Editor's letter

The nature of money

The best currencies are based on a strong democracy, strong institutions and a firm attachment to both the rule of law and the protection of private property, says Merryn Somerset Webb.

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I may have mentioned this here before, but one of the things that often surprises me about America's view of itself is the idea that it is a relatively new nation when it really isn't.

The US declared independence in 1776.That makes it rather older than, say, Germany, which unified in 1871 (and again in 1990) and Italy (declared a nation-state in 1861). You could also argue that, while the US may be younger than many of the other European nations, it's definitely a much older democracy. Spain and Portugal only wrested democracy from the jaws of authoritarianism in the mid-1970s, for example.

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I was reminded of this when I interviewed strategist Russell Napier this week (the article and the podcast will both be out next week). There are a million reasons to think that the era of the dollar being the world's reserve currency is closer to its end than its beginning (see our cover story, where John Stepek explains all of them). Yet when I asked Napier which paper currency he would hold if he had to hold one and only one for 20 years, he chose the dollar.

Why? Because it is based on a strong democracy, strong institutions and a firm attachment to both the rule of law and the protection of private property, all things that have stood the tests of many unpleasant times. If you are investing for the very long term, says Napier, best do so in countries with democratic institutions that history has shown to be stronger than their occasional lousy leaders.

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"Today QE is just another tool hanging off the Velcro on every central banker's belt"

Finally, while you have the nature of money on your mind, Ben Judge looks at the emergence of cryptocurrencies linked to the dollar (stablecoins). You might wonder what's going on here. If a cryptocurrency is pegged to the dollar, surely it's not actually a currency (in the sense that gold is), but just another way, albeit a new and maybe more efficient way, to use and to transfer dollars? I'm wondering with you.

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