The Federal Reserve Note (FRN), also called the “U.S. dollar,” was dubbed the worst investment of the last century. As predicted, 2015 has seen the continued fall in value of the currency that was supposed to fuel an advanced economy. In the last 3 days alone, it has lost 12% in value against Bitcoin. Even more shocking is that in the last 100 years, a whopping 98 % of the FRN's purchasing power was lost.

dollar value since 1913

Trust-Model vs. Decentralized Model

The ominous shadow on the future of the FRN is that it relies on trust – trust in a wholly centralized and largely unaccountable institution. Federal Reserve employees must be trusted not only to be resistant to corruption, but to be perfect fortune-tellers to boot.

What does that mean? With the power to create literally an unlimited number of new dollars, Federal Reserve employees ask that people trust them to magically calculate what the “ideal” amount of money should be. They assert that people should trust they won't play favorites in distributing that new money. They state people should believe that Federal Reserve employees, and not individual lenders and borrowers themselves, somehow know what the perfect interest rate should be.

The basis of trusting unaccountable people has become the Federal Reserve Note’s achilles’ heel. The design of the dollar dictates that the first people to receive newly-created money – which happens to be big banks and the U.S. state – get to spend or lend that money before it loses its value to inflation.

Old Federal Reserve cartoon

This is what has caused the massive wealth redistribution over the last hundred years from the average working person to the political and banking elite.

As the Federal Reserve Note’s value has dropped, the economics of the Internet lead to the creation of the trustless, math-based and totally transparent monies called cryptocurrency (of which Bitcoin is only one).

Where Does Value Really Come From?

The Federal Reserve Note's value relies purely on the belief of the people who buy and sell it. There is no “inherent value,” but rather legal tender laws that threaten to imprison people who create or trade in competing currencies (which explains why the creator of Bitcoin chose to remain anonymous). In other words, the Federal Reserve Note is literal monopoly money.

Once the supposed virtue of monopolization is questioned, the FRN becomes unsustainable. Even if the price of the FRN doesn’t go to zero, the chances that the dollar-using community convinces those who've tried cryptocurrencies that the FRN really represents the future will become extremely unlikely.

For the time being, the FRN still has enough devotees who believe that the currency is viable long-term, and still claim the crown as the future enabler of physical and digital commerce. However, even they are having their doubts that this grand political experiment may have run its course.

Did you enjoy this article? You may also like these ones: