paper.

Fed Drains $485 Billion in Liquidity from Market via Reverse Repos, Undoing 4 Months of QE, Even as QE Continues, Total Assets Near $8 Trillion

Article written by Wolf Richter of Wolf Street

May 27, 2021

This morning, the Fed sold a record $485 billion in Treasury securities via overnight “reverse repos” to 50 counterparties, beating the prior record set on December 31, 2015. These overnight reverse repos will mature and unwind tomorrow morning. Today, yesterday’s $450 billion in overnight reverse repos matured and unwound, and were more than replaced with this new batch of $485 billion in overnight reverse repos.

Reverse repos are liabilities on the Fed’s balance sheet. They’re the opposite of repos, which are assets. With these reverse repos, the Fed is sellingTreasury securities to counterparties and is taking their cash, thereby massively draining liquidity from the market – the opposite effect of QE.

In past years of large reserves following QE, banks shed reserves via reverse repos, reducing reserves on the balance sheet and increasing their Treasury holdings, to dress up their balance sheet at the end of the quarter, and particularly at the end of the year. Reverse repos declined after the Fed started reducing its assets during Quantitative Tightening in 2018 and 2019. But the current record spike is taking place in the middle of the quarter, a sign that the enormous amount of liquidity is going haywire:

This is a crazy situation that the Fed backed into.

Even as liquidity is going haywire, and as the Fed trying to deal with it via reverse repos, the Fed is still buying about $120 billion per month in Treasury securities and mortgage-backed securities, thereby adding liquidity.

But with its reverse repos of $485 billion, the Fed undid four months of QE!

The Fed could stop buying securities altogether and reduce its balance sheet, which would also drain liquidity from the market. But the Fed cannot do that because it said it would be slow and deliberate in announcing changes in its monetary policy, and that it might eventually talk about talking about tapering, so it can’t just suddenly do an about-face.

But this liquidity-haywire situation appears to be an emergency that needs to be addressed now, and so the Fed is addressing it through the backdoor via the overnight reverse repos.

At the same time, the Fed continues QE. Its total assets were of $7.90 trillion on its balance sheet as of May 26, released today, were down by $19 billion from the record last week, following the typical pattern. These assets include $5.09 trillion in Treasury securities and $2.24 trillion in mortgage-backed securities (MBS):

The Fed has discussed this liquidity issue during the last FOMC meeting and summarized some of the discussions in its meeting minutes. It noted that “a modest amount of trading” in the reverse repo market took place at negative yields, meaning that there is so much demand for Treasury securities, and so much liquidity chasing them, that the holders of liquidity were willing to lose money to obtain Treasury securities. This threatens to push related rates into the negative, such as SOFR (Secured Overnight Financing Rate) which is the Fed’s reference rate to replace LIBOR.

The Fed, sitting on $5.09 trillion in Treasury securities, has been stepping into the reverse repo market, selling Treasuries overnight to satisfy this demand for Treasuries and keep yields from meandering below zero.

The tsunami of liquidity.

Everyone has their own theory as to why there is so much demand for Treasury securities. But one thing we know: the banking system is creaking under a huge amount of liquidity.

Bank reserves on deposit at the Fed – a liability on the Fed’s balance sheet, money that the Fed owes the banks and that it pays the banks currently 0.1% interest on – ballooned to a record of $3.98 trillion on April 14 and have since then zigzagged down a smidgen. On the Fed’s balance sheet released today, they were at $3.81 trillion. This is a sign of just how much liquidity banks are swimming in:

The drawdown of the Treasury General Account.

The government sold a gigantic amount of debt last spring, adding $3 trillion to its debt in a few months and kept the unspent amounts in its checking account – the General Treasury Account or GTA at the Fed, which is a liability for the Fed, money that it owes the US Treasury. The balance in the GTA ballooned to $1.8 trillion by July 2020, compared to the pre-crisis range between $100 billion and $400 billion.

The Mnuchin Treasury started spending down the balance in the checking account by borrowing a little less. By early January, the GTA was down to $1.6 trillion.

