MT203: The HydroDollar as the International Currency: The Inflation Neutralizer
David Noel
<davidn@aoi.com.au>
Ben Franklin Centre for Theoretical Research
PO Box 27, Subiaco, WA 6008, Australia.
Summary
A new type of backing for an international currency is proposed. Called the HydroDollar, the currency unit is equal to one kilogram of Hydrogen.
Money and Currency
When the word "money" is used, it tends to mean one of two things. The first is ownership of things of value, as in "his family made their money from shipbuilding". The second meaning relates to tokens used to represent value, as in "you need money for the parking meter".
A word which can be used for the second meaning, but not the first, is "currency". Currency relates to a specific value-token system, such as the Australian Dollar. The tokens exist in various forms, such as coins (typically for lower value tokens) and banknotes (typically for higher values).
Currency systems have been in use by humans for thousands of years. Ancient empires may be identified by the coins they left behind. Some civilizations used specific seashells as their currency tokens, in particular, cowry shells.
Here is what [1] says about cowry currencies. "Long before our era the cowry shell was used as a means of payment and regarded as a symbol of wealth and power. This monetary usage continued until the 20th century.
The two main varieties are the Cypreae moneta and the Cypraea annulus, and they have all the features we might expect from a currency -- durability, convenience, divisibility, as well as being easily identifiable.
In comparison with foodstuffs, which are perishable, and feathers, which can be damaged by vermin, cowry shells can withstand frequent handling and are small and easy to transport. As they are nearly always the same shape and size, they could also be counted or simply weighed to determine the value of a payment.
They were accepted in Asia, Africa, Oceania and even in certain parts of Europe. The oldest traces of their use as a currency can be found on bronze objects unearthed in China, dating back to the 13th century B.C. Meanwhile, the Chinese characters for certain words with a strong economic connotation (e.g. money, coin, buy, value) also resemble cowries."
Figure MT203-F1. Cowry shells. From [1].
Cowry shells represent a physical backing for a currency. A more familiar backing for currency is the use of metal coins.
Coins as currency items
It has been claimed that the world's oldest coin is the Lydian Lion, created in Lydia (in modern Turkey) as far back as 610 BC (Figure F2). However, archaeologists have recently uncovered the world’s oldest known coin mint, along with pieces of spade-shaped metal currency, inside a bronze foundry dating to 770 BC, in Guanzhuang, China [3].
Figure MT203-F2. The Lydian Lion. From [2].
Ancient coins were mostly made of copper, gold or silver, and essentially contained precious metal of a particular value. For example, the British pound has its origins in continental Europe under the Roman era. Its name derives from the Latin word "poundus" meaning "weight". The £ symbol comes from an ornately-written L, standing for Libra. The pound was a unit of currency as early as 775 AD in Anglo-Saxon England, equivalent to 1 pound weight of silver [4].
So in their original form, currency coins were their own backing, they contained metal to the same value as the nominal value of the coin. Coins made of pure gold or silver could be used internationally, exchanging coins was equivalent to exchanging the weight of the precious metal involved.
King Offa’s gold coin
In ancient and medieval times, what could be called "standard" gold and silver coins were issued by prominent kings and used internationally. These all had an image of the king or another recognizable icon on one side, and included the year when they were produced. Because each coin carried its own "authenticity", in terms of the value of the metal which it contained, a "standard" coin could be issued in a number of places.
For example, British "Sovereign" coins were first issued in 1489 under Henry VII, with later versions reintroduced in 1817. They were initially struck at the Royal Mint in London, and later at branch mints in Australia, South Africa, and India, among other locations. Sovereigns had a value of one pound "sterling", with "sterling" implying British issue, and were the gold equivalent of about 373 grams of at least 92% pure silver.
Another interesting "standard" coin was the "dinar" issued by al-Mansur, ruler of the islamic Abbasid Caliphate, which extended over Arabia, Persia, and much of the Mediterranean coast of Africa, in the 700s and 800s AD.
Figure MT203-F3. King Offa's gold coin. From [15].
