Synthetic commodity money

•Standard treatments allow for only two sorts of base money: commodity money and fiat money.•Commodity money is subject to supply and shocks; fiat monies can be manipulated by monetary authorities.•A “synthetic commodity” base money consists of something that lacks nonmonetary value, yet is absolutely scarce.•Unlike other forms of synthetic commodity money, Bitcoin has a positive, albeit declining, growth rate.•More macro-economically sophisticated synthetic commodity monies could supply the basis for uniquely stable monetary regimes.

The conventional dichotomy of “commodity” and “fiat” base monies overlooks a third possibility that shares some features of each. This third type, which I call “synthetic commodity money,” resembles fiat money in having no nonmonetary value; but it resembles commodity money in being not just contingently but absolutely scarce. I discuss some actual examples of synthetic commodity monies, and then argue that special characteristics of synthetic commodity money are such as might allow such a money, if properly designed, to supply the foundation for a monetary regime that does not require oversight by any monetary authority, yet is able to provide for a high degree of macroeconomic stability.