The Yellen Treasury formalized the drawdown and in early February announced that it would bring the balance down to $500 billion by June. This turned out to be too much too fast, and it now looks like August will be the month when the drawdown reaches the $500 billion mark.

On the balance sheet the Fed released today, the balance as of May 26 was down to $779 billion. Down by $821 billion since February, $279 billion to go:

The drawdown of the GTA has some implications for the markets: this is money that the government will spend but doesn’t have to collect in taxes or borrow; it already borrowed it in March through June last year. And the Fed mopped up this debt with its $3 trillion in asset purchases. So the drawdown means that the government has been spending this money that the Fed had already monetized in the spring last year.

All of this has big implications for the markets. These are huge amounts, in terms of reserves on deposit at the Fed, the drawdown of GTA at the Fed, and now the reverse repos at the Fed, all of them liabilities at the Fed, all of them representing different aspects of the massive flows of liquidity that are now bouncing off the walls.

How Governments Killed the Gold Standard

Article by: Joseph Salerno

The historical embodiment of monetary freedom is the gold standard. The era of its greatest flourishing was not coincidentally the 19th century, the century in which classical liberal ideology reigned, a century of unprecedented material progress and peaceful relations between nations. Unfortunately, the monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War I.

Also, and not so coincidentally, this was the “War to Make the World Safe for Mass Democracy,” a political system which we have all learned by now is the great enemy of freedom in all its social and economic manifestations.

Now, it is true that the gold standard did not disappear overnight, but limped along in weakened form into the early 1930s. But this was not the pre-1914 classical gold standard, in which the actions of private citizens operating on free markets ultimately controlled the supply and value of money and governments had very little influence.

Under this monetary system, if people in one nation demanded more money to carry out more transactions or because they were more uncertain of the future, they would export more goods and financial assets to the rest of the world, while importing less. As a result, additional gold would flow in through a surplus in the balance of payments increasing the nation’s money supply.

Sometimes, private banks tried to inflate the money supply by issuing additional bank notes and deposits, called “fiduciary media,” promising to pay gold but unbacked by gold reserves. They lent these notes and deposits to either businesses or the government. However, as soon as the borrowers spent these additional fractional-reserve notes and deposits, domestic incomes and prices would begin to rise.

As a result, foreigners would reduce their purchases of the nation’s exports, and domestic residents would increase their spending on the relatively cheap foreign imports. Gold would flow out of the coffers of the nation’s banks to finance the resulting trade deficit, as the excess paper notes and checks were returned to their issuers for redemption in gold.

To check this outflow of gold reserves, which made their depositors very nervous, the banks would contract the supply of fiduciary media bringing about a monetary deflation and an ensuing depression.

Temporarily chastened by the experience, banks would refrain from again expanding credit for a while. If the Treasury tried to issue convertible notes only partially backed by gold, as it occasionally did, it too would face these consequences and be forced to restrain its note issue within narrow bounds.

Thus, governments and commercial banks under the gold standard did not have much influence over the money supply in the long run. The only sizable inflations that occurred during the 19th century did so during wartime when almost all belligerent nations would “go off the gold standard.” They did so in order to conceal the staggering costs of war from their citizens by printing money rather than raising taxes to pay for it.

For example, Great Britain experienced a substantial inflation at the beginning of the 19th century during the period of the Napoleonic Wars, when it had suspended the convertibility of the British pound into gold. Likewise, the United States and the Confederate States of America both suffered a devastating hyperinflation during the War for Southern Independence, because both sides issued inconvertible Treasury notes to finance budget deficits. It is because politicians and their privileged banks were unable to tamper with and inflate a gold money that prices in the United States and in Great Britain at the close of the 19th century were roughly the same as they were at the beginning of the century.

Within weeks of the outbreak of World War I, all belligerent nations departed from the gold standard. Needless to say by the war’s end the paper fiat currencies of all these nations were in the throes of inflations of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst. To put their currencies back in order and to restore the public’s confidence in them, one country after another reinstituted the gold standard during the 1920s.

