On March 6 this year, Trump signed an executive order announcing the establishment of a "strategic Bitcoin reserve," stating that the U.S. government would not sell its existing approximately 200,000 Bitcoins and would continue to increase its holdings in a "budget-neutral" manner. On July 18, he signed the "Genius Act," establishing regulatory rules for stablecoins pegged to the U.S. dollar. Meanwhile, Hong Kong's "Stablecoin Regulation" officially took effect on August 1, establishing a framework for licensing, reserve regulation, and redemption guarantees.
The cryptocurrency industry, which has been around for 16 years, has long resided in the "Wild West" where state power is difficult to reach due to its decentralized nature, yet it has quietly grown into a massive industry with a total market value exceeding $3.5 trillion. The recent surge in regulatory measures marks the industry's integration into the mainstream financial order.
Two ideological threads run through cryptocurrency: one originates from the "cypherpunk movement" of the 1990s, advocating for privacy and freedom through cryptographic technology. The other stems from the history of economic thought, tracing back to Hayek's 1976 work "The Denationalization of Money." This article revisits that book at this moment, reflecting on the origins of money, the monopoly of minting rights, and the grassroots minting experiments in cyberspace.
The Denationalization of Money
[Eng] Friedrich von Hayek | Author
Yao Zhongqiu | Translator
Hainan Publishing House
May 2019
The Monopoly of Minting Rights
The earliest forms of money were not invented by the state but were tools gradually agreed upon by people through countless exchanges, the fruits of spontaneous order.
Before 4000 B.C., people lived in villages of a few hundred, relying on farming, hunting, and gathering for survival, with most people's living radius being only a few dozen kilometers. At this time, the medium of exchange between people could only be considered a primitive form of money, or "natural money," such as livestock, salt, shells, and grains. The common characteristic of these "currencies" is that they have basic functions for trade and value storage but are not easily portable or divisible.
With the spread of metallurgy and the rise of city-states, gold, silver, and copper gradually became used as mediums of exchange due to their durability, divisibility, and portability. This marked the "weight currency" phase, where transactions were valued based on weight and purity.
In the 6th century B.C., the Kingdom of Lydia, located in western Anatolia (now the inland western coast of Turkey), became the first state to mint metal currency. This was closely related to its unique geographical and resource conditions: Lydia was connected to the trade networks of Mesopotamia and Persia to the east and the maritime trade routes of Greece and the Aegean Sea to the west, with merchants gathering and frequent exchanges. The Pactolus River within its territory was rich in natural gold-silver alloy (electrum), which was malleable, easy to smelt, and had a color between gold and silver, providing excellent material for minting.
The royal mint featured a lion's head as a symbol of royal power and credit. Its weight and purity were standardized, allowing for direct valuation by the piece and immediate circulation. Compared to the previous need to weigh and verify the purity of metal blocks, this uniformly minted currency indeed improved transaction efficiency and marked money with the imprint of state power.
From the mid-7th century B.C., Lydia's state minting practices spread to various city-states in the Aegean and the Persian Empire within about 100 years, becoming a model for other countries to emulate. By the 5th century B.C., Greece, Persia, and Mediterranean countries successively established a system of unified state or city-state minting.
The history of paper money mirrored the trajectory from natural money to metal currency: it began in the private sector and was later monopolized by the state. The "jiaozi" from Sichuan during China's Northern Song Dynasty is the world's earliest paper currency, issued with the joint guarantee of 16 wealthy merchants and taken over by the government in 1023. The earliest paper money in Europe appeared in Sweden in the mid-17th century, issued by the Stockholm Bank. As circulation expanded and government regulation strengthened, by the end of the 17th century, Sweden and England successively established central banks, gradually concentrating the power to issue paper money in the hands of the state.
The state's monopoly on minting rights has clear benefits. For private commercial activities, transaction efficiency is enhanced. For the state, it adds a fiscal tool and a source of revenue. However, the drawbacks are more subtle. In the era of metal currency, the state could indirectly tax by reducing the precious metal content of the currency. In the paper money era, the behavior of over-issuing currency lacked constraints. In peacetime, over-issuance might be tolerable, but once war arrives, it is often accompanied by the state printing money frantically, raising military funds while the citizens holding currency lose their wealth. At times of dynastic change or credit collapse, the currency of the previous dynasty often turns into worthless paper.
