Lever of Control: Fiat Currency
People often ask why we describe fiat currency as a lever of control. The question makes sense if you only learned about money the way most schools teach it. We look at how the system actually works in practice, not how textbooks say it is supposed to work. In short, you may think it's your money, but another entity (or entities) controls the access and use of it.
Two recent events inadvertently showed what losing access can look like. In early November 2026, Paraguay’s largest digital bank, Ueno, was placed into resolution by the central bank after its solvency fell below half the legal minimum. Accounts were frozen for roughly three million people, about 60 percent of the adult population. The freeze set off protests and a political crisis that removed the president.
Days later, a hardware failure at a shared data center in Japan halted ATMs, transfers, counter service, and online banking at 128 regional banks across about 3,430 branches for more than five hours.
In both cases ordinary people suddenly could not use their own money. The incidents did not happen because consumers broke a financial rule. They happened because access to the currency runs through a small number of institutions and shared systems that can fail, freeze, or be closed.
When money was representative currency, paper notes could be exchanged for a set amount of gold or silver. The system behaved differently for practical reasons. Most everyday payments happened in cash or by check. Credit cards were new and uncommon, mainly used by business travelers. There was no online shopping. Catalog orders were paid with cash, check, or money order.
On August 15, 1971, President Richard Nixon suspended the convertibility of the U.S. dollar into gold. From that point forward, U.S. money became fiat currency. “Fiat” comes from Latin and means “let it be done.” Fiat currency is money that has value because a government says it does.
The year before, President Nixon signed the Bank Secrecy Act (BSA) into law on October 26, 1970. This was the foundational U.S. anti-money laundering (AML) statute. It required banks to report large transactions and laid the groundwork for later rules.
The major change arrived with the Customer Identification Program (CIP), which took effect on June 9, 2003 (for accounts opened on or after October 1, 2003). Financial activity could now be tied directly to a verified identity. That link changed how the system operates.
What happens when a currency no longer represents a fixed amount of metal and the system requires a verified identity to use it? We use the thought experiment of a neutral observer from outer space who has never seen any Earth-based monetary system. The observer simply records how the arrangement appears to function.
The Visitor's Ledger
Entry 1: Mandatory Adoption
The observer notes that this society uses a unit of exchange that is issued rather than found or grown. Unlike shells, grain, or metal, no ordinary person can create it. Authorized institutions bring it into existence. Every member of the society is required to obtain it because the governing authority accepts only this unit for taxes and fees. It becomes the standard unit of exchange. Refusal carries penalties that can include imprisonment.
The functional result is clear. Demand for the unit is not voluntary, not based on its physical properties, and not something people can opt out of. Everyone must trade time and labor for it, regardless of what they think of it.
Entry 2: Permission to Participate
Almost all of the unit is held and transferred through accounts at licensed private institutions. These institutions are not required to open an account for anyone. They can close accounts at their discretion, often without explanation. Locals call this “debanking.” A person without an account cannot easily receive wages, pay bills, or complete ordinary transactions.
The observer notes that the society describes itself as free, yet possession of the exchange unit (the thing needed to meet legal obligations) depends on ongoing approval from private companies that owe the applicant no reasons.
Entry 3: Burden of Proof Flows One Way
When a person deposits money into an account, the institution may demand an explanation of where the money came from and may refuse or report the deposit until it receives satisfactory answers. Certain patterns of depositing one’s own lawful money are treated as suspicious. A person who sells a car or receives an inheritance and deposits the cash can be asked for documentation; without it, the deposit may be delayed or declined.
The observer checks the opposite direction and finds no matching process. When an institution creates new units of the currency (the way virtually all of it comes into existence, as bank credit when loans are made rather than as notes printed by the government), no member of the public is notified, consulted, or given any explanation of why, to whom, or for what purpose the new units were issued.
The observer writes: In this society, the citizen must justify possession of money. The creator of money must justify nothing to anyone.
Entry 4: Denial at the Point of Exchange
Transfers of the unit run through a small number of private networks. These networks can decline transactions at their discretion. A merchant may lose the ability to accept payments because the networks disapprove of the merchant’s lawful products. A buyer’s card may be declined with no reason given to the buyer or the seller. A small business that sells only legal goods can suddenly find its card terminal shut off, leaving customers unable to pay and the owner unable to make payroll. In recent years the networks have required platforms that distribute games, books, and serialized fiction to remove lawful works the networks themselves do not publish, sell, or consume, under threat of losing access to the payment system.