Unfortunately, the new gold standard of the 1920s was fundamentally different from the classical gold standard. For one thing, under this latter version, gold coin was not used in daily transactions. In Great Britain, for example, the Bank of England would only redeem pounds in large and expensive bars of gold bullion. But gold bullion was mainly useful for financing international trade transactions.

Other countries such as Germany and the smaller countries of Central and Eastern Europe used gold-convertible foreign currencies such as the US dollar or the pound sterling as reserves for their own domestic currencies. This was called the gold-exchange standard.

While the US dollar was technically redeemable in honest-to-goodness gold coin, banks no longer held reserves in gold coin but in Federal Reserve notes. All gold reserves were centralized, by law, in the hands of the Fed and banks were encouraged to use Fed notes to cash checks and pay for checking and savings deposit withdrawals. This meant that very little gold coin circulated among the public in the 1920s, and residents of all nations came increasingly to view the paper IOUs of their central banks as the ultimate embodiment of the dollar, franc, pound, etc.

This state of affairs gave governments and their central banks much greater leeway for manipulating their national money supplies. The Bank of England, for example, could expand the amount of paper claims to gold pounds through the banking system without fearing a run on its gold reserves for two reasons.

Foreign countries on the gold exchange standard would be willing to pile up the paper pounds that flowed out of Great Britain through its balance of payments deficit and not demand immediate conversion into gold. In fact by issuing their own currency to tourists and exporters in exchange for the increasing quantities of inflated paper pounds, foreign central banks were in effect inflating their own money supplies in lock-step with the Bank of England. This drove up prices in their own countries to the inflated level attained by British prices and put an end to the British deficits.

In effect, this system enabled countries such as Great Britain and the United States to export monetary inflation abroad and to run “a deficit without tears” — that is, a balance-of-payments deficit that does not involve a loss of gold.

But even if gold reserves were to drain out of the vaults of the Bank of England or the Fed to foreign nations, British and US citizens would be disinclined, either by law or by custom, to put further pressure on their respective central banks to stop inflating by threatening bank runs to rid themselves of their depreciating notes and retrieve their rightful property left with the banks for safekeeping.

Unfortunately, contemporary economists and economic historians do not grasp the fundamental difference between the hard-money classical gold standard of the 19th century and the inflationary phony gold standard of the 1920s.

Thus, many admit, if somewhat grudgingly, that the gold standard worked exceedingly well in the 19th century. However, at the same time, they maintain that the gold standard suddenly broke down in the 1920s and 1930s and that this breakdown triggered the Great Depression. Monetary freedom in their minds is forever discredited by the tragic events of the 1930s. The gold standard, whatever its merits in an earlier era, is seen by them as a quaint and outmoded monetary system that has proved it cannot survive the rigors and stresses of a modern economy.

Those who implicate the gold standard as the main culprit in precipitating the events of the 1930s generally fall into one of two groups. One group argues that it was an inherent flaw in the gold standard itself that led to a collapse of the financial system, which in turn dragged the real economy down into depression. Writers in the second group maintain that governments, for social and political reasons, stopped adhering to the so-called rules of the gold standard, and that this initiated the downward spiral into the abyss of the Great Depression.

From either perspective, however, it is clear that the gold standard can never again be trusted to serve as the basis of the world’s monetary system. On the one hand, if it is true that the gold standard is fundamentally flawed, that in itself is a crushing practical argument against the principle of monetary freedom. On the other hand, if the gold standard is in fact a creature of rules contrived by governments, and it is politically impossible for them to follow those rules, then monetary freedom is simply irrelevant from the outset.

The first argument is the Keynesian argument and the second the monetarist argument against the gold standard.

Two recent books have elaborated these arguments against the gold standard. The economic historian Barry Eichengreen published a book in 1992 entitled Golden Fetters: The Gold Standard and the Great Depression.Eichengreen summarized the argument of this book in the following words:

The gold standard of the 1920s set the stage for the Depression of the 1930s by heightening the fragility of the international financial system. The gold standard was the mechanism transmitting the destabilizing impulse from the United States to the rest of the world. The gold standard magnified that initial destabilizing shock. It was the principle obstacle to offsetting action. It was the binding constraint preventing policymakers from averting the failure of banks and containing the spread of financial panic. For all these reason the international gold standard was a central factor in the worldwide Depression. Recovery proved possible, for these same reasons, only after abandoning the gold standard.

