A zero-sum monetary system, interest rates, and implications

TL;DR

This paper demonstrates that in a zero-sum hard-money system, extremely high interest rates are necessary for investors to succeed, explaining historical usury and implications for cryptocurrency as a non-expandable currency.

Contribution

It introduces a model showing that zero-sum monetary systems inherently require high interest rates, providing a novel explanation for historical interest rate levels and cryptocurrency limitations.

Findings

High interest rates are necessary in zero-sum systems for investor success.

Even with advantages, interest rates must be very high to break even.

Cryptocurrencies' limited supply implies they cannot replace fiat without high interest rates.

Abstract

To the knowledge of the author, this is the first time it has been shown that interest rates that are extremely high by modern standards (100% and higher) are necessary within a zero-sum monetary system, and not just driven by greed. Extreme interest rates that appeared in various places and times reinforce the idea that hard money may have contributed to high rates of interest. Here a model is presented that examines the interest rate required to succeed as an investor in a zero-sum fixed quantity hard-money system. Even when the playing field is significantly tilted toward the investor, interest rates need to be much higher than expected. In a completely fair zero-sum system, an investor cannot break even without charging 100% interest. Even with a 5% advantage, an investor won't break even at 15% interest. From this it is concluded that what we consider usurious rates today are, within a hard-money system, driven by necessity. Cryptocurrency is a novel form of hard-currency. The inability to virtualize the money creates a system close to zero-sum because of the limited supply design. Therefore, within the bounds of a cryptocurrency system that limits money creation, interest rates must rise to levels that the modern world considers usury. It is impossible, therefore, that a cryptocurrency that is not expandable could take over a modern economy and replace modern fiat currency.