Private companies providing currency have a much better incentive to keep price levels constant. But it is unlikely that governments will want to give up the power to earn seigniorage (the difference in value between what the currency can buy and the cost of making it -- so a $50 bill may only cost a few cents to make, it buys $50). Some system of taxation might allow governments to extract that seigniorage, though government taxation might go well beyond that amount. The UK Guardian has an interesting article:
The UK should privatise the pound and replace it with a cryptocurrency like bitcoin, according to a paper published Wednesday by the free-market Institute of Economic Affairs.
Kevin Dowd, a professor of finance and economics at Durham University, says that although bitcoin isn't the first example of private money, it is the first that governments can't shut down. Therefore, he says, authorities should admit that it's here to stay, and allow competition on a level playing field between all alternative forms of money.
That might include allowing taxes to be payed in cryptocurrencies such as bitcoin and dogecoin, or even fully privatising the pound, selling off the right to mint the currency to the highest bidder.
"Let's suppose that bitcoin became a very prominent currency," Dowd told the Guardian. "[To ensure a level playing field], the government itself would accept bitcoin in tax payments. So, in effect, the government should not be favouring its own currency, or any particular currency, through any of its unique powers. Nor have regulations against them.
"The natural analogy is with some of the old, bad, monopolies like British Gas or British Telecom. Telecom is a very good example: for a long time, we had a government monopoly, which stifled innovation, and the service was poor. Once that got opened up, competition opened, new innovation prospered, and we got all sorts of innovation that we couldn't possibly anticipate, and we're a lot better off for it." . . . .
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