Ideal money

Ideal Money (to be considered different than defining ‘ideal money’ without capitals) is a theoretical notion promulgated by John Nash (Nobel Laureate in Economics) to stabilize international currencies. It is a solution to the Triffin dilemma-the conflict of economic interests between the short-term domestic and long-term international objectives when a currency used in a country is also serving as world reserve currency.

Nash gave various lectures and written discourses on the subject he called Ideal Money.[1][2] The first talk was given in 1995 (one year after Nash won the Nobel Prize for economics for his work on equilibrium theory nearly 50 years prior).[3] Nash spent 20 years giving talks, in many different nations around the world, about how Ideal Money could be brought about internationally.

Nash said in an interview the basic idea for Ideal Money came to him in the late 1950s and early 1960s at a time when he fled the US to Europe in order to try to renounce his US citizenship and exchange his USD for the Swiss Franc (which he believed to be superior in quality from a perspective he describes in Ideal Money).[4]


The simple definition of Nash’s Ideal Money is money that is stable over long periods of time:

Our observation, based on thinking in terms of “the long term” rather than in terms of “short range expediency”, was simply that there is no ideal rate of inflation that should be selected and chosen as the target but rather that the ideal concept would necessarily be that of a zero rate for what is called inflation.[5]

ICPI-Industrial Consumption Price Index

In pursuit of a possible apolitical basis for stable value Nash created a concept he calls an ICPI. The ICPI is effectively a basket of optimally chosen commodity prices:

The ultimately launched concept of “Ideal Money” became possible when I conceived of a practical basis for a standardization of the comparison of the value of the currency with an appropriate standard or ideal. And the key to that was the idea of an ICPI or (international) “Industrial Consumption Price Index”.[6]

This statistic could be calculated from the international prices of commodities such as copper, silver, tungsten, and so forth that are used in industrial activities.

Asymptotically ideal money

In an interview with Greek ex-finance minister Yanis Varoufakis Nash explained that the role of money has changed and evolves:

…money plays constantly evolving role, despite the continuity from one era to the next. Flux and Continuity. Presently, economists have focused on the theoretical problem of replacing paper money by plastic of electronic money, as well as on the repercussion of such a replacement.[7]

Nash’s narration of the evolution of ideal money through the competition of respective national fiat and centrally banked currencies starts with the introduction of a possible international money of good quality:

In the near future there may be a smaller number of major currencies used in the world and these may stand in competitive relations among themselves. There is now the “euro” and the inflationary tradition of the Italian lira seems to be past history now. And there COULD be introduced, for example, a similar international currency for the Islamic world, or for South Asia, or for South America, or here or there.

Nash’s death

Nash died suddenly in a taxi cab accident involving him and his wife.[8] On the way home from receiving the Abel prize,[9] Nash and his wife were forced to take a taxi cab from the airport when their limousine never arrived. They were both thrown from the cab when the driver lost control and neither were wearing seat belts as it was reported the seat belts weren’t working.

The Nashes died on the New Jersey Turnpike which is coincidental with the abstract opening of the first published version of Ideal Money:

Money can be recognized as a technological development comparable to the wheel and of similar antiquity. Among the more recent developments in the technology that facilitates transfer of utility (in the sense of game theory) are systems like those of EZ Pass, by means of which vehicles traversing toll bridges or toll highways can pay, their toll fees without stopping for the attention of human personnel manning the toll booths.[10]

Possible relation to Bitcoin and emerging cryptocurrency economics

Is Bitcoin Nash’s ideal money?

It has been asked[by whom?] if bitcoin is an implementation of Nash’s Ideal Money (or Asymptotically Ideal Money).[11] When asked about bitcoin and Ideal Money Nash responded, “Bitcoin might not be it but…”[12] He went on to explain how once a strong currency is establish another issuer might try to pass off a lesser valuable “counterfeit” for being at par with the honest and well established money:

It becomes possible, once Caesar is minting gold and decides its very well used and accepted and the empire is working well on the gold coins, another Caesar might come along and say ‘Well I can put a little of lead inside these gold coins and pass them out at the same value.’ It would be the Aurelius of so and so….and that sort of thing can happen.

Hal Finney, one of the top contenders for being the person behind the pseudonym Satoshi Nakamoto that created bitcoin,[citation needed] was interested in Nash’s story and works as early as 2002 and described Nash as possibly being a proto-extropian.[13]

Can Bitcoin be ideal (stable) money?

