Fiat Monetary Policy Destabilizes and Impoverishes African Economies

[Editor’s note: As explained in How Government Debt, Inflation, and Taxes Impoverish African Economies, government deficit spending, monetary inflation, and heavy taxation are destructive policies that distort, destabilize, and impoverish economies in Africa and globally. This text elaborates on the second section of that article, which focuses on the detrimental effects of fiat monetary practices]

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Over the last 50 years, high inflation and economic instability have been rampant in Africa. Currency crises, resets, and forex volatility have afflicted and debilitated African economies, hindering economic development and prosperity. Some African countries have even experienced hyperinflation, which has had devastating effects. This chaotic and impoverishing situation is not natural or accidental but a result of policy choices, specifically the fiat monetary systems maintained in post-neocolonial Africa (and globally) under the fiat dollar standard.

As explained in Why the Definition of Inflation Was Intentionally Distorted, the definition of inflation has been altered to signify a general rise in prices across the economy, diverging from its original meaning: the artificial expansion of the money supply. This modification is not trivial. It is a fundamental economic distortion and has ruinous economic and societal consequences. A part of the article reads:

The political nature of government causes it to overspend as officials expand its scope and reach. Government budget deficits typically lead to monetary inflation (currency and credit creation), resulting in price inflation and other detrimental effects. In ancient and medieval times, governments debased metallic currency by mixing silver and gold coins with cheaper base metals to allow for deficit spending. Similarly, modern governments engage in currency debasement through more advanced methods.

Contemporary governments continue to maintain a policy of monetary inflation due to persistent budget deficits. Revenue from taxation often falls short of covering the overall budget for the numerous government programs and bureaucratic agencies established over the past decades in the current statist and militarist global order established by Western imperial states.

Another paragraph reads:

It is beneficial to distinguish between the different types of inflation pervading contemporary, state-managed fiat economies to better navigate the confusion surrounding the nature and causes of inflation. Monetary inflation is the artificial expansion of the money and credit supply (money printing), which is the original definition of inflation. Price inflation is a generalized though uneven rise in prices of goods and services across the economy, which is a primary and most noticeable consequence of monetary inflation. Asset price inflation is the artificial increase in financial asset prices resulting from a policy of monetary inflation.

Countries in Africa and worldwide have become afflicted by rampant inflation, currency chaos, and economic turmoil, not due to natural causes or climatic issues but solely due to government policy choices.

African leaders are called to adopt a fundamentally different approach by implementing the nilar, a sound monetary system designed to provide African economies with a stable and reliable currency. The nilar can solve the destabilizing and impoverishing issues caused by fiat monetary policy, such as rampant inflation, arbitrary currency devaluations, and forex volatility that have long tormented and hindered African economic integration, development, and prosperity.

In other words, the nilar is a transformative economic model that can usher in a new reality of integrated, stable, and thriving African economies.

A Source of Injustice, Instability, and Impoverishment

In his debate-settling work on fractional reserve banking, Fractional Reserve Banking Is Fraudulent and Ruinous, social philosopher and economist Manuel Tacanho points out:

Fractional reserve banking is a doubly fraudulent commercial banking model. It is fraudulent when banks use funds from non-interest-bearing accounts to issue loans, make investments, or deposit them at an interest-paying central bank facility, as this practice constitutes an infringement of property ownership rights. It is more egregiously fraudulent when commercial banks create (non-currency) money, meaning they conjure up purchasing power by lending it into existence. Therefore, the interest payments gained over the loan’s duration are partially or entirely fraudulent. A society with a fractional reserve commercial banking system and a central bank has a triply fraudulent monetary system. A monetary system that constitutes a confiscatory structural injustice and leads to ruinous consequences.

In The Fraudulent and Ruinous Nature of Fiat Monetary Systems, Tacanho expands his analysis of the ethics and nature of fiat monetary practices, consolidating that fiat monetary systems are unethical, fraudulent, destabilizing, and impoverishing. They dispossess the majority of their purchasing power and economic well-being.

While fiat monetary policy debilitates economic activity, hurts the many, and impoverishes society, it benefits the state, political elites, the wealthy, and their associates. Fiat monetary practices exacerbate economic inequalities.

Tacanho remarks:

Existing monetary systems feature a fiat national currency and fractional reserve commercial banking. Fiat currencies are an unsound form of money with an unlimited supply typically issued by a government. Fiat monetary systems involve artificially expanding the money and credit supply (monetary inflation) by the central bank and fractional reserve commercial banks. This practice is unethical and fraudulent because it deceives, distorts, defrauds, and destroys. Fiat monetary systems violate the universal moral principles of truth, justice, and nonaggression. They lead to ruinous consequences, such as price inflation, economic distortions, instability, crises, and other issues that undermine economic prosperity and social stability.

Tacanho further notes:

Fiat monetary systems underpin the current statist and militarist global order established by Western imperial states. Although money and credit creation, also known as money printing, had been rampant before the remaining link to gold was removed by the Nixon administration in 1971, it became effectively institutionalized worldwide since then, as this fateful decision made the United States dollar and therefore, the world’s national currencies, completely fiat forms of money. Fiat currency systems are inherently problematic monetary arrangements with a track record of causing economic instability and devastation since their introduction during China’s Song Dynasty around the 10th century CE.

