Answer: Bitcoin is the best form of money we have today.
Question: What do you mean by the best form of money?
Answer: Before explaining its superiority, may I ask you what is money? What does it do? What do you know about the history of money? Who issues it, governments or people?
Question: Why should I waste time understanding these questions?
Answer: Money is one of the most important things in the world. It is what you work for in the morning, it is why people or governments fight, it can enslave or liberate you, and it holds many other significant roles. Money is the backbone of the world economy. If there is an economic crisis, it leads to chaos. An economic downturn was one of the reasons for the collapse of Somali Government.
Question: I understand its importance and more, but are you saying Bitcoin can replace the current money systems?
Answer: Yes, it aims to replace government-issued currencies such as the Somali Shilling, US Dollar, and Euros.
Question: How is it possible for a digital currency to overthrow national currencies, symbols of national sovereignty?
Answer: Let’s clarify two points. First, what are the problems or benefits of government-issued money (Fiat Money)? Second, what is the function of money? Briefly, Fiat Money is one of the greatest calamities afflicting the world.
Question: Before asking about the function of money, are you saying Fiat Money is a global calamity?
Answer: Yes, it is a disaster not only for the world but also for the hereafter. Most Fiat Money is based on Riba, a major sin worse than adultery. Thus, its harm outweighs its benefits.
Question: Explain more about the harm of Fiat Money?
Answer: It caused the collapse of the Somali government. The wars of the past century, including World War I and II, Iraq, Afghanistan, Palestine, and many others, were facilitated by Fiat Money. It also harms individuals: increasing stress, family breakdowns, children turning to crime due to financial disputes between parents, and more.
Question: Are you saying all these problems stem from Fiat Money?
Answer: Yes, all these issues are caused by a few people controlling central and commercial banks, closely tied to governments.
Question: Okay, now I’m interested. Explain what money is, who issues it, and when Fiat Money began?
Answer: Starting with what money is and its functions: 1. Medium of exchange – an item used to trade for goods and services.
Question: Are you saying if I have camel milk and want to buy clothes but the seller wants rice instead, money acts as an intermediary? I sell the milk for money, then buy clothes or anything else.
Answer: Correct. Another function is 2. Store of value – it retains value over time.
Question: I understand, if I earn 100 shillings today and save it, it should buy the same amount in the future.
Answer: Precisely. The final function of money is 3. Unit of account – a standard for measuring value.
Question: I get it. We need a standard to know the value of goods like camel milk or a car.
Answer: Exactly. Now, if we understand the functions of money, let’s discuss its origins. Initially, people used barter – exchanging goods directly.
Question: This seems impractical in today’s world and could only work in small, close-knit communities.
Answer: True. People then used items like hides, salt, precious stones, and metals like gold, silver, and copper. Gold and silver have been used for thousands of years, starting with individuals, but later controlled by governments.
Question: So the best forms of money like gold and silver were not initially issued by governments. Is it necessary for money to be government-issued?
Answer: The goal is to move money control away from governments. Gold and silver, though used for a long time, were hard to produce and acquire, making them valuable over time.
Question: Money should be hard-earned, retaining value even after decades.
Answer: Exactly. Its limited supply ensures its value. For instance, gold and silver production is minimal compared to existing reserves.
Question: Why did we move away from gold and silver?
Answer: Before discussing why we abandoned them, let’s continue with the history of money. Banks emerged, initially privately owned, to safeguard people’s gold and provide receipts as proof.
Question: Did businessmen start banks?
Answer: They began as private entities. Banks noticed that most people didn’t withdraw their deposits simultaneously, allowing them to issue more receipts than actual gold held, earning interest.
Question: So people started using deposit receipts as money, avoiding the need to physically handle gold?
Answer: Correct. For example, a bank holding 10 kg of gold for 10 people could issue 12 receipts, effectively creating 2 kg of non-existent gold, which they loaned out for profit. This led to an excess of money in circulation compared to the gold supply.
Governments later monopolized money issuance, leading to Fiat Money around the early 20th century (~1914), disconnected from gold or silver.
Question: Can we say governments realized they could print money without gold backing?
Answer: Yes. During WWI, the Bank of England, tied to the government, falsely claimed bonds were sold, then printed money to fund the war. This marked the start of fiat currency.
Question: WWI, leading to WWII, was fueled by Fiat Money?
