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1. store of value 2. store of value 3. easily divisible 4. easily transferable 5. widely accepted In this case, NOT backed and regulated by the govt is a good thing
They are virtual, so only exist in an electronic form.
My biggest concern is that they are generated by a computer code, and any code can be broken if enough time and effort is thrown at doing so. I have no doubt that the NSA has or can do so should they be given the task. Thus, as with any other currency, they could dramatically increase the supply, thus making them virtually worthless, should the need ever arise. It is more difficult, although not impossible, to do that with a "hard" currency.
"If the debt which the banking companies owe be a blessing to anybody, it is to themselves alone, who are realizing a solid interest of eight or ten per cent on it. As to the public, these companies have banished all our gold and silver medium, which, before their institution, we had without interest, which never could have perished in our hands, and would have been our salvation now in the hour of war; instead of which they have given us two hundred million of froth and bubble, on which we are to pay them heavy interest, until it shall vanish into air... We are warranted, then, in affirming that this parody on the principle of 'a public debt being a public blessing,' and its mutation into the blessing of private instead of public debts, is as ridiculous as the original principle itself. In both cases, the truth is, that capital may be produced by industry, and accumulated by economy; but jugglers only will propose to create it by legerdemain tricks with paper."
- Thomas Jefferson to John W. Eppes, 1813. ME 13:423
Were STV the explanation about why fiat currencies "work", there would be no need for legal tender laws. I argue people only "value" fiat currencies because of legal tender laws which force their acceptance. No true individual value judgements are being made, and these are the foundation of STV.
Referring to Mises' Theory of Money and Credit, Chapter 8:
http://mises.org/books/Theory_Money_Cred...
In Chapter 8 part 4, Mises points out how economists have tried to make the case that STV applies to money as well as goods/services, but have come up short. You make statements in your post how STV suggests the value of "a good or currency". My reading of Mises as well as the Wiki on STV suggests you ought not be mingling money with goods and services.
Chapter 2 of that link make the argument that whatever money is...it has a REAL value. To say "currency backed by something goes against the very basics of Austrian Economics", well, explain that further, please. The Austrian explanation of money boils down to the "Regression Theorem" http://mises.org/daily/1333
When Austrian School economist Hayek suggested competing private fiat currencies could work, he was ridiculed for it. https://mises.org/daily/1854
Austrians are for sound money. That means in practical terms a currency that is tied to sound money.
You wouldn't see so much ridicule about Fiat money and so much stress on Gold from the Austrian crowd if what you're saying is really true.
Of course, that prevents the politicians from manipulating things to their benefit, thus, is unlikely ever to be enacted by any legislature.
See also: http://mises.org/daily/2623
Particularly, the section "The impossibility of a stable purchasing power of money"
Further quote from section "The Call for Free-market Money":
"It might sound paradoxical to most mainstream economists, but to Austrians it is the very objective of price stability that contributes strongly to making a dismal prediction. The "index regime" provokes repeated government intervention and misalignments, which, sooner or later, result in serious economic and societal crises."
I would call the interest rate the "cost of money".
Now, I can see your angle if in your view a bank has a storehouse of money sitting in its vault not doing anything, and a lowering of the interest rate creates a desire for someone to borrow that money, thereby increasing the "supply" that is now circulating in the economy. But that's an entirely different matter than supply being the "creation of new money". Do I understand or misunderstand you? I would say in our fiat system that it's a bit flipped around from your statement. The supply of money is controlling the interest rate. QE has sent interest rates to the floor.
That is different from the overall supply, however. That needs to keep pace with overall economic activity otherwise an imbalance begins to occur (usually causing a shortage, but if there had been reducing economic activity could cause an oversupply and inflation).
It is the "overall supply" that I am discussing. So - say there was an economy with a 100% gold-backed currency and the Austrian economists determine that the overall supply of money must be increased to keep pace with economic activity.
How do they do it?
The nice thing about gold (or any non-human mechanism that controls the amount of supply of money) is that it is self regulating. The one caveat is that if a mountain of gold, previously unknown, were suddenly found, then hyperinflation would occur. This is one of the reasons that you should never look to diamonds as a source of backing for a money. The Russians have tons of them stored, as do the Belgians - both control the supply to keep prices high, but both have huge reserves that could flood the market at any time.
This reasoning of "oh man, we've got so much economic activity going on right now. We need to print more money" just never made any sense to me. During high economic activity, the money's just changing hands. It's not being destroyed or hoarded.
Can you paint a scenario for me where the supply of money is insufficient to keep up with the activity?
In my view, a 'high' supply of money simply makes money less valuable and prices go up to adjust. Conversely, a 'low' supply of money simply makes money more valuable and prices go down to adjust. Until/unless you get down to the point where your smallest unit of currency won't buy the smallest thing available to purchase, or unless you've got a population/money ratio so out of whack that there's not enough money for everyone to have one unit of it, I don't see a problem. Prices just keep adjusting downward, and what's wrong with that?
Arbitragers make use of this in their trades in order to make money. and they make a lot.
Very few countries peg their currency to another countries. they would rather it float. This allows the banks to influence the exchange rations etc as they try to establish a relatively quiet money market. They don't always succeed.