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Lack of trust opens door for cryptocurrencies

Summary:
Prof Steve Hanke of Johns Hopkins University in this article says lack of trust in central banking has led to rise of cryptos: When delivering the BBC’s ‘A Question of Trust’ Reith lectures in 2002, Baroness Onara O’Neill recounted advice given by Confucius to his disciple, Tzu-kung. He revealed that a government needed three things to survive: weapons, food and trust. If a ruler cannot hold onto all three, which one should be given up first? For Confucius, weapons were the most expendable, and then came food. But a ruler should attempt to hold onto trust at all costs, for ‘without trust we cannot stand.’ This is widely understood by central bankers. But few have been able to implement policies that have garnered much trust, particularly in the modern era of fiat money—and for good

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Prof Steve Hanke of Johns Hopkins University in this article says lack of trust in central banking has led to rise of cryptos:

When delivering the BBC’s ‘A Question of Trust’ Reith lectures in 2002, Baroness Onara O’Neill recounted advice given by Confucius to his disciple, Tzu-kung. He revealed that a government needed three things to survive: weapons, food and trust. If a ruler cannot hold onto all three, which one should be given up first? For Confucius, weapons were the most expendable, and then came food. But a ruler should attempt to hold onto trust at all costs, for ‘without trust we cannot stand.’

This is widely understood by central bankers. But few have been able to implement policies that have garnered much trust, particularly in the modern era of fiat money—and for good reason. Over the past 120 years, central banks have produced a great deal of inflation, which has been accompanied by a loss in the purchasing power of their currencies. At times, bouts of hyperinflation have reared their ugly heads. Currencies have been rendered worthless overnight.

This brings us to the rise of cryptocurrencies. Lack of trust in central banks and national currencies set the stage for the arrival of private substitutes. While technology played its part in making cryptocurrencies feasible, it is the lack of trust in central banking that has paved the way for what might be a new spontaneous order.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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