The Fiat Standard by @saifedean lays out the extraordinary operations of the fiat system. This thread is a quote summary of Chapter 3: Fiat Technology.
“At its essence, the Fiat Standard destroys savings and planning for the future in order to operate a payments network.”
“At its essence, the Fiat Standard destroys savings and planning for the future in order to operate a payments network.”
"between 1914 and 1971, the global monetary system gradually and messily moved from the gold standard to the fiat standard. Governments effectively took over the banking sector everywhere, or the banking sector took over governments."
"the fiat standard was born out of the need for governments to manage their de facto default on their gold obligations. It was not consciously designed to optimize the user experience of currency, transactions, and banking."
"Fiat is a compulsory implementation of debt-based centralized ledger technology monopolizing financial and monetary services worldwide."
"The network’s native token, fiatcoin, is mined through an arcane, centralized, manual, risky, and haphazard process called lending."
"The fundamental engineering feature of the fiat system is that it treats future promises of payment of money as if they were as good as present money, so long as they are issued by the government, or an entity guaranteed a lending license by the government."
"In the bitcoin network, only coins that have already been mined can settle txs. In a gold-based economy, only existing gold coins can be used to settle txs. With fiat, govt credit allows nonexistent tokens from the future to be brought to life when the loan is made."
"At any given point in time, any financial institution with a lending license is able to bring new fiat tokens into existence.."
"Rather than a set new number of coins being added with each block, as with bitcoin, the number that gets added in each fiat time period is the net result of debt creation, which can vary widely and could be positive or negative."
"When a client takes out a $1,000,000 loan to buy a house, the bank does not take an already existing mature $1,000,000 from its existing cash reserves, or from the balance of a depositor at the bank. It will simply issue the loan and create the dollars."
"But it only works by externalizing the risk to society at large, protecting the buyer, seller, and bank from default by having the government currency holders effectively take the loss through the inflation of the money supply."
"The dollar is the base layer token of the world fiat network, and national currencies are derivatives of it."
"There are in total 180 national currencies in the world today, and the market value of each can best be approximated as the value of the US dollar plus country risk."
"All moneys that exist today are issued by central banks that hold gold in reserve, or central banks that hold in reserve currencies issued by central banks that hold gold."
"While a small percentage of fiatcoin is printed into paper bearer instruments with local insignia, the vast majority of fiatcoin is digital, stored on the central node’s ledger, or on the ledgers of the peripheral nodes."
"The fiat network is based on a layered settlement system for payment clearance."
"Individual banks handle transactions between their clients on their own balance sheets. National central banks oversee clearance & settlement between banks in their jurisdiction. Central banks...oversee clearance across international borders on the SWIFT payments network."
"The fiat network is comprised of around 190 central bank members of the International Monetary Fund."
"[Participation] is not voluntary and not optional; it can be best likened to mandatory malware."
"The core functionality of the fiat standard is lies in the functions of the network’s nodes."
"Under the fiat protocol, each central bank has these four important functions:"
"The Fiat Network utilizes a highly-efficient centralized ledger technology with only one full node required to validate and decide the full record of transactions and balances."
"It is the only entity that can invalidate any transaction and confiscate any balance from any other fiat node. The Fed controls the SWIFT payment network and can prevent entire nations from joining this payments system and settling trades with other nations."
"The digital fiat network offers limited possibility for final settlement, as all balances are tentative at all times and partial nodes, or the full node itself can revoke or confiscate any balance on any ledger at any point in time."
https://twitter.com/anilsaidso/status/1330166600612405251?s=21
"As a centrally-planned system, the fiat standard does not allow for the emergence of a free market in capital and money, where the interest rate, the price of capital, is determined based on supply and demand."
"The Federal Reserve System’s full fiat node holds periodic meetings for its central planning committee to decide the interest rate it charges the nodes it deals with, and all other interest rates derive from this and rise as they get further away from the central node."
"The modern central bank and government song-and-dance routine adopted the world over involves the central bank using its reserves to purchase government bonds, thus financing the government."
"As a central bank buys larger quantities of its government’s bonds the value of the currency declines, since it funds this purchase by inflating the money supply."
"As governments centrally-plan their economies using inflation…individuals start looking to sell the local currency for harder currencies…which could then lead their government to impose capital controls to stop that flow.."
"as these individuals expect the value of their national currency to decline, they are also more likely to purchase durable goods rather than hold on to cash balances.
The government is then likely to retaliate with trade barriers, tariffs, and subsidies."
The government is then likely to retaliate with trade barriers, tariffs, and subsidies."
"As governments restrict the ability of individuals to accumulate or move capital and goods, it becomes harder and harder for individuals to engage in capital accumulation, trade and specialization, and to import advanced technologies."
"The global monetary system …effectively puts the entirety of the local capital markets and all imports and exports under government control. It is able to dictate what can enter and exit the country through its control over the banking sector."
And here's some additional context for understanding how we arrived at fiat:
https://twitter.com/anilsaidso/status/1267844475449008130?s=20
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