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Gresham's Law and Fiat Currencies

Thu, 11 Jun 2026 00:00:00 +0000

Gresham’s Law stipulates thus. “Artificially overvalued money will drive out of circulation artificially undervalued money.”

As terrible as the US Dollar has been at inflation in a century, other currencies have proven to be worse. Governments throughout the world have been egregiously inflationary. They have expanded their money supply and devalued their currencies. Entities in these countries have thus resorted to hoarding (a term without a negative connotation to me) US Dollars. The upward pressure on the demand for US Dollars is such that despite the massive expansion in US Dollar supply, we do not see the corresponding amount of price level rises in the US. The abysmal fiscal policies of the rest of the world allows the US to export its price inflation.

Hosting Passwords

Thu, 11 Jun 2026 00:00:00 +0000

The Three Phases of Password Hosting

For the longest time, I hesitated to use a password manager. Trusting a cloud service for such an important matter did not sit well with me. For years, I kept all my passwords in a notebook. This was the pen and paper phase. It worked, but over time, the content grew too large. Changing passwords got messy. And if I lost my notebook (which, fortunately, did not happen), I would be in trouble. Maintaining a backup ultimately meant taking photos and trusting internet-touching devices and internet-based services.

Components of the Fiat Banking System (India-Centric)

Wed, 03 Jun 2026 00:00:00 +0000

The following table depicts the major components of the fiat financial system from the Indian point-of-view. For the most part, it is similar to the table for the US case. The key differences are noted at the bottom.

COMPONENTS OF THE INDIAN BANKING SYSTEM

ENTITIES	LIABILITIES	ASSETS	EXAMPLES
Individuals	Mortgages, Loans, Taxes	Deposits, Banknotes, Government Securities (G-Secs), Stocks, Bonds, Fund Units, SDLs, Benefit Payments	High Net-Worth Individuals, Retail Investors, Family Offices, Other Individuals
Businesses and Non-Profits	Loans, Bonds, Equity, Commercial Paper, Taxes	Deposits, Banknotes, Subsidies	Tata Group, Reliance Industries, Infosys, Indian Red Cross Society, Small and Medium Enterprises
Financial Institutions	Deposits, Fund Units, Securities Issued, Taxes	Loans, Mortgages, G-Secs, SDLs, Stocks, Bonds, Commercial Paper, Bank Reserves, Deposits, Banknotes, Bailouts	State Bank of India, HDFC Bank, ICICI Bank, SBI Mutual Fund, Life Insurance Corporation of India
Foreign Sector	Deposits, Stocks, Bonds, Loans, Taxes	G-Secs, Stocks, Bonds, Loans, Fund Units, Deposits, Banknotes	Reserve Bank of Japan, Norges Bank Investment Management, Foreign Portfolio Investors (FPIs), Global Corporations
Public Authorities, Government Trust Funds, State Governments	Bonds, SDLs, Benefit Payments	Government Securities, (State) Taxes	Employees’ Provident Fund Organisation (EPFO), National Pension System (NPS Trust), State PSUs like NTPC, Indian Railways, Government of Maharashtra
Reserve Bank of India (RBI)	Banknotes, Bank Reserves	Government Securities, Foreign Exchange Reserves, SDLs	Reserve Bank of India (Mumbai, Regional Offices)
Government of India	Government Securities, Subsidies, Bailouts	Taxes	—

NOTES

Components of the Fiat Banking System (US-Centric)

Wed, 03 Jun 2026 00:00:00 +0000

This is a simplified depiction of the fiat banking system. Here, we will focus on the US system. Note how each liability of an entity corresponds to an asset of another entity and vice versa.

COMPONENTS OF THE US BANKING SYSTEM

ENTITIES	LIABILITIES	ASSETS	EXAMPLES
Individuals	Mortgages, Loans, Taxes	Deposits, Banknotes, Treasuries, Stocks, Bonds, MBS, Fund Shares, Benefit Payments	High Net-Worth Individuals, Retail Investors, Family Offices, Other Individuals
Businesses and Non-Profits	Loans, Bonds, Stocks, Commercial Paper, Taxes	Deposits, Banknotes, Subsidies	Walmart, Caterpillar, American Red Cross, Powell’s Sweet Shoppe
Financial Institutions	Deposits, Fund Shares, MBS, Taxes	Mortgages, Loans, Treasuries, Stocks, Bonds, MBS, Commercial Paper, Reserves, Deposits, Banknotes, Bailouts	Bank of America, Vanguard, Fidelity Investments, Fannie Mae MBS Trusts, CalPERS
Foreign Sector	Deposits, Stocks, Bonds, Loans, Taxes	Treasuries, Stocks, Bonds, Loans, MBS, Fund Shares, Deposits, Banknotes	Bank of Japan, Norway Government Pension Fund Global, Foreign Corporations and Individuals
Public Authorities and Government Trust Funds	Bonds, Benefit Payments	Treasuries	Social Security Trust Fund, Medicare Hospital Insurance Trust Fund, Tennessee Valley Authority, Port Authority of New York and New Jersey
Federal Reserve	Banknotes, Reserves	Treasuries, MBS	Federal Reserve Bank of New York, Federal Reserve Bank of Chicago, Federal Reserve Bank of San Francisco
US Federal Government	Treasuries, Subsidies, Bailouts	Taxes	—

