Crypto, Bank Notes, and Economic Disasters
May 19, 2026
by William P. Meyers

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Bubble, bubble, toil and trouble, for a coin of powerful trouble

Most people are now familiar with the idea of cryptocurrency. The best known, and earliest, crypto is Bitcoin, first released in 2008. Crypto coins or currency are the latest forms of money, items that represent value that can be exchanged in place of a bartering system.

New forms of money have often led to disasters, but at other times they have benefited the economy. I will explain how crypto is similar to the American issuing of paper notes by banks (bank notes), which was mainly during the 1800s. Crypto looks heading towards disasters similar to the depressions of the 1800s, now mostly long forgotten. I will briefly examine forms of money before the paper money era. Then I will look at the era of bank notes in America, and why they were abolished. That should sufficient for most readers, but just in case I will show how crypto is rhyming with the history of bank notes. In the end I will argue that just as our nation concluded that only the national government should be able to issue paper money, the only public policy that could avoid economic disaster is allowing only national governments to issue legal cryptocurrency.

Gold, Silver and Paper. A quick review.

There is evidence of trade going back to the Stone Age. At some point certain objects became widely traded and could be effectively used as mediums of exchange, famously certain types of sea shells. At some point these could be metal objects, like copper, silver, or gold jewelry. Coins may have been invented in Lydia, in what is now Turkey, as early as 700 B.C. Coins, made of set weights, provided a standard for trade. It might be noted that long before coins were invented, accounting, which then was keeping track of goods, was developed by some ancient civilizations.

Paper records were kept in the ancient Near East, in China, and perhaps elsewhere, as far back as the third millennium BC. Carthage may have begun issuing parchment or leather money around 200 BC. The first well-documented use of true paper money was in China, issued by merchants, well before 1000 AD. The Chinese government itself started issuing paper money during the Song dynasty, somewhat after 1000 AD. While there were some predecessors, in Europe the first paper money, bank notes, were issued in Sweden in 1661. In the American colonies of England the first banknotes were issued in 1690.

The advantages and disadvantages of paper money are easy to understand. The same value in gold or silver could be very heavy; portability was a plus. The potential for fraud, however, was great. Fraudulent coins, say lead metal coated with gold or silver, or even coins issued by a government that had less than expected precious metal content, were a problem. With paper, how could a person know it could be traded for real metallic money? It could even be counterfeit. In fact governments, on many occasions, printed money that later became worthless. The phrase "not worth a Continental" showed what people thought of the money issued by Congress during our Revolutionary War. Likewise, the paper money issued by the Confederacy became valueless when they lost the Civil War.

The American Bank Note Era

The American Bank Note Era has two subdivisions: the Free Banking Era from 1837 until 1863 and the National Banking Era from 1863 until 1913. When the U.S. Constitution was adopted it gave the national government the power "To coin Money, regulate the value thereof, and of Foreign Coin." By 1837 all banks were chartered by individual states, and each bank could issue its own paper bank notes backed by mortgages, or state-issued bonds (debts of the state the bank had loaned money to), or gold and silver.

The circulation of many different bank notes created confusion. If you took a bank note in payment for something (labor or goods), and then took it to your local bank to make a deposit or turn it into metal coins, the local bank would discount (pay less than face value, say 95% of face value) the notes of other banks, especially if the notes were from out of state. Counterfeiting was a problem, and of course if a bank went bankrupt its bank noted lost all value. The issuance of notes also caused inflation when the economy was growing, but then led to severe depressions, as in 1857 and 1861. The Free Banking Era itself had begun in 1837 after President Jackson closed down the Bank of the United States in 1836, meaning only the state banks could issue paper money.