George Selgin, an expert on free banking theory, expounds on value proposition of bitcoin in regard to the inability to control its supply (ie inflation targeting):

It doesn’t follow, however, that either Bitcoins’ purchasing power or the volume of Bitcoin-denominated payments will be stable enough to make Bitcoins anyone’s idea of a sound money. Because it makes no allowances for changes in the real demand for Bitcoins, whatever their source, the strict “protocol” that regulates the supply of Bitcoins—a protocol that raises Bitcoin “mining” costs in response to changes in mining activity and technology, but without regard to Bitcoins’ purchasing power—would allow fluctuations in the pure transactions demand for Bitcoins to continue to influence their purchasing power. As the number approaches 21 million, mining rewards will approach zero, and Bitcoin output with cease once and for all. The transactions demand for Bitcoins will, in contrast, tend to go on increasing with economic growth. A Bitcoin standard would thus tend to result in a rate of deflation at least equal to the rate of economic growth, with occasional bouts of more severe deflation occurring with every cyclical increase in the demand for money. Although (as I’ve argued elsewhere) deflation needn’t go hand-in-hand with recession or depression so long as the rate of deflation reflects an economy’s (total factor) productivity growth rate, chances are that deflation in a Bitcoin economy would frequently exceed this safe limit.[14]

Because bitcoin’s supply was predetermined at inception[15] and considered unchangeable it cannot fluctuate with the demand cycles and thus Selgin suggests it cannot be made very stable in regard to its purchasing power. However, this still leaves the possibility that bitcoin fits Nash’s concept of “Asymptotically Ideal Money”. Whether Nash was specifically referring to bitcoin or not it still might have the same effect and lead to the intended result of international stability of the existing legacy fiat currencies (and possibly in relation to bitcoin). Although bitcoin might not be Ideal Money Nash would consider it to be “good money” because of its comparability to gold based on its supply restraint and predictability:

To be quite respectable, in a Gresham-advised sense, money needs only to be AS GOOD as other material commodities that might be hoarded.

This makes it an interesting consideration for the basis of Nash’s premise suggesting Ideal Money could be an enthymeme for bitcoin:

…intrinsically free of “inflationary decadence”..a true “gold standard”, but the proposed basis for that was not the proposal of a linkage to gold

Ideal money as fiat

The implementation of centrally banked digital currencies, such as many nations and central banks are studying and testing,[16] might also give rise to a possibility for the implementation of Ideal Money via a digitally secured peg to a basket of digitally based nationally currencies.

Nashification vs hyperbitcoinization

It has been shown[by whom?] that Nashification, the process of the asymptotic approach to an “ideal” of inter-national stability of major currencies is comparable to the end observation of the result of “hyperbitcoinization”.[17] That is to say, hyperbitcoinization, which is the implication bitcoin will becomes the single world currency, does satisfy Nash’s proposal to have internationally stable money:[18]

When all major currencies’ purchasing power changes at the same rate that would signal the advent of Ideal Money (Nashification).

In regard to hyperbiticoinization as an end in which bitcoin serves as a global currency, this would be a comparable “for all intents and purposes” end as Nashification.


  1. ^
  2. ^Nash, John. “Ideal Money Lecture”.
  3. ^Nash, John. “Ideal Money lecture 1995”.
  4. ^“Food For Thought With John Nash”.
  5. ^Nash, John. “Ideal Money-Lecture Notes” (PDF).
  6. ^Nash, John. “Asymptotically Ideal Money”.
  7. ^Varoufakis, Yanis. “In conversation with John Nash Jnr on Ideal Money”.
  8. ^“John Nash, mathematician portrayed in A Beautiful Mind, dies in taxi crash at 86”.
  9. ^“John F. Nash, Jr. and his wife Alicia killed in car accident”.
  10. ^Nash, John (July 2002). “Ideal Money-Southern Economic Journal”. JSTOR 1061553.
  11. ^“Can Bitcoin be John Nash’s Ideal Money?”.
  13. ^Hal, Finney. “John Nash, proto-Extropian?”.
  14. ^Selgin, George (Nov 2014). “Bitcoin: Problems and Prospects” (PDF).
  15. ^[1]
  16. ^“Central Bank Digital Currency: Motivations and Implications” (PDF).
  17. ^Krawisz, Daniel. “Hyperbitcoinization”.
  18. ^“Nashification Vs. Bitcoinization”.

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