Fiat – let there be…

I see Iran has imitated Zimbabwe by pegging the rate of rial. Yes, that worked well didn’t it? Well, in a manner of speaking if you were a ruling party politician or had the connections it did. You’re still in power, and you’ve effectively transferred almost all the money held by those not in your position to you to play ducks-and- drakes with, without adding any work or value. Of course it destroyed the economy, left the roads and infrastructure deteriorating towards Somalia, and sent maybe 1/3 of the people into exile, caused a vast spike in infant mortality, starvation, dropped the average lifespan. But if you were in power… it worked.

This is how it will work: the official rate from government outlets – at which foreign currency in time will be available only to those with ‘special licenses’ or some such franking of their right to hold and use foreign currency legally – those with connections in other words – will not match the real rate at all. Very shortly expect it to be illegal to hold foreign currency at all (if this isn’t true already). The Government will print however as many rials it needs… Which in theory will work for a while in a large mostly self-sufficient internal market (China for example) but not on a very import dependent one. Everyone, from your upright and law abiding cousin Joe, to the ratbags in politics (but not in power) will be willing, indeed desperate to give you multiples of the official rate in rials for a dollar or a pound or even a Cowrie shell. The well-connected (possibly with a bogus import export company so he needs forex)… will exchange rials for dollars at the official rate. He will then sell those dollars at the black market rate, quite possibly making 1000% profit. He then takes those rials back and swaps them for more dollars at the official rate, which he then sell on the black market and returns to buy more rials… No work, no risk and vast vast profit. The state, desperate for more dollars to give him, confiscates all incoming forex… and gives out rials in exchange at the official rate – which the recipient (unless he’s well-connected) can’t change back into a currency that anyone else will accept offshore to do business with. So if he exports raw materials… like dates, he can keep getting rials for which he can buy some (diminishing) local goods – for a little while until inflation destroys that. If he imports and sells he’s going bust or going crooked. Or pushing his prices up as much as he can to buy forex on the black market from the well-connected.

Hyperinflation, and the destruction of all savings held in that currency must follow… well or the state can mandate the prices. Except then there is none for sale, because it costs more than the trader can sell for.

‘Couldn’t happen to a nicer bunch’ I hear you think. Except of course the people it does and will affect are not the rulers. They’re just about everyone else, with the intelligensia and those with technical and commercial skills which are transferable getting out, leaving those who can’t – the old, the poor, those who love the country or their bit of land – to survive or die. Oh the boss-folk and those who appease them enough to keep sweet but alive can do quite well off the carcase. For a while.

It does expose the value of ‘fiat money’ though. Which is to say its worth… more or less as much as the labor/product of people using it can be taxed for. Or how much anyone will give you for that. In the short term, for their own interests that can be worth much more labour/product of the country divided by the total number of rials/dollars/pounds printed. Right now, a dollar is in Tehran (you can buy more goods with a dollar than a dollar is actually worth – which pushes up, at least temporarily, the value of the dollar) China has been propping the value of the dollar for a while – which both has and hasn’t helped the US (in the long term, hasn’t IMO. But it’s been good for the carpetbaggers).

Of course the real value of fiat money is never enough for any government. And then they print more, effectively both selling off future value, and trying for the quick con (ie. use it to buy x before the seller of x realizes that it’s worth slightly less. It’s on the level of honesty of using clipped coins.) The seller hastily tries to repeat the process, eventually coming down to shorting the poor honest fellow whose savings got eaten by inflation. Basically it’s conned money, which as often as not is turned into pretties for voters / supporters, enough of whom aren’t savers to like this. We’ve set up a selection criteria which ensures Government is by definition a bunch of sharpies out to look after themselves, and then wonder why they turn out to be a bunch of sharpies who are out look after themselves.

Money – and systems of government(but that is another post subject) that don’t do this – have been obvious targets for sf for dun-a-meny years. It’s fallen out of fashion, lately, because well, most sf publishing is firmly pro-establishment now (someone needs to explain to modern American liberals that establishment is not = conservative, or right wing. Establishment is the bunch in power. And that means power at the level which affects you. In Iran the eye-owe-tollies are the establishement, in China the CCP is. In more democratic countries the parties in parlimentary power are, and usually to the point that it doesn’t matter that much who is in power per se, their backers are – and the backers will often be the same people regardless of the party). The establishment is pretty keen on keeping the con going, so they have money for those pretties, and will not thank those who point out it’s a con. That hasn’t stopped Douglas Adams or Sir Terry Pratchett doing it, but it’s not ‘avant garde’ or ‘groundbreaking’ (it is really of course, far more than endlessly recycled feminism, which usually gets that label).

Still, it’s been stuff of interesting ideas – especially as most bright people realize fiat is just not going to work as is. The concept of energy units seems worth looking at, as do ideas of using various resources as a guarantor of the paper you use as exchange means (until of course some beggar comes up with with matter transmutation or a cheap way to get lots of energy.) Labor is another (I think Eric Frank Russell used the concept of ‘obligations’. There has seldom been a more wildly revolutionary writer. Barter is of course something that works and always will. (Gold is an odd one. It’s really not much use.) Immortality (well, years of life-extention) was a rather neat Pratchett one. Concepts of services like defense and medical help are ones I’d like to work on in future books.

The mechanism I’ve quietly used in some of my work is the basic foundation of fiat money: trust. It’s the coinage which needs to be backed by integrity, and once debased never gains its value again, short of very harsh medicine.

I wonder when that will be painfully explained to governments?

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5 Comments

Filed under economics, philosophy, politics, science Fiction, Uncategorized

5 responses to “Fiat – let there be…

  1. Where did Pratchett suggest years of life-extension? I’ve only read his discworld books, was it somewhere else?

    • Strata. IIRC. He wrote two sf books (Strata and the Dark side of the Sun) long before discworld became well -known – which OUGHT to have boosted him, instantly, up to a position next to Zelazny and Herbert, and possibly for sheer inventiveness, beyond. But Pratchett has always had the gift of being easy to read (he’s actually got less easy as time has gone on) and the ideas and concepts are as effortless a part of the background as Heinlien. Niven used the same concept BTW. I think later

  2. masgramondou

    Fiat money has always reminded me of Italian automobiles for some reason. These days it seems to be about as reliable

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