We have already talked about such problems as inflationary pressure and the lack of elasticity in money supply at crisis. What else might be the cause of the huge inflation that we are living with right now?

Problem 3: centralized issuer

Many fiat and even some digital currencies have one centre where it is decided to issue more of that currency or not. For instance, for fiat money it would be the government, while for cryptocurrencies such as Tether it would be their founder and owner, Tether Ltd.

In other words, it is not such automated mechanism that decides how much money should be issued, but a person or a group of people with all the flaws that human brains have to offer. Instead of adjusting the size of money supply to the volume of goods and services in the economy, they continuously expand the money supply in order to lend money to the economy and thus push it forward.

Also, one more thing that a centralized issuer almost always fails to do is to provide a considerate reserve of the currency and monitor the quality of these reserves’ structure.
The solution we have come up with is to introduce the economy to decentralized money emission mechanisms, like the ones that blockchain has to offer. Then we all can go through a transition to digital money that has a transparent protocol.

Problem 4: not enough liquid reserve

As we have already mentioned above, centralized issuers often fail to save up enough reserve that could be easily transformed into valuable resources.
Throughout centuries, money was made of precious metals that were the reserve itself. Later, with the introduction of paper money, the government was the one responsible to provide enough resources, such as gold, to reserve and balance the system.

However, after the Bretton Woods Conference in 1944, gold has been losing its points as the major reserve for the whole monetary system. Then finally, in 1971, the USA declared that its money was no longer tied down to the golden standard, and then the economy stepped into a completely new era. We can even say that the money of today is not backed up by anything, it is pure air and ideas in people’s minds. The only thing that matters is how reliable is the country that issued some currency.

What can be done here? Every emission of money has to be protected by a reserve of an equivalent liquid asset. Whenever the money supply is decreased and the excess money is destructed, the reserve has to be returned to the issuer.

These are the problems we see in the modern monetary politics and the way we could deal with them. What do you think about it? Do you believe it is possible to create such non-inflationary money?