An equivalent of this Dinar was produced by an English King -- Offa, King of Mercia (757 – 796 AD). Shown in Figure F3, the coin is inscribed "OFFA REX" (King Offa, in Latin), but also has Arabic inscriptions which include "There is no God but Allah", and "Muhammad is the Apostle of Allah" [15].
Figure MT203-F4. The English kingdom of Mercia in the AD 700s. From [16].
The original from which it was copied was struck in the Islamic year AH 157 (AD 773-74) and whoever the engraver was, it seems they had no understanding of the Arabic script and this we know because the name and title OFFA REX has been inserted upside down in relation to the Arabic inscription [15].
Modern coins
In more modern times, coins came to be more formalized sets of tokens, with each country issuing its own coins, mostly not acceptable (not "legal tender") in other countries. Almost all such coins had their date of manufacture included on them, their nominal value, and usually the country or jurisdiction issuing them.
As the coins included their date of issue, this meant that each year a new set of coins was produced, often with designs revised from the previous year. Modern coins no longer contained metal to the value of their nominal worth, and were made of metals and alloys of copper, nickel, brass, and even aluminium.
Figure MT203-F5. British coins in 1937. From [6].
Figure F5 shows the range of British coins issued in 1937. It shows that the number of different denominations was rather greater than that common in most countries today. These coins were based on the pre-decimalization system of currency, with the basic unit of the pound (£) divisible into 20 shillings, and each shilling divisible into 12 pennies (or pence). So one pound had the same value as 240 pence.
Those only familiar with decimal currencies would have little idea of the complexity of dealing with such a system. Even the lowest-value denomination, the penny, was further divided into half-penny and farthing (quarter-penny) coins. This was before the days of electronic calculators, and businesses used books of tables ("ready-reckoners") to work out totals for, say, 85 items at 7 shillings, 4 pence, and 3 farthings each.
In Figure F2, all the coins shown had the same design, the head of King George the Sixth, on the other ("obverse") side. Of the coins shown, the largest (one crown or five shillings) was only issued for commemorative purposes and was never in general circulation.
The largest coin in general circulation was the half-crown, worth 2 shillings and 6 pence. After this came the florin, worth 2 shillings (one-tenth of a pound). The practice of having two coins of not very different value came about because of the start of a move toward decimalization during Queen Victoria's time -- the half-crown was the older coin, the florin was introduced as one-tenth of the pound.
After the florin came the shilling (called a "bob"), one-twentieth of a pound, in two versions, English and Scottish (no Welsh version), and then the sixpence (called a "tanner"), half of a shilling.
Collectively, the coins from sixpence up to a crown were called "silver", although in fact they were made from a nickel-copper alloy. Each denomination of coin had a weight proportional to its nominal value, this meant that a bank teller receiving "silver" could weigh a batch of mixed coins to get its total value -- £5 pounds worth of "silver" weighed one and a quarter pounds-weight (20 ounces on the old Imperial weight scale).
After the sixpence came two versions of a coin worth 3 pence (the "thruppeny bit"). The standard version was a 12-sided coin of a brassy colour. Another version, circulating at the same time, was a small round coin, which actually contained silver. The latter were gradually withdrawn from use as it was feared they would be melted down for their silver content.
After the threepence came coins collectively called "copper" -- the penny, the halfpenny (pronounced "hapeny)", and the farthing ("four-thing", a quarter penny). The "copper" coins had weights proportional to their nominal value too, and so the total value of a mixed batch of "copper" could be known from its weight,
Each denomination of coin had its own history. In earlier Victorian times, a coin worth 4 pence (the groat) was in use. One groat was a standard cab fare. The groat became superseded by the thruppeny bit.
In 1971, Britain decimalized its currency. The main unit of the pound was retained, but this was divided into 100 new pence, so 10 new pence (10 "p") was the equivalent of 2 shillings, and had a coin similar to the old florin.