Many historians have attempted to prove that inflation is necessary for achieving long-term economic growth. Hayek refuted this view with facts. Taking Britain as an example, from the mid-18th century to the early 20th century, through the Industrial Revolution and the gold standard system over 200 years, industrial output and national income doubled, yet the price level remained close to that of the mid-18th century. The same phenomenon occurred in the U.S. during the industrialization wave from the late 19th century to the early 20th century—rapid economic expansion with falling prices, even dipping below levels seen a century earlier.
Hayek's Monetary Ideal
In 1976, the year Hayek published "The Denationalization of Money," Europe and America were experiencing severe inflation. Tracing its roots leads back to the Bretton Woods system on the eve of World War II.
In 1944, to prevent the competitive devaluations and financial chaos seen during the war, representatives from 44 allied nations convened in Bretton Woods, New Hampshire, USA. The conference established a fixed exchange rate system centered on the U.S. dollar: each country's currency was pegged to the dollar, which was convertible to gold at $35 per ounce. This system effectively maintained exchange rate stability and low inflation for nearly 30 years post-war and was widely regarded as supporting the post-war recovery of Europe and Japan.
Entering the 1960s, the system's inherent contradictions gradually became apparent. As the issuer of the global reserve currency, the U.S. had to continuously export dollars to meet global liquidity needs, but the issuance of dollars far exceeded gold reserves. The Vietnam War and social welfare expenditures further inflated the fiscal deficit. By 1971, U.S. gold reserves were insufficient to support the overseas dollar supply. In August of that year, Nixon announced the suspension of dollar convertibility into gold, leading to the collapse of the Bretton Woods system. Over the next decade, oil prices soared, prices rose, and U.S. inflation rates exceeded 13%, while the pound and franc depreciated significantly, yet economic growth stagnated—resulting in a rare phenomenon of stagflation, unprecedented in post-war Western economic history.
Three economists' voices are crucial regarding the birth and demise of the Bretton Woods system: Keynes, Friedman, and Hayek.
Keynes's core argument was that the market cannot achieve full employment on its own; the government must intervene through fiscal and monetary policy to regulate total demand and stabilize the economic cycle. He advocated for increased spending during depressions and tightening during booms to maintain employment and growth. This idea laid the foundation for the post-war Western consensus on "government intervention in the economy," giving rise to the welfare state and central bank macroeconomic control systems. In 1944, he attended the Bretton Woods conference as the chief representative of the British delegation, and his fixed exchange rate and international coordination ideas profoundly influenced the post-war financial order.
Friedman argued that government intervention in monetary policy should be limited, proposing a fixed monetary growth rate to replace arbitrary policy stimuli and establishing an independent central bank to stabilize prices and expectations by controlling the money supply. After the stagflation of the 1970s, Keynesianism faltered, and Friedman's monetarism rose, prompting the U.S. and the U.K. to implement tightening policies and raise interest rates, ultimately curbing inflation.
On the spectrum of "government intervention" versus "free market," Hayek stood at the farthest end. He believed Keynesianism was merely a short-term remedy that inevitably came at the cost of inflation and stagflation. He also disagreed with Friedman's monetarism, arguing that the government's power to issue currency could not be permanently constrained; once an economic downturn occurred, political forces would inevitably triumph over rules, and the printing press would be activated again. Thus, he proposed a more radical solution: since power cannot be limited, it should be stripped away—abolishing the state's monopoly on currency issuance and allowing money to return to market competition.
In Hayek's vision, any private institution, such as banks, chambers of commerce, large corporations, or even international organizations, could issue their own currency. In this competitive system, if a currency depreciated due to over-issuance or mismanagement, the market would automatically abandon it, and the issuer would lose credibility and market share. Ultimately, only the most stable and trustworthy currencies would survive. The value of money would no longer depend on political power but would be determined by market trust.
Hayek further proposed characteristics that an ideal currency might possess: its primary goal should be to maintain stable purchasing power, with value anchored to a basket of representative goods or price indices; issuers should actively adjust the money supply based on market price changes to prevent inflation or deflation; and credibility should be maintained through transparent assets and redemption mechanisms. He also emphasized that the final form of the ideal currency should be determined by market evolution rather than preset by theorists.