According to Eichengreen, then, not only was the gold standard responsible for initiating and internationally propagating the Great Depression, it was also the primary reason why the recovery was delayed for so long.

It was only after governments one after another in the 1930s severed the link between their national currencies and gold that their national economies finally began to recover. This was because, unbound by the rules of the gold standard, governments were now able to bail out their banking systems and run budget deficits financed by bank credit inflation without the constraining fear of losing their gold reserves.

Thus, the phrase “golden fetters” in the title of Eichengreen’s book is a reference to Keynes’s statement in 1931, “There are few Englishman who do not rejoice at the breaking of our gold fetters.”

Of course, what Keynes and Eichengreen fail to understand is that the end of the classical liberal era in 1914 caused the removal from government central banks of the “golden handcuffs” of the genuine gold standard. Were these “golden handcuffs” still in place in the 1920s, central banks would have been rigidly constrained from inflating their money supplies in the first place and the business cycle that culminated in the Great Depression would not have taken place.

A second book that inculpates the gold standard as a leading cause of the Great Depression was published in 1998 and is entitled The Great Depression: An International Disaster of Perverse Economic Policies. According to the authors, Thomas E. Hall and J. David Ferguson, one of the most perverse and destabilizing economic policies of the 1920s involved the Fed violating the rules of the gold standard by allegedly “sterilizing” the inflow of gold from Great Britain.

This means that the Fed refused to pyramid inflated paper dollars on top of these newly acquired gold reserves in quantities sufficient to drive US prices up to the inflated level of British prices. This policy would have made US products more expensive relative to British products on world markets and would have helped mitigate Great Britain’s ongoing loss of gold reserves through its balance-of-payments deficits.

These deficits were the result of the fact that Great Britain had returned to the gold standard after its wartime inflation at the prewar gold parity, which, given the inflated level of domestic prices, significantly overvalued the British pound in terms of the dollar.

These deficits could have been avoided if the British government had either deflated its price level sufficiently or chosen to return to gold at a devalued exchange rate reflecting the true extent of its previous inflation.

Hall and Ferguson, however, ignore these considerations, arguing that when the United States sterilizes gold,

The impact on the system is that Britain bears the brunt of the adjustment. Since the money supply in the United States did not rise, neither did U.S. incomes and prices as they were supposed to, which would have helped Britain eliminate their payments deficit. Since Britain was not aided by rising exports to the United States, Britain must experience a more severe decline in incomes and prices than would have been the case if the U.S. money supply had gone up. In this way Britain would bear the brunt of the adjustment in the form of a more severe recession than would have occurred if the United States had been playing by the rules. Thus it was critical that each country play fair.

Thus, in Hall and Ferguson’s view, the rules of the gold standard dictate that when one central bank irresponsibly engages in monetary inflation and subsequently attempts to maintain an overvalued exchange rate, less inflationary central banks must rush to its aid and expand their own nations’ money supplies in order to prevent it from losing its gold reserves.

But if a nation losing gold due to inept or irresponsible monetary policy can always count on those gaining gold to share “the brunt of the adjustment” by expanding their own money supplies, this is surely a recipe for worldwide inflation.

Now, this line of argument indicates that Hall and Ferguson completely misunderstand the true purpose and function of the gold standard. To begin with, a gold standard functions much better without a central bank, because these institutions, as creatures of politics, are inherently inflationary and tend to promote rather than restrain the inflationary propensities of the fractional-reserve commercial banks.

But, second, under a genuine gold coin standard, the choices of private households and firms effectively control the money supply. As I explained above, if the residents of one nation demand to hold more money for whatever reason, they can obtain the precise quantity of gold coin they require through the balance of payments by temporarily selling more exports and buying fewer imports.

