💵 [Analysis] What is sound money? – Erik Torenberg

Sound money is a money that has an iron-clad monetary policy that cannot be changed by governments, central-banks, or other entities; in other words, the supply is fixed even if there is increased demand. Sound money gains in value over time and is chosen by the market. Examples include gold and Bitcoin ($BTC). Unsound money, on the other hand, refers to money whose quantity is easy to increase and is usually controlled by centralized actors. An example is copper. The US Dollar is not only unsound because it can print more whenever it wants, but also because, due to fractional reserve banking for-profit banks are able to lend out 10x their reserves and effectively print non-existent money out of thin air. &nbsp Sound money has positive second order effects. The better the money is at holding its value, the more it incentivizes people to save money. While this is bad news for Keynesians, it enables people to dedicate resources for future production, which leads to more capital accumulation and an improvement of living standards. Additionally, sound money keeps governments in check. &nbsp Unsound money is a compounding problem: having the ability to print money increases the power of any government. The resulting inflation that comes from printing more money, in effect, takes wealth away from people who produce it and gives it to people who control of money without actually producing things valued by society.