Thinking About Money, Part I: How Many Monies Should There Be?

We don’t know who discovered water, but it wasn’t a fish.

We think we think about money, but as we have grown up in cultures permeated with money, it turns out to be extremely difficult to think about money. Indeed, one of the great contributions of cryptocurrencies has been the necessity, or at least opportunity, to reevaluate our understanding of money. For instance, SEC commissioner Gensler:

It’s unlikely that 5,000 or 6,000 private forms of currency are gonna persist. Economic history tells us that’s unlikely. A handful might be competing with gold or silver as a digital speculative store of value … but not many of them. Most of them are speculative asset vehicles.

There are currently more than 10,000 cryptocurrencies. That seems like a large number because most people live in a world where they deal with one local currency and perhaps use another, US Dollars or Euros, for international transactions. Also, we associate currency with states and there are only about 195 countries in the world and they don’t all issue their own currency. So 10,000+ cryptocurrencies seems like a silly number and an example of the absurdity of the entire world of blockchain and DeFi.

The history of money suggests 10,000 is neither an absurd nor a particularly large number. The Hellenistic world circa 300 BC floated over 1,000 different currencies minted across 2,000 or so city-states. With a population of perhaps twenty million, that would mean a different currency for each 20,000 people. Similarly, Medieval Europe had hundreds of different coin minting authorities — from free-cities to kings. Augsburg, an ancient German free-city, had at times three different minting authorities operating simultaneously — church, royal and city mints. Similarly, during the 10th Century in China, various states and regions had their own coinage and merchants experimented with early forms of paper currency. Therefore, dozens, hundreds or thousands of currencies were not an exception but more generally the rule throughout the pre-modern world. And this does not count the array of goods — tea, salt, tobacco, pelts — used concurrently with coins as currency. Given a population of 7.7 billion and a world economy of $80 trillion, 10,000 doesn’t really seem like that many.Over the last two centuries, states swiftly moved to arrogate the creation of currencies. And as these states grew larger and fewer, it seemed natural that the number of currencies should be relatively small and that there should be a steadily decreasing number until only a few, or perhaps one, was left. The success of states in taking control of issuing currency obscures the longer history of money. The advent of cryptocurrencies is not an aberration but rather something like a return to historical norms. So rather than just claim there are too many, one could ask; what is the right number of currencies? Or, even more pointedly, who decides how many currencies there should be? Certainly many of the existing currencies will fail. Yet, if the history of money teaches anything: all currencies fail eventually; money on the other hand, it just won’t die.