The ICPI and Bitcoin as an Ideal Money Basis

Confessions of the Maximalist View

Adam Back, George Selgin, and Saifedean Ammous are all quoted as suggesting Nash’s proposal Ideal Money rests on using a basket of commodity prices as its basis. Here we will disambiguate the truth of this. Nash defines the ICPI in his Southern Economic Journal Article:

It is noteworthy to point out the basis for the proposal is stated to be ‘non-political’ in nature. This is will be relevant later in this writing.

Why Multiple Commodities for a Standard and Not (Just) Gold

The idea of using a basket of commodities and/or commodity pricing extends from the consideration and observations of using gold as a global standard for money. Whereas economists are left fighting about whether or not a gold standard is a favorable scenario for the global economy, Nash instead, inquires about the advantages and disadvantages.

The disadvantages are what lead Nash towards a direction of an ideal basis for our existing currencies:

It’s notable to consider that the location of the mines associated with the commodity or commodities chosen for a standard could cause geo-political conflict because Bitcoin mines don’t have specific geo-locations to capture.
Although at this point to the reader, it might seem absurd to consider Bitcoin for this role, these disadvantages of gold, which are alleviated by the convention of an ICPI (aka a basket of commodity prices), are ALSO NOT weaknesses that would significantly affect Bitcoin if Bitcoin were to be used as the single global basis for currency stability.

Where the ICPI Fails Is Where Bitcoin Succeeds

This is where it gets important to understand the nuance that Back et al appear to have missed. Nash explains a fatal problem with the implementation of an ICPI:

What is also said here is that one or some of the commodities chosen for all of the central banks to target could have dramatic price fluctuations if there happened to be technological advances that affected the cost to produce the commodities.

Nash chooses the thought experiment of a miracle energy source to make his point that you would then need to re-weight the basket to adjust for this market imbalance. Re-adjusting the weighting of the ICPI composition would require political discussion and intervention which was the process was meant to replace in the first place.

Satoshi Solved the Problem Nash Posed

For Bitcoin enthusiasts an alarm should be going off. We ask what happens with Bitcoin if it were used as a global basis for value standardization and a miracle energy source dramatically reduced the cost to mine it. In Satoshi’s words:

With Bitcoin if the cost to mine were significantly reduced the network would be flooded with hashpower looking to profit. However, the Difficulty Adjustment Algorithm (DAA) adjusts the cost to mine in a time/moving averaged response to such changes. The crux of the algorithm Satoshi implemented in Bitcoin, the Difficulty Adjustment Algorithm, is EXACTLY what Bitcoiners herald as the brilliance Satoshi brought to the iteration of digital money implementations. And it happens to exactly solve the problems Nash outlines with the ICPI concept.

Nash and Satoshi’s Quests to End Central Bank Pardoning

Many complaints of our modern day global financial system and especially the recent quantitative easing responses to the covid pandemic are addressed by the implementation of an Ideal Money standard:

Without any other counter-argument it might be that the circumstances of the global economy only increase the general demand for an Ideal Money standard. As for the ICPI it was only a bridge to understanding and expressing a general direction for ideal-ness not for a certain type of money or money issuer (such as Satoshi) but rather ideal-ness in regard to a basis for our existing global currencies. The ICPI concept simply helps illuminate the vector for ideal-ness:

Is a Deflationary/Bitcoin Standard Ideal?

We are then only left with the question of whether or not Nash intended the basis for all major global currencies to be value stable or, for example in regard to how many perceive the implied value of Bitcoin to be, whether or not there could be a deflationary basis for our global currency systems:




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