There is a rumor swirling on Wall Street that China may be reversing its decades-old policy of buying U.S. Treasury Bills (T-Bills), which is giving bond-traders a case of nerves.  If China does not buy T-Bills, then the Federal Reserve will have to raise the yield on the bonds to make them more attractive to other buyers.  This rumor combined with the possibility that the Chinese economy will eclipse the U.S. economy in twenty years seemingly makes a thirty-year T- Bill less attractive than in the past.

What a strange time in which we live, when cryptocurrencies like Bitcoin and Ethereum may be a better and safer investment opportunity than U.S. T-bills.  The reason why may challenge traditional thinking concerning currency.

Since 1971, at the same time the Nixon administration took the dollar off the gold standard, there was an international sleight of hand that ostensibly backed the dollar with a different commodity by getting Saudi Arabia to make the U.S. dollar the petrodollar.  So the conversion of the dollar to a fiat currency was not entirely pure.  Instead of the dollar being backed by "the full faith and credit of the U.S. government," the currency was unofficially backed by the kingdom of Saudi Arabia.  It is this fact that may have prevented the dollar from collapse even though we have an aggregate of local, state, and national debt and unfunded legacy liabilities totaling over $100 trillion by some estimates.  This puts the dollar in a precarious position if it ever comes to pass that the kingdom of Saudi Arabia decides to switch to the Chinese wàn as the new petro-currency.

In the twenty-first century, cryptocurrencies have entered upon the world stage.  The biggest criticism of cryptocurrencies is that they have no backing – but neither does the dollar, if you get right down to it.

It has been said that if some way is found to counterfeit cryptocurrencies, then no government will have jurisdiction to prosecute the counterfeiter under counterfeiting laws, which is true.  However, prosecution could proceed as a case of fraud.  Clearly that is as much a deterrence as any other law.

The concept that cryptocurrencies embody is that they are a currency free of government or banking restrictions.  The Federal Reserve has zero authority over this modern currency, nor does any other central bank. 

If this all seems like a scenario cooked up in the mind of Lewis Carroll, "then the time has come, the walrus said, to talk of many things."  Indeed, the time has come to talk about a complete overhaul of the Federal Reserve Act and the system it established over one hundred years ago.  The Federal Reserve System is completely out of date as regards modern commerce.  Many in Congress, in both the House and Senate, have been calling for an audit of the Federal Reserve Bank, but the time for that has come and gone.  It is now time to throw out all of the old banking systems and bring in new systems that are more nimble and capable of dealing with wild swings in the market without picking the pockets of taxpayers.

This is not as difficult as may seem.  The system is already in operation and stable.  Currencies could be based upon the same type of system that cryptocurrencies are using but stabilized with an internationally accepted algorithm of commodity market indices.  The result of this would mean that the more productive a commodity market is, the greater the value of the currency tied to that index will have.  The United States is the most productive country in the world.  No other country has been blessed with the abundant resources such a coal, timber, oil, agriculture, etc.  These facts make the U.S. commodity market a natural choice for this world currency index.

By comparison, less than 12% of the land in China is arable.  The country has very few natural resources such as oil, which is why China looks upon its claims in the South China Sea as an essential part of its foreign policy.

China has an immense manufacturing base, but almost all the raw materials come from elsewhere in the world.  This leaves the manufacturing base vulnerable to circumstances beyond the control of the Chinese government.

The list of deficiencies in the Chinese commodity market is astonishing.  Simply put, the Chinese wàn could not be a robust enough currency for the global economy to adopt as a petro-currency or world reserve currency.

History has shown that indeed, the productivity of raw materials, not just manufacturing, is the key to economic prosperity and stability.

As Ayn Rand wrote, "money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them."