CAN 'IMFCOIN' BE SCARUFFI'S MONETA IMMAGINARIA?

• Author: Heideman, Alexander M.

Introduction I. History of the Legal Status of U.S. Currency A. From bimetallism to the classic gold standard 1. Bimetallic currency 2. Experimentation with fiat currency 3. The gold standard emerges 4. The quasi-gold standard B. Bretton Woods and an international monetary order C. The Nixon Shock II. Special Drawing Rights A. The basic functions B. Past uses 1. Early 1970s 2. 1979 3. 2009 III. Special Drawing Rights as a Cryptocurrency A. Redefining the SDR entirely as a unique cryptocurrency B. Including a specific cryptocurrency in the SDR's basket Conclusion Introduction

Una fides, pondus, mensura, moneta sit una, Et status illoesus totius orbis erit.

--Budelius (1)

Great societal unrest--fueled by the declining influence of corrupt and powerful institutions--can lead a disheartened and disillusioned people to look to a new monetary system based strictly on objective principles and removed from corruption and the whims of man. Today, this new monetary system might be a decentralized cryptocurrency, based on blockchain technology. (2) But during the Protestant Reformation, popular sentiment turned to a different kind of "world money." (3)

Gasparo Scaruffi, the Italian economist, proposed a universal money system based on strict, scientific principles, with a silver-to-gold ratio of 12:1. (4) In his system, money was to be uniform among all nations. (5) He called this system moneta immaginaria, or the imaginary coin, because it was merely a money-of-account. (6)

But Scaruffi's patrons and contemporaries never adopted his idea. The moneta immaginaria concept, though, did not fade. Vauban--adviser to the Sun King, Louis XIV--promoted the use of physical world coins, based on a universal monetary system, in 1690. (7) And it was the Napoleonic desire for world money that resulted in the creation of the Latin Monetary Union, the nineteenth-century attempt to adopt a universal coinage with an agreed-upon gold content. (8) Immediately after World War Il, however, the renowned law professor Arthur Nussbaum of Columbia University noted that "[w]hile international regulation of national monetary systems has long been on its way, the notion of 'world money' has proved sterile." (9)

But World War II also brought the wreckage of the modern international economic scheme, one especially dominated by European interests. Any budding international monetary system, therefore, would naturally be controlled by the world's most viable economy. This economy was undoubtedly American: The nation's Gross National Product rose from $88.6 billion in 1939 to $135 billion in 1944, (10) whereas European economies were decimated. The International Monetary Fund (IMF), therefore, was created and directed by American interests. The American dollar--the backbone of the new international monetary system--became its own kind of world money and has carried unprecedented power ever since. In just 150 years, the U.S. dollar went from a provincial bimetallic currency to an international quasi-gold currency.

The IMF further established the U.S. dollar as world money with the proposal to create Special Drawing Rights (SDRs). The SDR was put forward by John Maynard Keynes in 1944 as a supplementary international reserve asset whose value was initially defined by a gold standard. (11) The IMF adopted the system in 1969 to "further advance toward the regulation of the international monetary system by law and by the exercise of reason under law." (12) But after the collapse of the Bretton Woods system in the 1970s--typically attributed to the Nixon Shock--the IMF redefined the SDR as a basket of world currencies focused primarily on the U.S. dollar, and it became somewhat of an afterthought in the global financial system. (13)

Recently, however, the IMF assembled financial experts to assess a broader role for the SDR and its potential contribution "to the smooth functioning of the international monetary system." (14) And causing further excitement, the Managing Director of the IMF noted that the SDR could have a digital future. (15) James Mackintosh of the Wall Street Journal dubbed this cryptocurrency version of the SDR the "IMFcoin." (16) And as several powerful nations in the international community--including and, perhaps, especially china--encourage this development to eliminate the U.S. dollar's status and "exorbitant privilege," (17) the legal structure of this new cryptocurrency remains unexplored.

In Part I of this Article, I briefly discuss the history of the U.S. dollar's legal status--especially because it served as the basis of the Bretton Woods system and an international monetary order. I also examine the Nixon Shock and the resultant collapse of Bretton Woods.

