Much is written about monetization—the process of something gaining the character of money. But what happens when a form of money has reached the end of its useful life? Decided either by market forces or by decree.
Demonetization via Decree
When a government decides that a currency denomination no longer serves their goals (presents them with an opportunity) it rarely comes with advanced warning.
While the likelihood may be low, it must be acknowledged that at any point in time, a government can withdraw legal tender status of any form of fiat currency.
This is exactly what happened in 2016 when the Indian government, in one swift move, voided the two most common banknotes, representing 86% of all paper currency in circulation at the time.
“notes of INR 500 and INR 1000 will not be legal tender from midnight tonight” —Narendra Modi (Prime Minister of India)
While the notes were replaced by trading in the discontinued versions, holders were severely inconvenienced through a required divulgence of personal information and lost productivity in traveling to bank branches within a strict window.
This is the risk that comes with centralization. Fiat money is money until it is not. Expiry dates make physical fiat currency unfit for long-term savings.
And what happens when the provider of the good or service you need is not willing to accept your fiat currency (even if it is considered legal tender)?
Demonetization via Innovation
The human search for harder money is never over. It's a constant upgrading process, spanning thousands of years.
Take the example of a Spaniard holding one's savings in silver as the Spanish Silver Fleet returns from the Andes in 1545. It forces a conundrum on the individual.
In 1545, a new Spanish mining town was founded in the Andes mountains of modern-day Bolivia, and for next 250 years, the mines of Potosí would fund the Spanish crown and its imperial ambitions. But what the Spanish did not know is that having too much silver could have disastrous consequences. —Footnoting History
The lesson is that the onus is on you to protect yourself from demonetization.
Because innovation doesn't ask permission.