The USD is one of the most centralized currencies in the world. Just because everyone has some does not mean its decentralized. It is still minted and distributed through centralized silos owned by the government, and policy enacted by the government ON the currency is still effective.
> it is still minted and distributed through centralized silos owned by the government
Money can be created by privately-owned banks, which adds a significant decentralized element to the mix. Cash settlement is also, if done physically, a totally de-centralised transaction mode.
In modern systems money can be created by banks lending money. That's an interesting property as money creation is tied to the course of the economy. However, this can lead to inflation if the amount of money created actually exceeds the growth in economic activity.
In the gold standard model where the amount of money is completely uncorrelated with economic activity, you have inherent deflation. Deflation is a serious threat, as it pushed people to hold onto their currency (as the real value automatically rises) instead of spending or investing it.
Bitcoin is really a digital gold standard. There is no way that a gold standard currency can support a growing economy efficiently.
> Deflation is a serious threat, as it pushed people to hold onto their currency (as the real value automatically rises) instead of spending or investing it.
Why would people not invest (or spend for that matter)?
It's not like people wouldn't take deflation into account the same way they do with inflation today. If you loan out a dollar today and at the end of the loan its worth $1.03 then you simply adjust the interest rate to reflect this difference. Not like its some complicated formula that starts off with "thar be dragons."
Same can also be said about spending. As a contemporary example why would anyone buy a computer today when they know that in the near future they can get a better model for less? The whole computer industry thrives in a price deflationary sector of the economy.
Whenever someone is trying to push one economic theory over another the key question you need to ask is cui bono.
> Why would people not invest (or spend for that matter)?
People will still invest, but risk tolerance goes way down and ROI expectations go way up.
Concretely, your business plan has to compete with "I can get an x% return by putting my money under my pillow", and x becomes very large in a highly deflationary economy. Place yourself in the shoes of a person seeking investment in a productive business, and the problems with a deflationary economy become obvious. Being good isn't enough. You have to be better than "sit on my ass and get rich doing nothing".
In other words, the primary concern in a deflationary economy is discouraging value-producing economic activity.
Also, all of this is wrt deflation in general. Notice that a fiat currency can easily be deflationary. The deflationary nature of gold standards is a major component of the criticism of gold standards, but there are also other reasons that people oppose gold standards.
> Same can also be said about spending. As a contemporary example why would anyone buy a computer today when they know that in the near future they can get a better model for less? The whole computer industry thrives in a price deflationary sector of the economy.
People still buy computers because having a computer today helps capture value that you can't capture by having a better computer tomorrow. For consumers, entertainment tonight. For businesses, automating processes today.
> Whenever someone is trying to push one economic theory over another the key question you need to ask is cui bono.
That's not quite fair. There are people motivated by truth and there are also people motivated by ideology.
You buy the computer when you need the computer. No one buys (or no one with any sense) a computer today if they won't be turning it on for a year.
In an inflationary economy you are motivated to spend the money early, rather than late. And as buyers predominantly drive the economy and not sellers, this keeps things moving at a reasonable tempo (barring extreme inflation).
In a deflationary economy you are motivated to spend the money later. And, again, as buyers drive the economy more than sellers, this slows the pace of the economy. [0]
Right now it is to my benefit to buy a house for $200k and secure a $180k loan at 3% interest because with inflation the real interest rate is actually more like 1% (assuming the target of about 2% inflation per year).
In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.
The lender comes out great, they still get their 3% interest and the effect of deflation. The borrower gets shafted, they're paying back much more than the property is worth by the end of the loan (even worse than under inflation).
However, while buyers get to drive much of the economy compared to sellers, lenders have control of the capital and are in a better position to set the terms than borrowers. So under deflation buyers are doing fine, lenders are doing better than now, sellers are meh, and borrowers are screwed.
[0] Why I say buyers drive an economy more: It is very difficult for seller to force a sale. The buyer almost always has a choice. Now, the seller can set the price but as they want to remain profitable they can only push it so high before they lose sales to competitors who recognize the opportunity to undercut and remain profitable.
> You buy the computer when you need the computer.
But this isn't a general rule for other goods and services so they have to devalue the currency to encourage people to not save? Because monetary inflation is basically a tax on savers.
> In a deflationary economy that $180k loan at 3% would have a real interest rate closer to 5%.
Which is why they would adjust the interest rate to take deflation into account.
I can see this argument in today's economy since inflation is built into everyone's calculations and borrowers would be hurt if they couldn't rely on inflationary pressure to adjust the interest rate downward but that doesn't prove that deflation is inherently bad, only that people are capable of long-term economic calculation.
Lending dynamics are different in a gold standard economy, with a fixed amount of currency, because banks do not have leverage on lending.
Today, banks need only have ~10% of the money they lend in deposits. The rest is new money. With a fixed money supply, banks can't do that. You divide by 10 the amount of money available to lend. In a gold standard economy, money supply available for financing is much, much more restricted.
The modern economy is a constant bet on future economic growth. Failed bets translate into inflation on a macro-scale, and painful leveraged losses for banks on a micro-scale. With fixed money supply, you cannot bet at all and potential growth is, by definition, much slower.
It's always surprising to me when (not-already-on-the-top-f-the-world) software types see virtue in gold standards. The fact that our work -- moving bits around -- produces so much economic value is an epitome of everything that's wrong with a gold standard.
