The Monetary Protocol enlists blockchain technology to bring new life to a profoundly important economic school of thought called Monetarism. How? The MonetaryCoin.
The revival of Monetarism reminds me of Jurassic Park, wherein scientists retrieve DNA trapped in amber to breed creatures that last walked the earth hundreds of millions of years ago. Although MonetaryCoin will not pick up a jeep with its huge jaws or aggressively hunt Jeff Goldblum, it may yet still possess broad appeal. By making currency inexpensive to securely and reliably distribute, Staoshi Nakamoto, mysterious creator of Bitcoin, inadvertently enabled Milton Friedman's economic theory to escape the park, so to speak.
The Monetary Protocol White Paper opens with three quotations from three leading authorities on macroeconomics. Why? Ugh! Because it's the folks who study money and exchange all day that sometimes deserve the attention of the crypto community. They are… (1) Prof. Milton Friedman, (2) The Board of Governors of the Federal Reserve System and (3) Prof. Joseph Stiglitz.
Prof. Milton Friedman in 2004
#1 Milton Friedman: Computers can run a money supply… theoretically
As some of you may know, my monetary studies have led me to the conclusion that central banks could profitably be replaced by computers geared to provide a steady rate of growth in the quantity of money.
Milton Friedman, 1976 - Nobel Prize - Economic Sciences (1976)
Milton Friedman, in his Nobel Prize acceptance speech, sheepishly admits his theory failed in many respects but was nonetheless highly revealing. What was most revealing about it? Inflation comes from the central bank, no other theories need apply.
The Wall Street Journal and Barron's both regularly report the amount of money in circulation in the US. If you have ever compared the money supply figure found in today's paper to the figure found in a paper that is a month or two old - you would notice that a fortune had been printed and distributed throughout the economy in a very short time. Could a computer do it? Yes, but one notable consequence (among many) would be a central bank could not print excess money to help stimulate the economy.
#2 The Fed: Monetarism has application today… but there is more to the story
An engine that grows from four cylinders to six cylinders needs more oil - and so too an economy that grows needs more money to facilitate transactions, all else equal. The analogy is imperfect but brings into relief the concept of transactional money demand. So how do central bankers think about Monetarist theory today?
Over some periods, measures of the money supply have exhibited fairly close relationships with important economic variables such as nominal gross domestic product (GDP) and the price level. Based partly on these relationships, some economists - Milton Friedman being the most famous example - have argued that the money supply provides important information about the near-term course for the economy and determines the level of prices and inflation in the long run. Central banks, including the Federal Reserve, have at times used measures of the money supply as an important guide in the conduct of monetary policy.
Over recent decades, however, the relationships between various measures of the money supply and variables such as GDP growth and inflation in the United States have been quite unstable. As a result, the importance of the money supply as a guide for the conduct of monetary policy in the United States has diminished over time. The Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System, still regularly reviews money supply data in conducting monetary policy, but money supply figures are just part of a wide array of financial and economic data that policymakers review.
Board of Governors of the Federal Reserve System - What is the money supply? Is it important? (2015)
If you read the quote and are scratching your head, below please find a well-constructed six and a half minute video on Monetary Theory. It's fun to watch and assumes no background in economics (special thanks to Prof. Tyler Cowen and Marginal Revolution University).
#3 Joseph Stiglitz: Governments may ban crypto unless it can be regulated
So it seems to me it [bitcoin] ought to be outlawed. It doesn't serve any socially useful function. If the government says 'the reason bitcoin is being used is circumvention,' they could close it down at any moment, and then it collapses. (Costelloe, 2017)Joseph Stiglitz, 2017 - Nobel Prize - Economic Sciences (2001)
Part of the reason MonetaryCoin was engineered to include elective AML-KYC was to address the concern expressed by Prof. Stiglitz in the quote above (and the shock most people feel when seeing the image below). The image below shows approximately $208mm seized by authorities in 2007 at the home of a Chinese-Mexican national with ties Mexico's notoriously violent Sinaloa drug cartel.
So, eh, what is AML-KYC again? AML-KYC stands for Anti-Money Laundering - Know Your Customer, a process most banks and financial institutions in major countries require of new account holders. If you have set up a crypto exchange account and had to supply a photo ID, you have done AML-KYC. Regulated banks, in general, do not want to facilitate crime and terror and so keep records of who moves money when and where. Without AML-KYC, the money in the photo above would simply have been deposited in the bank over time, instead of being stored in a house for police to find.
For more on the Mexican drug cartels watch Sicario, and for more on money laundering watch Ozark on Netflix. Loretta Napoleoni's 2009 TED talk on the Intricate Economics of Terrorism is available below. This stuff is scary, it matters, and the design of MonetaryCoin reflects an awareness of these dangers.
If crypto is to break the trillion-dollar ceiling and attain wider adoption, governments and regulators must be able to make a rule that stakeholders can decide to follow (or not) without banning crypto altogether. If MonetaryCoin is used in a country that requires AML-KYC for all crypto transactions, then MonetaryCoin should be equipped to help stakeholders meet that burden with ease. In regions or in transactions where no AML-KYC is required, stakeholders may simply leave the feature off.
In 1999, Milton Friedman predicted the eventual rise of crypto; see the one-minute video below.
Cypherpunk philosophy was born with an independent streak, not a criminal one. Friedman conjectures that "people who are engaged in illegal transactions will also have an easier way to carry out their business." MonetaryCoin's AML-KYC feature gives stakeholders a choice, particularly because laws differ country-by-country.
In summary, The Monetary Protocol White Paper opens with three quotations. (1) Prof. Milton Friedman: Computers can run a money supply… theoretically. (2) Fed Board of Governors: Monetarism has application today… but there is more to the story. (3) Prof. Joseph Stiglitz: Governments may ban crypto unless it can be regulated.
So, while your binge watch the Jurassic Park movies (for unconscious reasons you only later identify as related to the mention of Jeff Goldblum at the start of this article) pause for a moment to reflect on what else has been revived through the miracle of modern science. The first two MonetaryCoins are available today at MonetaryCoin.io. To learn more visit MonetaryCoin.org.
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