Between 1979 and 1985, Hayek's vigilance against state intervention and belief in spontaneous market order provided important ideological support for Thatcher and Reagan's market-oriented, deregulation, and anti-inflation policies. However, his advocacy for abolishing the state's minting rights and allowing currency to return to market competition was never adopted by any government before his death in 1992. Years later, with the arrival of the technological wave of the internet and cryptocurrencies, a series of minting experiments emerged in cyberspace. These experiments became a distant echo of Hayek's ideas.
Minting Experiments in Cyberspace
Today, the most well-known currency born in cyberspace is undoubtedly Bitcoin. However, before its emergence, the internet world had already undergone several minting experiments, all of which ended in failure.
The most widely used among them was E-Gold. Founded in 1996 by former American oncologist Douglas Jackson and lawyer Barry Downey, this company attempted to recreate a gold standard order online. E-Gold issued digital currency equivalent to gold, allowing users to settle in "grams" and transfer across borders, while the company stored corresponding gold assets in vaults in London and Dubai. At its peak, it had over 5 million accounts and an annual transaction volume of $2 billion. In 2007, E-Gold was sued by the U.S. Department of Justice for "money laundering, conspiracy, and operating an unlicensed money transfer business," severely hindering its operations and gradually leading it into liquidation.
Hayek predicted in his book that the state would prevent the emergence of private currencies because the monopoly on minting rights is its most secret source of income. This may be the deeper reason for E-Gold's failure. Its anonymous nature indeed facilitated fraud, drug trafficking, and money laundering. The ultimate result was that while the state cracked down on crime, it simultaneously defended its monopoly on minting rights.
This situation changed after the emergence of Bitcoin. E-Gold relied on centralized companies and physical gold reserves, making it susceptible to regulation. Bitcoin has no issuing institution and no seizable vault; even its founder, Satoshi Nakamoto, remains unknown. It replaces trust in institutions with technology, allowing currency issuance to break free from state and corporate control for the first time. However, lacking a physical anchor, its value primarily depends on network consensus, the energy invested by miners, and operational costs, leading to extreme price volatility. This high instability further distances it from Hayek's envisioned ideal currency—a currency that maintains stable purchasing power in free competition.
Subsequently, new experiments followed one after another. People attempted to pursue stability and order in the ungoverned territory of blockchain. The most significant attempts can be roughly divided into two categories.
The first category has an internet gene. The most representative example is Meta (formerly Facebook), which announced Libra in 2019. This project was ambitious: it was jointly established by over twenty institutions, including Visa, Uber, Temasek, and Coinbase, with plans to issue a global digital currency pegged to "a basket of fiat currencies and short-term government bonds," aiming to create a cross-border payment and settlement network. However, before the project could be launched, it faced strong backlash from regulators in Europe and the U.S.—concerns about its threat to monetary sovereignty, impact on financial stability, and even violations of privacy and antitrust laws. Three years later, Libra was stillborn, and the ideal dissipated.
The second category carries the genes of cryptocurrency and can be further divided into three types: algorithmic stablecoins, over-collateralized stablecoins, and stablecoins pegged to real assets. Algorithmic stablecoins are attempts to maintain currency value stability through algorithmic mechanisms. The most famous example is Luna, which collapsed in 2022, reaching a market cap peak of $40 billion. After the collapse, it became clear that it resembled a Ponzi scheme disguised as an algorithm. Over-collateralized stablecoins are minted on the blockchain using assets like Bitcoin and Ethereum as collateral, creating digital currencies equivalent to $1. Their collateralization rates are usually over 150%, meaning that to generate $1 of stablecoin, assets worth $1.5 to $2 are often locked up. The low utilization of funds has prevented widespread adoption.
What has truly entered the mainstream are stablecoins pegged to dollar assets. The two most representative companies are Tether and Circle. The former generated over $13 billion in net profit last year with a team of about 150 people, while the latter went public on the New York Stock Exchange in June this year. The core models of both are essentially the same: they use high liquidity assets such as cash, U.S. Treasury bonds, and short-term deposits as reserves to issue "on-chain dollars" in roughly equivalent amounts. The difference is that Tether also holds a small amount of non-typical liquid assets like Bitcoin and gold. From Hayek's perspective, these companies are not competitors to the dollar but extensions of the dollar's credit—a form of shadow dollar.
Thus, we return to the starting point: the denationalization of money has not yet been truly realized. In today's financial order, there is no widely used currency that can ensure value stability without relying on state credit. Will such a currency emerge in the future? If Hayek were alive today, he might, like me, want to know the answer to this question.
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