Over 40 national currencies exist in Africa, many of which are unstable and unreliable. This lack of currency stability and reliability hinders economic development and prosperity on the continent. The unstable, untrustworthy, and detrimental nature of fiat currencies has been a destabilizing and impoverishing element of the current statist socioeconomic systems, severely hindering African capital formation, economic stability, development, and independence.

Additionally, frequent forex volatility and arbitrary currency devaluations are longstanding issues that continue to afflict and debilitate African economies, aggravating the detrimental effects of existing fiat monetary systems. Indeed, fiat monetary policy has been an unjust, destabilizing, and impoverishing element of contemporary state-managed economies.

Post-neocolonial Africa has been plagued by severe economic instability, with rampant inflation, currency crises, erratic currency devaluations, and even cases of hyperinflation. As mentioned, this chaotic and impoverishing situation is not accidental or natural but an inherent consequence of policy choices and centralized fiat monetary management. As a result, economic turmoil rather than stability has been the norm in postcolonial Africa, leading to continued stagnation, impoverishment, and hardship.

The monetary history of post-neocolonial Africa can be summarized in three words: turmoil and impoverishment. The current era of central bank-managed fiat monetary systems, or fiat monetary policy, continues to devastate economies worldwide, but it has been notably destabilizing and ruinous to African economies. Decades of currency printing, rampant price inflation, arbitrary devaluations, and forex volatility have had an immeasurably detrimental impact on the continent, severely hindering African capital formation, economic development, and prosperity.

Fiat monetary policy has not only hindered African capital formation, economic stability, and growth but has also been a significant factor contributing to African capital and talent leaving the continent. It has further hampered economic development by repelling foreign capital and talent instead of attracting them.

Fiat monetary practices, such as currency debasement and arbitrary devaluations, often directed from outside Africa, dispossess people of their hard-earned purchasing power and rob them of economic well-being. The adverse effects of these currency systems on Africa’s economic landscape and people cannot be overstated, as they have been a primary destabilizing and impoverishing policy of contemporary state-managed economies. In other words, fiat monetary systems are cruel and oppressive, constituting a confiscatory structural injustice in existing statist socioeconomic systems.

Figure 1: The present era of fiat monetary policy has been particularly chaotic, destabilizing, and impoverishing for African economies.

Understanding that monetary inflation (currency and credit printing) has a severely detrimental impact on society and people’s lives through various adverse effects such as price inflation, boom-bust cycles, and persistent economic instability is imperative. Currency printing can cause a catastrophic economic collapse through hyperinflation if used persistently to enable government deficit spending.

It is concerning that mainstream (and other statist) economists, along with most politicians, remain unwilling to acknowledge the destabilizing, destructive, and unsustainable nature of fiat monetary systems. Despite overwhelming evidence from various countries throughout history demonstrating the ruinous and often catastrophic consequences of monetary inflation, most contemporary economists persist in defending and endorsing fiat monetary practices. This stance exposes the inherent biases, flaws, and ideological underpinnings of economic models that involve credit and currency printing.

Figure 2: Fiat monetary systems have caused rampant inflation, economic turmoil, exacerbated wealth disparities, and other detrimental effects that continue to debilitate and afflict economies worldwide.

As the economist Ludwig von Mises warns:

If inflation could go on forever, there would be no point in telling governments they should not inflate. But the certain fact about inflation is that, sooner or later, it must come to an end. It is a policy that cannot last. In the long run, inflation comes to an end with the breakdown of the currency; it comes to a catastrophe, to a situation like the one in Germany in 1923 [or Angola in the 1990s, Zimbabwe in the 2000s, Venezuela more recently, among other cases].

A stable, reliable, and uncorrupted currency is crucial for economic stability and prosperity. Coupled with property rights, minimal taxation, the rule of law, and economic freedom, a stable and honest currency, such as a commodity-linked currency system, encourages local capital accumulation and investment, fostering sound economic growth, prosperity, and other societal benefits.

In contrast, fiat currency systems are inflationary and destabilize the economy, leading to injustice, instability, and impoverishment. They cause boom-bust cycles, rampant price inflation, and other detrimental issues that undermine economic development, prosperity, peace, and human civilization. Fiat monetary practices are an odious form of corruption institutionalized worldwide by the West, led by the United States under the fiat dollar standard.

Fiat monetary policy undermines capital formation, investment attraction, and productive, market-driven enterprise, which are crucial for economic development and prosperity. Economic development is significantly stunted in nations with such currency systems. The more inflationary and erratic a national currency is, the more detrimental it is to economic development, prosperity, and social peace.

Fiat monetary systems cause rampant inflation, economic instability, stagnation, and hardship in Africa and around the world. This policy choice hampers African countries’ ability to build and accumulate capital, keeping the local pool of capital at an artificially deficient level. This, in turn, significantly limits the African capacity for investment, entrepreneurship, and production, hindering economic and technological independence.