This implies that, if a central bank does exist and it wishes to act in accordance with a genuine gold standard, it should always “sterilize” gold inflows by issuing additional notes and deposits only on the basis of 100 percent gold reserves and insisting that the commercial banks do the same. It should not permit these gold reserves to be used as the basis of a multiple credit expansion by the banking system.

In this way, a nation’s money supply would be completely subject to market forces. By the way, this is precisely how the distribution of the supply of dollars between the different states of the United States is determined today. There is no government agency charged with monitoring and controlling New Jersey’s or Alabama’s money supply.

Hall and Ferguson reveal their uneasiness with and lack of insight into the operation of the money supply process under a genuine gold standard with the following example:

Suppose a fad had swept the nation in 1927 because Calvin Coolidge appeared in public wearing one gold earring. Then every teenager in America wanted to wear a gold earring “just like silent Cal”.… The result would be an [increase] in the commercial demand for gold. Since more gold would be used in earrings less would be available for money.… It would be beyond the power of government to do anything about this fact. What a scary thought, the teenagers of America would have caused the U.S. money supply to decline.

While it is true that the commercial demand for gold does play a role in determining the supply and value of money under a gold standard, it is hardly cause for alarm. Rather, it highlights the important fact that the gold standard evolved on the market from a useful commodity with a preexisting supply and demand and was not the product of a set of arbitrary rules promulgated by governments.

Now, Hall and Ferguson conclude that by breaking the rules of the game and persisting in sterilizing the gold inflows from 1929 to 1933, the Fed caused a monetary deflation in Great Britain and throughout Europe. The nations losing gold were forced to contract their money supplies and this contributed to a financial collapse and a precipitous decline in real economic activity that marked the onset of the Great Depression.

Thus while the authors blame the initiation of the Great Depression on Fed sterilization policies, they attribute its length and severity to the gold standard. According to the authors, as long as European countries remained on the gold standard and US sterilization continued, there could be no end of the Depression in sight. The US gold stock would become a huge pile of sterilized and useless gold. Starting with the British in 1931, our trading partners began to recognize this fact, and one by one they left the gold standard. The Germans and ironically the United States were among the last to leave gold and so were hurt the worst, experiencing the longest and deepest forms of the Depression.

So although Eichengreen emphasizes the gold standard as a restraint on government monetary policy and Hall and Ferguson the failure of governments to play by its rules, in effect, they reach the same conclusion: the gold standard, and with it monetary freedom, stands indicted as a primary cause of the greatest economic catastrophe in history.

In the face of the historical evidence they adduce, can any defense be mounted in favor of the gold standard? The answer is a resounding “yes,” and the defense is as simple as it is impregnable. As I have tried to indicate above, the case against the gold standard is from beginning to end a case of mistaken identity. The genuine gold standard did not fail in the 1920s, because it had already been destroyed by government policies after 1914.

The monetary system that sowed the seeds of the Great Depression in the 1920s was a central-bank-manipulated and inflationary pseudogold standard. It was central banking that failed in the 1920s and stands discredited to this day as the cause of the Great Depression.

A detailed case in support of this view can be found in the works of Murray N. Rothbard, particularly in his book America’s Great Depression and in A History of Money and Banking in the United States: The Colonial Era to World War II.

In these works you will read that the US money supply, properly defined, increased from 1921 to 1928 at the annual rate of 7 percent per year, a rate of monetary inflation that was unseen under the classical gold standard. You will also learn that during the 1920s the Fed, far from operating as the deflationary force on the money supply portrayed by some monetarists, increased the categories of bank reserves within its control at the annual rate of 18 percent per year.

Finally you will read that from 1929 to 1932, the Fed continued to exercise a highly inflationary impact on the money supply, as it feverishly pumped new reserves into the banking system in a vain attempt to ward off the cyclical downturn entailed by its own earlier inflation of the money supply. The Fed was defeated in this endeavor to pump up the money supply and “reflate” prices in the early 1930s by domestic and foreign depositors who reclaimed their rightful property from an inherently bankrupt US banking system. They had suddenly lost confidence in the Fed-controlled monetary system masquerading as a gold standard, when they perceived at last the dwindling prospect of ever redeeming the rapidly expanding mountain of inflated paper claims for their gold dollars.