Australia decimalized its currency in 1966, but took a different route. Its older system, based on pounds, shillings, and pence (LSD), like the British one, was replaced by one where the Australian Dollar was equivalent to 10 old shillings, or 2 dollars instead of 1 pound. This dollar was divided into 100 cents, with a new 10-cent coin very similar to the old shilling.
Banknotes
Paper currencies originated as representations or certificates of coin currencies. According to Wikipedia [8], he first banknote-type instrument was used in China in the Tang dynasty (618--907 AD).
Merchants would issue what are today called promissory notes in the form of receipts of deposit to wholesalers, to avoid using the heavy bulk of copper coinage in large commercial transactions. Before the use of these notes, the Chinese used coins that were circular, with a rectangular hole in the middle. Coins could be strung together on a rope.
True paper money, called "jiaozi", developed from these promissory notes during the Song dynasty. By 960 AD, the Song government was short of copper for striking coins, and issued the first generally circulating notes. These notes were a promise by the ruler to redeem them later for some other object of value, usually coin. The jiaozi did not replace coins but were used alongside them.
Figure MT203-F6. Early Chinese paper money. From [8].
So in the development of paper currency or banknotes, these notes were backed by coin or other real objects of value, and the issuing government, bank, or other organization was committed to "cashing in" these notes on demand, replacing them with coin or metal. Technically called "promissory notes", these notes explicitly or implicitly promised such an exchange,
Figure MT203-F7. British five-pound bank note of 1952. From [7].
Figure F7 shows a British £5 note from 1952, commonly called a "fiver". Looked at closely, it can be seen that the note is in the form of a letter from a particular person, in this case from P.S. Beale, Chief Cashier of the Bank of England, promising to pay the bearer, on demand, the sum of Five Pounds.
Backing for banknotes or paper currencies
Whether or not the 1952 British fiver had backing or not is not immediately obvious, but it is a vital distinction when talking about paper currencies. If you rolled up to the Bank of England with your fiver and demanded the backing sum, they might well offer you a number of coins or smaller banknotes in exchange, but would not offer you a weight of silver or gold metal to the value of five pounds.
In earlier times and circumstances, this would not be the case, the issuer of a paper currency would give you metal in exchange for the paper. For smaller value notes, you might be given copper, perhaps copper coins, while for medium and large notes, silver or gold would be made available.
In most modern currency systems, the currency has no backing, in precious metals or other valuable items. The value is maintained by assertion of the government or other issuing agency, this is called fiat (by decree) currency,
The danger of a fiat system of currency is that the authority of the issuer can be challenged by outside authorities or eroded by actions of the issuing authorities or others. These events can lead to Inflation, the depreciation in value of the fiat currency. This is one of the main topics of the present article, and is considered in more detail below.
The Gold Standard
Of the main instances of a backed currency in modern times, systems based on backing by gold have been the most prevalent. Earlier Western and oriental systems have been based on silver, or a combination of gold and silver.
According to [9], a gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932, as well as from 1944 until 1971 (when the United States unilaterally terminated convertibility of the US dollar).
At times when the US dollar was on the gold standard, the currencies of many other non-US countries were effectively on the standard, when these countries pegged (fixed) the value of their currency in terms of US dollars.
When countries joined the gold standard, this made international currency exchange simple and reliable, and was believed to lead to stable currencies, not easily subject to fluctuation -- and so, minimizing inflation.
Most people will be familiar with the name of the English genius Isaac Newton (1642--1727), because of his work on gravity, optics, and mathematics. Less well known is the fact that for the latter part of his life, Newton held the post of Keeper of the Royal Mint.
Figure MT203-F8. Sir Isaac Newton. From [10].
One of the problems of his day was the existence of counterfeit coins, forged in imitation of the official currency. Newton tackled this problem in a characteristically innovative way, by upskilling the Mint engravers so that counterfeiters found it very difficult to match the quality of the Mint coins.
In 1717, Newton also introduced a de facto gold standard to Britain, setting a gold price of £4.25 per fine ounce -- this standard setting lasted almost 200 years. As Great Britain became the world's leading financial and commercial power in the 1800s, other states increasingly adopted Britain's monetary system.
