alternative b-money creation

Wei Dai weidai at eskimo.com
Fri Dec 11 15:18:34 PST 1998



On Fri, Dec 11, 1998 at 02:27:10AM -0800, bill.stewart at pobox.com wrote:
> It still doesn't solve the fundamental problem with the b-money idea,
> which is that there's no reason anybody should want to accept it,
> any more than they should want to accept dead-president fiat paper money.
> It fixes some symptoms of fiat money, but not the fundamental problem,
> because it's still fiat money, just with mathematically interesting 
> artwork printed on the front.

This argument is based on the misconception that people have no reason to
want to accept fiat money. But actually fiat money is valuable because it
performs a service for those who use it, namely the service of a medium of
exchange. It's value derives from the fact that there is positive demand
for a medium of exchange, and the fact that its supply is finite and
controlled by a sufficiently benevolent agency.

Think about it this way. In the case of commodity money, its value comes
partly from the industrial/aesthetic value of the commodity and partly
from the usefulness of the commodity money as a medium of exchange. In the
case of fiat money and b-money, all of its value comes from its usefulness
as a medium of exchange.






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