Answer: Yes. If money had remained tied to gold, governments couldn’t fund long, costly wars. WWII was a continuation of WWI, leading to the US Dollar becoming the world’s reserve currency.
Question: Did money lose its gold/silver backing after WWI?
Answer: Yes, or more accurately, that was when the deceit began. After WWII, the US Dollar was the only currency linked to gold until 1971, when President Nixon announced the end of gold-backed dollars, allowing the US to print money at will.
Question: Why did Nixon do that?
Answer: As government expenses exceeded revenue, the US, needing money for its activities, severed the gold link. Nixon then secured an agreement with Saudi Arabia to sell oil only for US Dollars, ensuring global demand.
Question: This gave the US a huge advantage, printing money that the world had to use.
Answer: Yes. Even if you use your national currency, it is indirectly tied to the US Dollar, controlled by the central bank.
Question: So, if Saudis use Riyals, does the Saudi central bank use dollars?
Answer: Exactly. Printing money causes inflation, a painful issue. The US shares its inflation with the world, devaluing the dollar annually.
Question: The US, with the world’s strongest economy, benefits from widespread dollar use, allowing it to print trillions without much impact due to high demand.
Answer: Yes. Now, most dollars, pounds, euros, etc., are digital, with a small percentage in cash. This digital money is largely created through fractional reserve banking by commercial banks, authorized by central banks.
Question: What is fractional reserve banking?
Answer: If you deposit $1000, the bank can lend out $900, keeping only $100. Banks create more money than they have deposits, earning interest on the loans. This system is called fractional reserve banking.
Question: I heard banks don’t even need reserves now, creating money digitally as they wish?
Answer: Correct. Another method is Quantitative Easing (QE), where central banks print money without reserves, as seen in 2008 and 2020 during COVID.
Question: Printing money causes inflation, right?
Answer: Yes. It leads to inflation, wars, a few rich individuals, and widespread poverty and debt. Additionally, it is based on Riba/Usury, a major sin.
Question: Did the Somali Shilling collapse due to inflation?
Answer: It suffered hyperinflation, particularly during and after the fall of the central government, due to uncontrolled printing and IMF/World Bank debts.
Question: I understand fiat money’s harm and economic downturns. How does Bitcoin solve this?
Answer: Bitcoin has qualities of the best money:
- Hard to produce and limited supply, like Bitcoin’s 21 million cap. The last Bitcoin will be mined in 2140, with known daily production until then.
- Fair distribution, allowing anyone globally to participate from the start, unlike other cryptocurrencies.
- Decentralized control, unlike centrally controlled currencies.
- Easy cross-border transactions, unlike gold.
- Divisible and fungible.
- Neutral
Question: If Bitcoin becomes the global currency, will it improve global peace and reduce wars, poverty, economic cycles, and Riba?
Answer: Insha’Allah. Governments would be limited to tax revenues, insufficient for extensive services or wars. It promotes a natural, debt-free economy, reducing stress and enhancing individual wealth.
Question: Some see Bitcoin’s price volatility as a barrier to its use as money?
Answer: Bitcoin’s market is still small compared to other assets. As it grows to 20, 30, 50 trillion or more, it will stabilize. Despite challenges, its rapid global spread in under 20 years is remarkable.
Question: Two final questions: Why not return to gold, and won’t deflationary money harm GDP and the economy?
Answer: Gold has issues: poor divisibility, transport difficulties, risk of confiscation, and verification challenges, leading to reliance on custodians, who may inflate supply.
Deflationary money is not harmful to the economy. This idea is promoted by Keynesian economics, which supports government-issued debt-based money. However, traditional economists, like those of the Austrian school, argue that the economy thrives on free markets and hard money, not fiat currency.
Conclusion
Bitcoin is not just a digital asset for quick profits. It is a profound innovation that requires hundreds of hours of study to fully understand. Bitcoin is the most significant technology invented after the internet in this century.
So, Somalis, do not be misled into thinking Bitcoin is unimportant or be swayed by other cryptocurrencies or false information. Invest time now to understand its value before you regret missing the opportunity.
Wabillahi Towfiiq.
Author of this article: Mohammed from Somali Majlis
For any questions or opinions, send to: somalimajlis@gmail.com
Follow Majlis’s writings at www.somalimajlis.com