Part Il focuses specifically on the development of the SDR and its basic functions as well as past uses. Finally, in Part Ill, I explore the implications of two plausible methods of adopting a cryptocurrency version of the SDR: the redefinition of the SDR entirely as a cryptocurrency and the incorporation of a cryptocurrency within the current SDR basket.

1. History of the Legal Status of U.S. Currency

   To best understand the postwar international monetary order, one must fully comprehend money's position as a central player in the development of the American economy. (18) Frankly, this is because that international order was largely formed and dictated by American policy-makers and continues to be chiefly impacted by American economic policy.

   Money has always claimed an important position in American society. John Locke noted that the unique invention of a capitalist monetary system in the West allowed for the accumulation of property without waste. (19) The American Founders considered this accumulation and ownership of property fundamental. (20) The development of American monetary policy amply illustrates various legal regimes of bimetallism, (21) fiat currencies, (22) the gold standard, (23) and the quasi-gold standard. (24)

   Ultimately, these American experiences shaped the evolution of the Bretton Woods system. (25) And these American economic policies are precisely what would cause the demise of Bretton Woods in the 1970s. (26)

   1. From bimetallism to the classic gold standard

      1. Bimetallic currency

         In 1791, Alexander Hamilton recommended a bimetallic currency at a fixed 15:1 ratio of silver-to-gold, (27) despite his personal preference for a gold standard. (28) And, under its newly-enumerated constitutional powers, (29) Congress adopted his recommendation after very little debate. (30) This was known as the Coinage Act of 1792, (31) and it fixed the gold dollar at 24.75 grains of pure gold and the silver dollar at 371.25 grains of pure silver. (32) But the fixed ratio of 15:1 nearly precisely corresponded to the contemporaneous market silver-to-gold ratio, and, after the massive increase in silver production from Mexican mines during the early 1800s, gold coins disappeared from the U.S., and silver coins suddenly dominated the market. (33)

         Despite the economic changes, the standard remained until the Coinage Act of 1834, (34) which was notably the only Jacksonian reform measure quickly adopted by Congress. (35) Best understood in the context of Andrew Jackson's Bank War, (36) the Act adjusted the silver-to-gold ratio from 15:1 to 16:1, making gold significantly cheaper. This, in turn, resulted in silver's expulsion from the country, and gold was finally brought back into circulation. (37)

      2. Experimentation with fiat currency

         The first form of American fiat currency would soon flourish. (38) The U.S. government, under financial pressures from the Civil War, began to issue treasury notes. (39) Convertibility of those notes, however, proved to be a concern. (40) So for the first time, in 1862, the government issued non-convertible legal tender to the amount of $150 million. (41) The value of this legal tender--known as greenbacks--rose and fell during the Civil War, often based on Union battle successes and failures. (42)

         After the Civil War, Treasury Secretary Hugh McCulloch--fueled by concerns that fiat currency allowed for the politicization of monetary policy--began to withdraw the greenbacks from circulation. (43) The government's momentary experiment with fiat currency finished when the market exchange rate of greenbacks for gold was brought back to the antebellum level. (44) Withdrawal ended in 1878: frozen at about $347 million in circulation. (45)

      3. The gold standard emerges

         Congress officially ended bimetallism with the Coinage Act of 1873, (46) which decisively planted the nation on the gold standard. Due to a later economic crisis, critics derided the Act as the "Crime of '73," (47) but it appears Congress intended not to overhaul the bimetallist system; the intention was merely to reestablish gold convertibility and eliminate fiat currency. (48) Alas, in defining the value of American currency within the Act, Congress failed to include the silver dollar. (49) The omission, however, proved economically powerful.

         The resultant demonetization of silver by the Act was probably one of the causes of the Panic of 1873, the most severe economic recession in the U.S. until the Great Depression. (50) And once the American public became aware of these consequences, congressional advocates of silver passed the Bland-Allison Act in 1878, (51) despite a veto by President Hayes. (52) In an attempt to counteract deflation brought on by the Panic, this Act required the U.S. Treasury to put a specified amount of silver into circulation as silver dollars. (53) But American monetary policy has never been isolated from and unaffected by the global economy, so when world-silver prices fell, silver once again flooded the American market, where the price of silver was artificially high. (54)

         The political struggle between proponents of the gold standard and proponents of bimetallism was at a high when William Jennings Bryan delivered his famed "Cross of Gold" speech during the...