This article was compiled and organized by BlockWeeks
Choosing which currency to use has never been without cost. A currency that is expensive to create is usually the most reliable form of money; conversely, when a currency can be created cheaply, savers' wealth is diluted, and the incentive to save itself is undermined. The former is called "hard currency" or "sound money" (sound money), such as currency backed by a precious metal standard, whose high creation cost constitutes a reliable mechanism limiting supply growth; the latter is "unsound money," that is, the currency issued by the vast majority of governments, which is highly susceptible to large-scale additional issuance, thereby bringing about rapid expansion of the money stock and depreciation of holders' wealth.
The printing of unsound money has long been used to finance state expenditures—essentially drawing on citizens' future wealth in advance to satisfy the present "necessary" needs. Evidence from the greatest civilizations in history shows that sound money is a necessary condition for progress and growth; the lack of a stable monetary standard is often accompanied by social and economic destruction, and the Roman Empire moved toward collapse precisely by continuously debasing its currency. "Digital sound money" such as Bitcoin may offer a remedy for the historical and practical problems of unsound money. But the author also cautions: one should not be overly optimistic about the actual adoption of non-sovereign sound money, because the rapid popularization of these new alternatives runs directly counter to the interests of the world's largest sovereign states and the central bank system that control the money supply. Yet what cannot be ignored is that history has proven time and again: once a "sound" monetary medium deviates from its course through depreciation, it will ultimately be completely replaced by a newer, sounder form of money.
The Divide Between Sound Money and Unsound Money
Government-issued money, like primitive money and most commodity money bases, has the potential for rapid supply increases relative to its existing stock, and thus may at any moment rapidly lose salability, have its purchasing power weakened, and dilute holders' wealth.
The real divide lies in the constraint mechanism. Under a sound monetary system, the government's wartime spending is constrained by the taxes it can levy and the savings it has accumulated in hard currency form over many years; under an unsound monetary system, the only remaining constraint is—how much more money the government can create before each additional unit becomes exponentially worthless (value asymptotically approaching zero). Under a fiat currency system, value can "appear out of thin air" simply by printing money, but only on the premise that the public believes this new fiat value is temporary, whether believing that real wealth will be created in the future or that the money supply will contract in the future.
This is precisely the deeper meaning of sound money: it forces all market participants to remain efficient with capital and resources, and it forces governments to operate in a fiscally responsible manner, rather than forever possessing an inexhaustible money-printing machine.
War, Fiat Currency, and Drawing on the Future
In the early 20th century, as the wartime gold standard was suspended, governments were able to expand money beyond limited gold reserves, spreading the responsibility for future repayment across all citizens. Money—more precisely, future value—was created to finance war, pulling citizens' future wealth forward into the present. If European countries had still remained on the gold standard at the time and had been unable to continue the war with limited treasuries by expanding fiat currency, World War I might have ended much sooner.
The Great Depression forced countries off the gold standard, and the government control and socialization of the economy during the Hoover and Roosevelt eras further exacerbated the expansion of unsound money. In 1933, Roosevelt signed Executive Order 6102, prohibiting private ownership of gold coins, gold bullion, and gold certificates, effectively allowing the federal government to confiscate citizens' wealth. This was the most direct plunder of private savings by government power in monetary history.
Hyperinflation and the Cantillon Effect: Who Pays for the Money Printing
Hyperinflation is an economic phenomenon unique to rapidly inflationary commodity money and government-controlled money. Because the production cost of government-issued money is effectively zero, the temptation to print money to satisfy short-term consumption needs always exists, thereby forming a vicious cycle of borrowing from the future to satisfy the present, and it is extremely difficult to reverse. A country's wealth can completely evaporate in a relatively short period of time due to the government's hyperinflationary behavior.
Hyperinflation is far more than an extreme loss of national wealth; it means the comprehensive collapse of a society's economic structure, productive capacity, and productivity. A continuous increase in the money supply means continuous depreciation of money, with value being redistributed from those currently holding wealth (who have accumulated wealth through years or even generations of sound saving behavior) to those who are the first to receive the new money.
This wealth transfer from savers to "new money" is the famous Cantillon Effect: inflationary policy creates wealth for the government at the expense of existing savers and holders, and the direct beneficiaries are those who are the first to receive the newly printed money when the government spends it. Citizens' present and future wealth are both redistributed in this process.
The Central Bank Illusion: Interest Rate Intervention and Distorted Signals
Through money printing and expanded government spending, policymakers attempt to cover up key economic problems with the appearance of "being in control," and hope that new economic activity will catch up in time. But economic logic shows that this only delays the problem.
History repeatedly shows that monetary manipulation and intervention in the price discovery mechanism exacerbate the severity of recessions—especially under the mistaken belief that "central banks can prevent or manage recessions." Central banks' control over the money supply and interest rates distorts the signals and incentives by which market participants manage their own consumption and production, ultimately leading to capital and resource misallocation (sometimes to a very serious degree), and may trigger widespread bankruptcies and layoffs across industries.
Over the past century, global central banks have printed unprecedented amounts of money and, through their symbiotic yet "independent" relationship with their governments, created enormous debt levels. Central banks and governments operate in concert in practice: the government issues debt (fiscal policy), and the central bank buys it in the open market with money it creates itself, thereby jointly creating and sustaining the business cycle.
Free Market Currency Choice and Bitcoin
Without central banks, people in a free market would choose currencies that are reliable, have the highest stock-to-flow ratio, and fluctuate least in response to changes in supply and demand. This is not fantasy, nor is it without precedent: before the prevalence of Keynesian economics and the birth of floating exchange rates, people were able to make global business plans in any currency without worrying too much about exchange rate fluctuations.
Bitcoin offers a new possibility: a digital sound money whose supply growth is constrained by mathematical rules and whose creation cost rises over time. But the author cautiously points out that the large-scale adoption of non-sovereign sound money directly conflicts with the interests of sovereign states and central bank institutions that control the money supply, and this path will not be smooth.
The lesson of history is clear: once "sound" monetary media deviate from the right track through depreciation, they will ultimately be replaced by newer, sounder forms of money. The search for digital sound money did not stop at Bitcoin—it began precisely with Bitcoin, and it has opened up the possibility of a freer and more accessible sound money market for global citizens.
At the end of the article, the author thanks Saifedean Ammous, author of "The Bitcoin Standard," and Ray Dalio, founder of Bridgewater Associates: the former's work inspired them to study in depth the history, dynamics, and evolution of the monetary system, while the latter's decades of research on the operating mechanisms and causal relationships of the economic and financial system and on models for responding to debt crises became the intellectual backdrop running through the entire article.