The observer records that the same networks that decline transactions do not sell the disputed goods, do not experience their effects, and are not elected by anyone affected.
Entry 5: Exclusion as Enforcement
The observer catalogs cases in which access was withdrawn for associations or lawful trades rather than any financial misconduct:
- Participants in a political protest had accounts frozen under emergency government orders. A court later found the freezing exceeded lawful authority. Access, once lost, was not automatically restored.
- Members of a politically disfavored industry had banking relationships withdrawn in a coordinated manner under a program later abandoned after legislative inquiry.
- Operators of a rival, currency-independent monetary technology report routine exclusion from accounts and payment services.
- An ordinary individual who deposited a large sum of their own previously earned cash savings faced repeated questions and a temporary account restriction until they supplied documents the bank accepted.
In each case the people affected had broken no financial law. The sanction (exclusion from the medium of exchange) was applied through private discretion under public pressure and therefore does not appear in any official registry of punishment. It is not recorded as enforcement.
The observer writes: Access can be withdrawn without a trial or a criminal record. The practical effect is that ordinary purchases become impossible while the parties who carry out the restriction deny that any punishment occurred.
Entry 6: The Rules Are Withheld
The conditions of participation (what triggers scrutiny, what triggers a decline, what triggers account closure) are not published. They vary between institutions. They change without notice. A person can follow every public rule, file every form, and still wake up to a closed account with no stated reason and no path to appeal. A member of the society cannot inspect the rules they must follow, cannot predict how the rules will be applied, and cannot appeal to anyone independent.
The observer compares this to other rule systems they have studied. Even in societies with harsh laws, the laws were at least written down and readable. Here the rules that govern the prerequisite of survival are proprietary and secret.
Entry 7: One Direction of Amendment
Finally the observer examines the history of the unit itself. It was once exchangeable on demand for a fixed weight of metal, a promise printed on the certificates. When honoring that promise became inconvenient, the governing authority suspended it, first for citizens and later entirely. Citizens were ordered to surrender their metal holdings to the state at a fixed price. Later the international promise of convertibility was terminated unilaterally and described as temporary. It was never restored.
Over the following decades the unit lost the overwhelming majority of its purchasing power. Official price indexes show that a basket of goods and services that cost 100 units in 1971 required approximately 800 units by late 2026. Every unit held by every citizen, representing work already performed, silently became worth less. No vote was taken. No one was compensated.
The observer notes the pattern across all the entries: the system amends itself when its own promises become inconvenient; the citizen amends themselves when the system finds them inconvenient. The direction of flow never reverses.
Observer's Closing Note
The observer does not claim anyone designed these outcomes. There is insufficient evidence of intent, and the society’s own members deny such intent when asked.
The observer records only the structure, the way a naturalist would: a unit of exchange that must be adopted, held on approval, possessed with justification, spent with permission, and retained at a compounding loss, while the institutions that create it, restrict it, and debase it bear no burden of justification at any point, to anyone.
Across every entry the same pattern appears. Ordinary people must meet shifting conditions to keep access, while the institutions that issue and control the unit do not. The observer ends the notes with a single question, left unanswered for the society to answer for itself:
If this arrangement were imposed by a foreign conqueror, it would be called plunder. What is it called when it is imposed by appointment?
The Role of Currency
As a medium of exchange, a uniform fiat currency is convenient for everyday payments. The structural issues above, however, turn ordinary access into a point of control. An invisible hand can reject a legal purchase, restrict access to funds, or remove someone from the system entirely. The money may be earned by the individual, but gatekeepers decide whether and how it can be used. This asymmetric balance of power encourages self-moderation of behavior. The same pattern is expected to intensify with Central Bank Digital Currencies (CBDCs), where rules can be set and enforced at the speed of light. And this doesn't even begin to cover the issues related to financial privacy.
This post draws on the research of Prof. Richard Werner and Nick Anthony. From their own X biographies, Prof. Richard Werner focuses on empirical, fact-based economics, and Nick Anthony is a Research Fellow at the Cato Institute's Center for Monetary & Financial Alternatives and a Fellow at the Human Rights Foundation. We value their analysis and the clarity with which they explain the economic realities we face. Please explore their writings and follow them on X.
Remember: We may not have anything to hide, but everything to protect.