African countries have become highly dependent on aid, loans, and foreign capital injections. The development aid model, consistently pushed by the West, leaves African governments increasingly indebted and at the mercy of foreign creditors. This erodes their sovereignty and increases their subservience to Western and other countries.

To compensate for fiscal shortfalls and manage growing debt burdens, African governments resort to more currency printing and impose heavier taxation, further destabilizing, impoverishing, and tormenting the continent’s repressed and stagnant economies.

The current statist approach of government-managed economies is arbitrary, confiscatory, and oppressive. It dispossesses people of their hard-earned purchasing power and economic well-being as the national currency is methodically debased, taxes increase, and economic conditions deteriorate.

Fiat monetary systems devastate the economy, causing injustice, instability, impoverishment, and artificially induced human suffering. A stable and honest currency, preferably an entirely sound monetary system like the nilar, is the principal element for economic development and prosperity and for fostering free, just, and peaceful societies.

The Fundamental Good In the Economy

As first noted in Money Demystified: Understanding Why, How, and What It Is, money is the cornerstone of indirect exchange societies and the fundamental good in the economy, without which modern society cannot function and thrive. It represents purchasing power, intermediates economic transactions, and communicates crucial information, incentives, and disincentives that guide economic decision-making and activity. This provides an ethical and effective mechanism that coordinates the economy in a noncoercive, optimal, and beneficial manner.

The implications of money extend to all aspects of human life. Thus, society’s currency system must be as honest, stable, and reliable as possible. The economy becomes distorted, unstable, and troubled when the national currency is manipulated through fiat monetary practices, the core of which is artificial currency and credit supply expansion. This monetary corruption spreads throughout society as state control expands, leading to a bloated bureaucracy, repression, economic instability, and deterioration.

A part of the paper reads:

Money plays an essential role in modern society as the tool that facilitates the exchange, account, transfer, and store of economic value. It enables large-scale labor division, human cooperation, knowledge sharing, economic development, cultural refinement, and other benefits. Money is a principal element enabling human progress and civilization. Therefore, given its crucial functions and far-reaching implications, money must be as honest, stable, and reliable as possible.

When corrupted and politically manipulated, though it does not cease to perform its vital functions, money becomes an instrument of nationwide fraud, structural injustice, and tyranny that leads to ruinous consequences. Money is the lifeblood of the economy. When it is corrupted, the economy falters, and society suffers. Thus, maintaining a sound monetary system is morally and materially imperative.

The detrimental impact of fiat monetary policy on society is subtle yet extensive and devastating, especially in Africa and other developing regions, where it has been notably ruinous. Existing fiat currency systems perpetuate tyranny, poverty, instability, and structural injustices, causing widespread suffering and destruction of lives. A sound currency system must be implemented for African economies to eliminate rampant inflation, currency crises, forex volatility, and other detrimental issues stemming from fiat monetary policy.

It is morally, economically, and geopolitically imperative for African nations to break free from the shackles of imported statist economic models, most destructive among them fiat currency systems, which perpetuate a ruinous cycle of rampant inflation, economic turmoil, stagnation, hardship, sociopolitical instability, and dependence in which they trap Africa. Africonomics offers the nilar.

A stable and reliable currency is essential for solving Africa’s longstanding monetary and economic woes. Without a sound and shared currency like the nilar, African economic integration, transformation, and liberation will remain unrealized. African leaders are morally obligated to provide African nations with a stable and reliable currency, such as the nilar, to foster economic development and prosperity.

Instead of hoping for an alleged BRICS currency, African policymakers can transition from the unjust, destabilizing, and impoverishing fiat currency systems to the nilar, a gold-based monetary system designed for African economies. This shift would bring a much-needed stable and reliable currency, ending Africa’s chaotic and ruinous fiat currency era.

The nilar is a transformative economic model for building a new reality of integrated, stable, and thriving African economies, leading to a prosperous and dignified postcolonial Africa.

Conclusion

Fiat monetary systems are a source of injustice, instability, and impoverishment. Their unstable, unreliable, and ruinous nature has significantly hindered economic development and prosperity in Africa and worldwide. Neocolonial Africa has been afflicted by incessant currency problems and economic instability, which are not natural but result from government policy choices, specifically Africa’s fiat currency systems under the fiat dollar standard.

The present era of central bank-managed fiat currency systems has proven incredibly chaotic and ruinous. Decades of currency printing, arbitrary devaluations, rampant inflation, and forex volatility have severely undermined African capital formation, economic development, and prosperity. African policymakers are called to abandon fiat monetary policy, which has proven destabilizing and impoverishing, and adopt the nilar to foster integrated, stable, and thriving African economies.

Fiat monetary systems are unethical, fraudulent, uncivilized, and ruinous, constituting a central structural injustice in existing statist socioeconomic systems. African leaders bear a moral, economic, cultural, and geopolitical obligation to provide African economies with an honest, stable, and reliable currency system. Africonomics offers the nilar, a gold-based monetary system formulated for Africa.