NOTES

Inflation is Legalized Counterfeiting

Tue, 26 May 2026 00:00:00 +0000

In earlier posts, I have regarded inflation as counterfeiting conducted by the government. This is not hyperbole. It is merely calling an activity its proper name.

The Illegal Case

To understand this label, let us go over what happens when an ordinary criminal counterfeits money. Suppose these fake tokens are virtually indistinguishable from already circulating monetary units. The criminal and his associates are able to go to the market and buy goods and services at prevailing rates. These people benefit the most: they did not even have to part with anything of value to obtain these tokens.

Effects of Inflation

Mon, 25 May 2026 00:00:00 +0000

Inflation (that is, the counterfeiting of money by the government) has several destructive effects on the economy. It transfers wealth from late recipients of newly issued monetary units to those who receive them relatively earlier. It hurts the ability of economic actors to perform economic calculation. It degrades the quality of goods and services produced in the economy. Furthermore, it causes boom and bust cycles in the economy.

Wealth Redistribution

The overall effect of the introduction of new monetary tokens is a general increase in price levels. But this effect is neither smooth nor instantaneous. Not everyone acquires an equal amount of these tokens, or at the same time. Also, not all prices rise proportionately, or at the same time.

How Governments Generate Revenue

Sun, 24 May 2026 00:00:00 +0000

Private individuals and businesses must either sell something of value to acquire money or expend time and resources to mine it directly (think of gold mining in the case of a gold standard). Governments, in contrast, do not obtain payment for goods or services they produce; they generate revenues through the seizure of assets. In the past, they might have sent their agents to seize grains, cattle, coins, etc. from people. But in a monetary economy, they simply seize monetary assets, which is a lot easier to do.

Natural Limits on Free Banking Reserve Requirements

Sun, 24 May 2026 00:00:00 +0000

In a free banking system, various banks issue their own banknotes which are redeemable for the gold that they hold. The banks set their policies independently and compete with other banks in the free market. This is distinct from the central banking system we experience today, where a central bank dictates key requirements the chartered banks must obey, and these banks issue a single fiat currency.

One important decision a bank needs to make in a free banking system is how much reserves it shall hold on to at any moment to meet the withdrawal demands of the depositors. If the reserves are less than 100% of the deposits, the bank engages in fractional reserve banking. (Setting aside the question of morality of such a system, free banks with fractional reserves have emerged in the free market and operated for a long time in the past.)

The Immorality of Fractional Reserve Banking

Sat, 23 May 2026 00:00:00 +0000

Before discussing fractional reserve banking, let’s go over the concept of full reserve banking. Suppose a bank takes in total deposits worth $100 million from its depositors. The bank promises the depositors that they may withdraw their deposits anytime. The bank, in this case, simply acts as a warehouse for the money deposited, collecting fees from the depositors in return. At any time, all deposited money remains within the bank; and at any time, any or all depositors may come to collect the money they have deposited. This is full reserve banking: all the deposits remain in reserve.

Some of My Favorite Anime

Fri, 22 May 2026 00:00:00 +0000

In no particular order, the following are some of my favorite anime shows. These are all completed series I have fully watched, sometimes multiple times.

Avatar: The Last Airbender

This is the series that really got me into watching anime. A fun story about the last airbender traveling through different lands and ultimately defeating the evil king in the fire nation. Simple, children’s cartoon with excellent characters and relatively predictable plotlines, but very well executed.

When Money is Abundant, Everything Else is Scarce

Thu, 21 May 2026 00:00:00 +0000

Any amount of money in an economy is ‘abundant’ provided it can be divided and combined according to the needs of the economic actors. That’s not the kind of abundance I’m referring to in the title. I’m instead referring to monetary inflation. More than the absolute stock of money, what’s relevant is the rate at which it is increasing.

