2.6 Denationalisation of Money

In 1976, Friedrich Hayek authored an important paper titled: “The Denationalisation of Money” in which he depicted a world where money, like banking, is denationalized. He believed that unlike law and language, money had not been allowed to evolve due to sovereign influences suppressing competition.

And he predicted that if governments were to allow for it, currencies would naturally evolve to compete on increased stability, resulting in the best macroeconomic outcome. Specifically, he proposed two solutions.

  • Practical Solution - Open the free trade of money
  • General Solution - Allow the issuance of independent money

Whether purely market driven monetary systems will produce optimal outcomes still remains unclear. In this section we'll first talk about what Hayek proposed, and then discuss Amples in context.

>> Amples are a Hayekian money

Practical Solution

Hayek's rationale for opening up the free trade of money, what he called the practical approach to denationalisation, is that it introduces competition between sovereign monies.

If the citizens of one state could simply choose to use the currency of any other state—should they be unhappy with domestic options—this would leave little excuse for the mismanagement of discretionary monetary policies.

Effectively sovereign monies would have to compete with one another. This would have the effect of lifting the floor of money quality to that of the best sovereign currency.

General Solution

Hayek's rationale for allowing the issuance of sovereign-independent monies, what he called the general approach to denationalisation, is that it introduces competition between private monies and sovereign monies.

Sovereign-independent monies, lack government mandate, and cannot be forced upon people. Thus, they would have to compete on stability in the open market.

This would have the effect of raising the ceiling of money quality, pushing the limits of even the best sovereign currencies.

Hayek went on to provide an example of a fictional currency, the ducat, the supply of which would expand and contract with the sole purpose of maintaining stable purchasing power against a basket of commodities—and he believed that there would be continuous demand for such a currency.

General Remarks

Today, the extreme interpretation of leaving monetary policy entirely up to competitive forces is generally regarded as impractical. However modern theorists have reason to believe an optimal macroeconomic outcome requires sovereign monies co-existing with Hayekian monies.


Amples are a synthetic commodity money and Hayekian money falling under the general solution framework.

External References

  • F.A. Hayek (1976), "The Denationalisation of Money." Hobart Paper Special, Institute of Economic Affairs, London
  • F.A. Hayek (1978), The Denationalisation of Money, The Argument Refined. Institute of Economic Affairs, London
  • J. Bullard, B. Smith (2001), The Value of Inside and Outside Money, Federal Reserve of St. Louis
  • Goodspeed, T. (2018). “Kicking Away the Ladder? Cryptocurrencies in Historical Perspective.” Applied History Volume (Working Paper).

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