Currency experts say cryptonotes are in our future

By Arthur L. Friedberg of Coinworld

A paper by Franklin Noll, president of Noll Historical Consulting and an expert on American monetary history, and Andrei Lipkin, a Belarussian consultant on bank notes and cryptocurrency, who originated the term “cryptobanknotes” in 2017, takes a close look at bank notes and how they relate to cryptocurrencies. 

Their conclusion is that the forms of currency are not mutually exclusive. “Smart Banknotes and Cryptobanknotes: Hybrid Banknotes for Central Bank Digital Currencies and Cryptocurrency Payments” is a paper that will be presented at the Seventh Joint Bank of Canada and Payments Canada Symposium on Sept. 16.

The premise is that cash as we know it will not be around forever, but neither will it go away quickly. Bank notes will be around for the foreseeable future, and what is needed is a transitional device to ease the transition from 19th century cash to the digital currency of the future.

The answer is a hybrid bank note — a physical note on paper or polymer that can transfer its value over an electronic network. It would have all the characteristics of a traditional note so it could be used in traditional cash transactions, but when needed, its owner can use the electronic network to transfer the face value off the note.

Two basic forms are envisioned, a smart bank note and a cryptobanknote. Smart notes are further explained here. (I will address cryptonotes next week).

The paper defines a smart bank note as being like a traditional bank note in that it bears intaglio and offset printing on paper or polymer, and like a traditional bank note it can work offline, hand to hand without a network or electricity. The difference from traditional bank notes is that there is the option of using it to transmit its value over an electronic network, letting it act as an electronic payment vehicle.

The smart note would communicate with a network via an embedded radio-frequency identification microchip. When desired, the note’s value can be transferred off the note, for example, by smart phone or point of sale device. Using the same devices, the value of the smart bank note can also be transferred back from a network onto an “empty” or valueless smart banknote. The status of the smart bank note, whether it contains its face value or is empty, is indicated by a tactile and visible icon made of electronic ink. 

This icon could involve an existing design feature or a new one integrated into an existing design. An example authors Noll and Lipkin give is a $10 U.S. smart bank note. The chip, or status icon could be the current Statue of Liberty torch on the bill’s face. If the user wants to make an electronic transaction — say, to their bank account, a relative, or at a place that does not accept cash, the note is touched to a phone and the value is transferred over the network. Since the note is now “empty” of value, the Statue of Liberty torch icon disappears, showing visually and by touch that the smart banknote no longer has value.

To put the value back onto the note, the user can turn it in to a bank or merchant that will recharge it and put it back into circulation. Or, the user can personally do the same thing. Either way, the Statue of Liberty torch would reappear, showing that the note has regained its value, and it can continue circulating hand-to-hand.

A future Federal Reserve note could feature an embedded radio-frequency identification microchip, appearing as a design element similar in appearance to the Liberty torch on the current $10 denomination.Images courtesy of United States Mint.

China Reiterates Cyrpto Bans from 2013 and 2017

Regulators cite the dangers of speculative trading

Article by: Muyao Shen

The National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China reiterated their stance on banning crypto services.

The three entities published a note Tuesday confirming bans originally implemented in 2013 and 2017 that bar financial and payment institutions from providing any services related to cryptocurrency transactions and saying that initial coin offerings remain illegal.

“Virtual currency’s prices have soared and plummeted recently, resulting [in] a rebound of speculative trading activities of virtual currency,” the report said. “It has seriously damaged the safety of the people’s investment and damaged the normal economic and financial orders.”

In 2013, China’s central bank barred financial institutions from handling bitcoin (BTC, +3.35%)transactions, according to a notice from China Securities Regulatory Commission.

And then again in 2017, the central bank in China declared initial coin offerings as illegal, which caused bitcoin’s price to fall.

Robert’s two cents: The last line of this article assumes that was the cause of the price fall. Yet, there is no proof supporting this claim. Its highly possible, in fact more probable, that the market correction with BTC has more to do with its volatility during its growth phase rather than simply one or two persons speaking out against it. This is a fallacious presumption.