The Civil War led to a need for higher federal government funding, which in turn lead to the creation of the National Banking system in 1863. Prior to that "What paper money existed was in the form of bank notes circulated by the state banks. As far as paper money was concerned, the chaos was almost indescribable. In 1862 there were about 1600 banks ... (and) 7000 kinds and varieties of notes." [American Economic History, Harold Underwood Faulkner, 8th Edition, page 511]

The National Bank Act set up a system of banks that were chartered by the federal government. This created a more uniform, national banking system, with a single national paper currency. National Bank Notes were backed by the U.S. Treasury and printed by the national government. State banks could convert to become national banks. State bank notes were not immediately discontinued, but a ten percent tax on payments made with state bank notes quickly made their use untenable. State chartered banks existed, but they could not issue their own currency. While this helped calm the chaos of the Free Banking Era, it did not end the economic cycles. There were severe panics in 1873, in 1893, and then in

The Post Bank, Federal Reserve Era

The Federal Reserve Act became law in late 1913. The Federal Reserve then began issuing paper dollar notes, but national bank notes remained in circulation until l935. The existence of the Federal Reserve was supposed to dampen the boom and bust economic cycles, but it clearly failed in the Great Depression that started in 1929. Since the Great Depression, the Federal Reserve has done a fair job keeping the economy running, propping it up during recessions and reducing the worst bouts of inflation.

Electronic Money and Accounting

Most money today in the United States is not in the form of coins or even paper. It is simply held in accounts, kept track of by bank computers, and moved with credit and debit cards, direct electronic transfers, or sometimes paper checks.

This electronic, accounted money can be turned into cash, but there is nowhere near enough cash in circulation at any given moment for everyone to take out all of their money in cash. The Federal Reserve measures the money supply to try to ensure that there is enough money in circulation, of all kinds, to keep employment high and inflation low.

The Crypto Currency Scam

Crypto currency was invented to escape government supervision. That is to say, typically with criminal intent. This creates a danger similar to that created by the bank notes of the 1800s, but potentially much larger in scale.

In the case of Bitcoin and other early cryptocurrencies, there is nothing to back up the supposed value of the coins. If you trade a Bitcoin for dollars, the person who gave your real dollars, backed by the U.S. government, gets a token that in turn is dependent on another person taking it, for something in return. The original value was for criminal transactions. Instead of trading a suitcase full of Federal Reserve Notes for a suitcase of enough fentanyl to wipe out a city full of junkies, criminals began using Bitcoins. These could be traded for real (national) currencies, or for goods and services. As Bitcoin became more widely used, there was a limited number of coins, so the coins became scarce relative to dollars, and worth more in dollars over time. This induced many people, including non-criminals, to buy Bitcoin for investment or speculation. The most recent peak of this was in October 2024 at $124,784. Quite a return on coins that sold, or could be created for, about $2 back around 2009.

With national currencies that would amount to deflation. When money buys more and more goods, that is called deflation. The opposite, inflation, is when money buys less and less goods.

More recently cryptocurrencies have been introduced that do have more real backing, usually U.S. Treasury notes or bonds. This is being done to reassure investors, some of whom are not stupid enough to buy a fake security like Bitcoin, despite temptation. I don't see any advantage to these stable coins. For a couple of decades anyone with a computer terminal (or smartphone) and a bank account has been able to transfer dollars between banks, or to convert dollars to other national currencies. Take a credit card to a foreign nation and you can spend your (borrowed) dollars there, no problem.

As cryptocurrencies are legalized, or broadly used, they can amplify inflation, even if they deflate (grow in value) themselves. People who feel rich spend more money, including by investing, which can cause an economic boom. If there is a recession unemployed people may have to turn in their Bitcoin for real dollars in order to pay real rent and other bills. If the value of Bitcoin falls, that would amplify people's cutting back on spending. The economy could spiral downward into a Depression. At that point many things could rapidly lose value: real estate, stocks, and cryptocurrencies could all fall in tandem.

The crypto industry has been giving large election donations to try (pretty successfully) to get politicians to legalize the scheme. Organized Crime boss and President of the United States Donald Trump once called crypto a scam. He then realized it was a scam he and his family could bilk investors with, and has promoted its use (one reason for that $124,784 Bitcoin high).

My position is the United States should make all cryptocurrency illegal and seize (to destroy) all of it. That will make it harder to move illegal drugs around, bribe politicians, and scam honest people who do not understand what they are getting when they put cash into Bitcoin machines.