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How To Make Your Own Currency & The Companies That Already Have - How Money Works - YouTube
Channel: How Money Works
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With all the talk of reckless money printing,
hyperinflation and debasement of currencies
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around the world today, it sounds reasonable
to have some kind of backup plan ready to
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replace regular currencies should the need
arise.
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Now of course there are crypto âcurrenciesâ
and they are great as alternative investment
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vehicles, but their high transaction fees
and slow processing times make them extremely
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unsuitable to replace something like the American
dollar, in whatever form it may take.
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This is all really frustrating because a nations
currency is supposed to serve the people of
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the nation and it does genuinely seem like
in recent years this role has mutated into
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bending the economy to the whim of policy
makers⊠who may not always have the best
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ideas.
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If only YOU had access to the control panel,
you could stop all of this reckless money
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printing (that according to some top economists
and financiers, is driving us towards hyperinflation
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Armageddon).
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This begs the question, how could you create
your own currency?
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And how could an obscure old video game give
us the answer to this question.
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So itâs time to literally learn how money
works as we look into the steps an individual
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or a group could take to create a currency
with the same functionality and recognition
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as a those created by governments around the
world.
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So to get started we need to properly understand
what a currency must do, to be a viable replacement
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for lets say the US dollar.
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For starters it must be easy to use and widely
accepted.
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So you need to make sure almost everybody
within a desired region or as part of a desired
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community is willing to accept this in exchange
for the things they have to offer, be that
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goods, services or their labor to an employer.
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It must also be easy to use.
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You want people to be able to exchange this
currency quickly and easily with one another
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either by handing over some kind of designation
of this currency or by setting up software
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to handle these transfers, which is obviously
the more modern solution.
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It must also remain fairly stable in pricing.
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The value of a âcurrencyâ appreciating
thousands of percent within a year might be
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heralded as a victory in crypto communities,
but for real currencies this is what we call
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hyper-deflation which is a real thing, and
in many ways is way way worse than hyperinflation.
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A steak dinner should cost approximately the
same units of your currency one year to the
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next.
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Minor variations are fine but anything more
than 10% either way per years and you donât
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have a currency you have a vehicle for rampant
speculation.
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Finally as an added bonus it should be fairly
cheap to use.
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This has a little asterisk next to it because
technically this is just part of being easy
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to use, but it is easier to think of as itâs
own little category.
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Your currency should be cheap to store, transport
and transfer.
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That means you should probably avoid things
like heavy metals which have historically
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been popular but are not great on the cheapness
front.
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To this point you will also want to make sure
your currency can be digitized, because if
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you want it to be compatible with all of the
other legit currencies in the world then this
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is how the vast majority of trade back and
forth between these currencies is made.
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Now if you are still thinking âooh oohh
a crypto currency can do all of these thingsâ,
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you might not be wrong, but there are certainly
better options.
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Almost all crypto currencies work a blockchain,
which is just a technical way of saying a
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public record shared between everybody in
the network.
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This is great for making the system decentralised
but it also tends to make it very cumbersome
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because you are basically processing transactions
via committee.
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There are people that can explain the computer
sciency stuff behind this much better than
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me but basically crypto currencies get pretty
mediocre scores across the board in all of
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these categories.
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And yes yes I know, before the enthusiasts
blow up the comment section, there are plenty
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of different coin designs that shift around
these stats a bit but ultimately they still
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do away with the thing that inspired this
whole process in the first place â control.
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Decentralisation is great in theory, but if
you are going to all of the effort to float
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your own currency you want to be one with
your finger on the money printer button.
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So a more traditional system is probably better
here.
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Fortunately this is also far easier to create.
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You could print out paper rectangles but even
easier still is just digitâs on a computer.
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So here is how you should actually go about
doing that.
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First you want to create a secure database
that is able to record and adjust who owns
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how much money.
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This will effectively be a glorified excel
spreadsheet, and you might be surprised to
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learn that most modern bank keep records of
bank balances in this way.
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Now you can add utilities to this database
system like the ability for people to easily
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update their own accounts by sending or receiving
this money, and of course you will need a
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secure way to host this this database.
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All of this is fairly easy to pull off with
modern database software and web hosting services
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like AWS or Microsoft Azure, even someone
with the most basic understanding of database
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systems could pull this off no problem at
all.
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The difficulty is in actually getting people
to care about these digits.
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If I offered to move a billion How Money Works
dollars into your account in exchange for
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your house, you would be pretty stupid to
take that deal because basically nobody else
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would be willing to exchange those dollars
for anything else.
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But consider this, lets say you set this whole
system up and then create a two way exchange
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where you will convert 1 american dollar for
1 how money works dollar and 1 how money works
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dollar back for an American dollar.
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Well suddenly this means that your digits
in the database do have value, because if
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someone has some in their designated account
then they can just transfer them for American
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dollars.
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Now if I offered you a billion How Money Works
dollars for your house you would be more than
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happy to take that deal because you could
just transfer this money into American dollars.
