Whats wrong with regular money ?

A high level look at one of the monetary system's main problems

One the major motivational forces driving crypto adoption is the deep seated desire to fix, what many people feel is, a broken financial system.

The current financial system is unfair. It disproportionately rewards those closest to the source of money at the expense of those further away.

People know this to be true but often they struggle to grasp exactly why or how this occurs.

The Cantillon Effect, first described by 18th-century economist Richard Cantillon, is perhaps the most succinct way of describing one of the largest problems in the current Banking system, without requiring a deep dive on the specific issues.

Explain it like I'm 5: Richard Cantillon described the way that some people could make more money simply by having a certain job, being in a certain place or knowing the right people. We all know this to be true but his explanation shows why it's unfair and why those people profit at the expense of the more unlucky people who have to work harder to pay for that imbalance.

Explain it like I'm an economist: In more detail, the Cantillon Effect asserts that the first recipient of the new supply of money has an arbitrage opportunity of being able to spend money before prices have increased. This is partially due to the fact that new fiat money is created at almost zero cost and given to specific parties, usually banks.

Explain it like I'm 5: Inflation is the name we give to prices going up. Some people get to buy things (with brand 'new money') before costs go up, with their additional demand being the cause of the price increases, and some people (with old money) struggle to pay the new higher prices while they wait for their share of 'new money' to arrive.

A Cantillon effect is an uneven change in relative prices often resulting from a change in the money supply. However it can also be caused by a sudden increase in local wealth, such as the discovery of new natural resources (like a new gold mine, oil field or rare minerals find).

In the modern age the beneficiaries of the Cantillon effect are the big Banks and Corporates. In turn their senior executives benefit as do other companies that are closely affiliated.

The centralised nature of the current banking system exacerbates the problem above. In other articles we will explore why the decentralised systems, used in cryptocurrency and web3, will begin to make fairer world with more opportunities and accelerated standards of living for more people.