The Medium of Exchange Problem

As discussed in Price and Money, a price is simply the exchange rate between two goods/services. Money is a good that acts as a medium of exchange, negating the need for double coincidence of wants. Due to the prevalence of money, Adam can sell his service to ‘buy’ money, and then ‘sell’ the money to buy goods he wants. This renders unnecessary for the sellers of those goods to desire Adam’s service before Adam may have his wants met.

Thinking Correctly About Inflation

Wed, 20 May 2026 00:00:00 +0000

Central bankers and economic textbooks will have you believe that economic inflation is “an increase in the general price levels.” Due to inflation, your money is worth less than before—its purchasing power lower than it used to be. Capitalism, fall in supply, rise in demand, etc. are blamed. Everything but the main culprit is discussed. This is an instance of exclusionary detailing. Learn to see through the smoke and mirrors.

ImageMagick

Tue, 19 May 2026 00:00:00 +0000

Just found out about this neat tool called imagemagick. I’m using it to compress jpg images small webp images for use on this blog.

Install it (in arch-based linux) using this command.

sudo pacman -S imagemagick

Then run

magick image.jpg -resize 1600x -quality 75 image.webp

to create a compressed version of the image. Here the max pixel width is set at 1600 px, and the quality is at 75 (moderate compression).

Is Hayek Socialist? A Note on The Road to Serfdom

Tue, 19 May 2026 00:00:00 +0000

In Saifedean Ammous’ podcast with Thomas Massey, Hayek is accused of being a little too socialist and his book The Road to Serfdom overrated. He is praised, however, for being diplomatic enough with the mainstream to remain relevant until winning the Swedish Central Bank Prize (the so-called Nobel Prize), and then speaking the anarchist language.

The Road to Serfdom is the only book by Friedrich Hayek that I have read, and based on just that, I have to disagree with the socialist-lite characterization. The ideas he promotes are libertarian. He does not go up against the Keynesians, but then, the book was meant to target socialists, which it did.

Witch Hat Atelier 1x8

Tue, 19 May 2026 00:00:00 +0000

Did Qifrey just wipe Nolnoa’s memories? How much of them did he wipe? This cannot be good.

Witch Hat Atelier was much anticipated, and I have been watching each episode as it’s getting released. Little pre-teen girl casts a spell that kills/traps her mother, gets adopted into an atelier, and begins her journey into the precarious world of witchcraft. The artwork and animation are great. The over the top expressions often are too annoying. The character-work is excellent.

Gresham's Law and Price Ceilings

Mon, 18 May 2026 00:00:00 +0000

Note that the law applies not just to a particular type of coins, but to the exchange rates between different money commodities as well. Suppose in a bimetallic standard, metal A is pegged to metal B at a ratio of 1:10, but the market value of a unit of metal A is 12x that of metal B. In this case, we have a price ceiling whereby metal A is artificially undervalued, and per Gresham’s Law, will be driven out of circulation.

Gresham's Law Clarified

Sun, 17 May 2026 00:00:00 +0000

Gresham’s Law is frequently oversimplified as “bad money drives good money out of circulation.” This phenomenon has been observed in history whenever debasement of coins has occurred. In such cases, people choose to collect coins with the greater precious metal content and spend the debased coins. Over time, the ‘good’ money, the coins with more precious metal in them, get driven out of circulation by ‘bad’ money, the debased coins.

Price and Money

Fri, 15 May 2026 00:00:00 +0000

A price is simply a ratio of something in terms of something else. It need not necessarily be in terms of a fiat currency. The price of a certain watch may be ten pairs of a certain brand of shoes, or equivalently, an hour of consulting service of a certain expert, and so on. The ratios in terms of some goods become more prevalent due to their characteristics: durability, recognizability, divisibility, scarcity; these goods begin to acquire monetary recognition as individuals start accumulating them for the express purpose of exchanging them (as opposed to consuming them). These goods are traded more frequently than other goods due to their utility as media of exchange. The most traded good, thus, emerges as money, and market participants find it convenient to denominate prices in terms of this money, which, historically, has been gold.

Why the Worst Get on Top

Sun, 03 May 2026 00:00:00 +0000

I recently revisited the chapter titled “Why the Worst Get on Top” from FA Hayek’s The Road to Serfdom. The essay discusses the sociopolitical dynamics within a totalitarian system that inevitably encourage and enable bad actors to gain power while sidelining decent people.

The worst features of totalitarian governments are not accidental or avoidable; they are features totalitarianism produces given enough time to operate. Just as a socialist planner must choose between either assuming dictatorial powers or abandoning his plans, a totalitarian dictator must renounce morality or fail. Socialism produces a totalitarian society, which places at its helm a dictator not bound by common morals, and from this system we get social and economic repression, destruction of life and property, elimination of political alternatives, conscription, etc.