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This is of course assuming that you were confident
that the exchange could honor this transaction.
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So at this point the value of your currency
is determined by what you say it is exchangeable
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for, and the confidence people have in you
being able to honour this exchange.
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For an individual that confidence might be
a hard thing to build, but for a large well
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known institution it shouldnât be too difficult
at all.
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In fact what I have described here in this
system is basically a casino.
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In a casino, Individuals will willingly trade
in real dollars for plastic chips confident
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in the fact that they can later be traded
back for an equal amount of real dollars.
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Infact patrons of casinos can be very confident
of this exchangeability because casinos are
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legally required to keep enough cash on hand
to pay out all of the chips that they have
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in circulation.
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But the thing is these poker chips are not
reaaaallllyyy a currency.
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There is nothing that a market participant
can purchase with these chips apart from entires
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in games of chance, their value is not propped
up by their exchangeability for another currency,
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their value relies EXCLUSIVELY on their exchangeability
with another currency.
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In fact one of the best examples of a currency
that was not made by a regular government
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is PED from the video game Entropia Universe,
a video game that uses a currency that is
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also exchangeable for real world dollars.
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Just like our hypothetical how money works
dollars or casino chips, this currency is
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exchangeable back and forth for a fixed rate.
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The game developers will exchange 1 American
dollar for 10 PED and likewise they will also
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exchange 10 PED for 1 American dollar.
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Now for this reason this video game has often
been compared to a casino, where engaging
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in the activities of the game are basically
like playing hands of blackjack, now this
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isnât entirely unfair, but there is one
big difference especially as it relates to
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the currency.
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While casino chips basically have no value
outside of the money they can be exchanged
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for, PED does actually have some value as
a stand alone unit of exchange.
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For example, if you wanted to buy a house
in Germany, you would need to pay for that
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house in euros.
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If you want to buy land in this video game
you will need to pay for it in PED.
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Both of these currencies have value not only
because they can be exchanged for other currencies,
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but because they can be used to buy goods
within their own markets.
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For what itâs worth some real estate investments
within this game have actually generated higher
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returns than real estate investments within
Germany, so make of that what you will.
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So for all intents and purposes Mindark the
developers of this video game have effectively
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created their own currency, soooo if you want
to make YOUR own currecency just follow their
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steps.
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Create the technical infrastructure to facilitate
electronic funds transfers (basically that
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glorified excel spreadsheet we made earlier)
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Establish an exchange with the reputation
to always be able to exchange this new currency
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back and forth for another currency.
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And then create a market where your new currency
is the only one accepted to purchase things
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that people really do value.
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Now the last problem that you would face is
that your new currency is still ultimately
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pegged to some other currency because of this
exchange.
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No matter what happens nobody is going to
trade in their American dollars for less than
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one how money works dollar, and nobody is
going to exchange a how money works dollar
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for less than 1 american dollar because why
would they?
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If either side got a worse offer they would
just go to the exchange and get this 1 for
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1 deal.
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This means that after all of this effort your
currency will still suffer the same kind of
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hyperinflation that people are fearing the
US dollar will.
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The solution to this is to slowly but surely
widen the spread that you offer at this exchange.
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Start off at 1 to 1, but over time work to
a system where you will offer only 50 how
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money cents for every 1 American dollar, and
likewise will only offer 50 us cents for every
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how money works dollar.
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At this point people might go this exchange
rate sucks, I am going to deal with other
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people that want to exchange this currency
and get a better price closer to the middle.
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This is how you âfloatâ a currency, and
make its foreign exchange value purely determined
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by market forces.
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This means if the value of the USD really
does tank over night your new currency will
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be immune from that impact just so long as
people still see value in the market your
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currency facilitiates.
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Now maintaining that value will be the big
challenge at this point.
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Normally governments do this by mandating
that taxes get paid in their currency under
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threat of imprisonment, which as far as motivation
goes is pretty good.
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But itâs not necessary.
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Freedom is just another product albeit a very
valuable one) so long as people see that they
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can access other things of value easily using
your currency it will have value.
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One institution that could genuinely make
this crazy though experiment a reality is
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Amazon.
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Just imagine that the only way to purchase
good of the largest online marketplace in
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the world was using free floating bezos bucks
that were slowly introduced using this method.
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It would genuinely be a currency that could
compete with the big global players, especially
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when backed by the technical infrastructure
that amazon has at its disposal to make that
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a reality.
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Now will it happen?
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Well there was the Libra proposal which is
at least 50% of the way there, so maybe we
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shouldnât be giving the real life stonks
man any ideas.
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But realistically there are already talks
of breaking up amazons operations within the
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US, so giving the middle finger to uncle sam
be creating competition to his currency is
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not exactly a very tactful business decision,
as powerful as it may be.
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Now if you want to learn more about undermining
the economic power of sovereign nations go
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and watch our video on the world bank and
the international monetary fund to find out
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what they do and if they really are the all
powerful evil empires people say they are.
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And if you enjoyed this video please consider
liking and subscribing to keep on learning
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how money works.
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