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On Mon, Mar 31, 2008 at 07:32:56AM -0300, Gerhard Fiedler wrote:
> Rich wrote:
> 
> > My curiosity, however, is concerning what is there if anything that can
> > serve as a universal basis for currency?
> 
> I don't think so. This bites itself in the tail... as currency you want
> something that's /not/ based on anything real, because everything real is
> subject to fluctuations of reality :)

Yup. It becomes like the standard advice for investing, simply invest in
as broad a spectrum as possible and leave your investments alone. The
currency equivilent is to base your currency on as broad a spectrum of
assets as possible, and limit the manipulation to simply providing more
(or potentially less) of it.

Which is basically fiat currency right there. Based completely on trust
in government and essentially acting as a basket of everything bought
and sold with the currency.

Is it a perfect solution? Well, no, it's heavilly dependent on the
political structure of the central bank administering the currencies
supply, which is why any decent government operates their central banks
as fairly hands off structures. But I really don't see any alternative.


Going back to the Vietnam example, when Nixon abolished the gold
standard what the rest of the world was essentially saying was "Yes, you
are bankrupt according to the old rules, but we still trust that in the
long run, the US economy is still viable and we can *trust* the US
government to continue to honor property rights and develop sane rules."

It's probably fair to say they were right too. The US is certainely no
Argentina.

- -- 
peter[:-1]@petertodd.org http://petertodd.org
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