The international classical gold standard commenced in 1873 [5] after the German Empire decided to transition to the German gold mark, utilizing the 5 billion gold francs (equal to 1,451 metric tons) in indemnity demanded from France at the end of the Franco-Prussian War. This transition by a large, centrally located European economy also triggered a switch to gold by several European countries in the 1870s.
The gold standard was largely abandoned during the Great Depression [9], which hit economic systems worldwide in 1929 and lasted some 10 years. It was abandoned due to its propensity for volatility, as well as the constraints it imposed on governments: by retaining a fixed exchange rate, governments were hamstrung in engaging in expansionary policies to, for example, reduce unemployment during economic recessions.
There is currently a consensus among economists that a return to the gold standard would not be beneficial, and most economic historians reject the idea that the gold standard "was effective in stabilizing prices and moderating business-cycle fluctuations during the nineteenth century" [9].
Inflation
What is Inflation? According to Google AI Overview,"Inflation of currency (or simply inflation), is a sustained increase in the general price level of goods and services in an economy over a period of time. This means that the purchasing power of money decreases -- you need more money to buy the same goods and services than you did before".
What causes inflation? Briefly, there appear to be 3 main factors. These are: (A) a rise in value or production costs; (B) a rise in the "price of money" (usually due to a rise in the commodity price of the metallic content in the currency); and (C) currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency [17].
Of these three, (A) and (B) tend to be of smaller magnitude, not causing too much worry. In fact (A), increase in cost of production, is more or less built-in -- inflation increases costs, thus causing inflation. (B) is similar, except that the increase is not in the cost of production, but in the cost of gold or another metal backing the currency.
Figure MT203-F9. US Inflation over 100 years. From [18].
Figure F9 shows a plot of yearly inflation in the U.S. dollar over a period of a little over 100 years. Before around 1980, inflation had spells of great changes, some of negative value (deflation) due to wars and depressions. Since the early 1980s, inflation has been moderate, under 5%, averaging around 2-3%.
Of course, these numbers are cumulative, or actually more than cumulative -- with an inflation rate of 3%, over a 10-year period values have dropped not by 30%, but by over 34% (because the increases are compound).
In a way, gentle inflation or deflation is just a natural way for the economy to adjust itself to natural variations in supply -- if coffee production has a poor season, coffee beans will increase in price, and growers will try and increase yields to take advantage of the higher price. If gold is reaching a record high, it becomes feasible for miners to open up lower-content resources.
Runaway inflation
Inflation cause (C) was from an "increased supply of currency relative to the quantity of redeemable metal backing the currency" -- changes in the value of the metal backing the currency. Such changes may not be a concern. But what about when there is NO metal backing the currency, it is a "fiat" currency backed solely by the word of the government or other authority issuing it?
Fiat currencies are the norm for the present day. they have no backing of metal or another material of value. And so each currency's value on a given day depends on the market's evaluation of its issuer's standing in the world.
Modern governments do deliberately manipulate the value of their currencies, usually to try and achieve stability. But one of the big dangers with a fiat currency is that it can run out of control because the issuer starts printing more and higher-value banknotes without anything behind them, to try and balance their budgets or reduce deficits.
This can lead to "runaway inflation" or hyper-inflation, as happened in the African country of Zimbabwe in the period up to 2008. Figure F10 shows how, after many years of relatively high (10%+) annual inflation, the situation ran completely out of control, with the government frantically printing higher and higher value banknotes.
Figure MT203-F10. Zimbabwe hyperinflation. From [11].
At the time when the currency finally collapsed, in November 2008, inflation had reached 98% a day -- tomorrow morning a banknote would buy half as much as this morning -- and the government was printing notes (Figure F-11) with the denomination of a hundred trillion Zimbabwe dollars (Z$ 100,000,000,000,000).
Figure MT203-F11. 100 trillion dollar banknote. From [14].
Controlling inflation
As of the 2020s, most western-style economies aim to keep inflation at a low level, 2-3%, by manipulating the interest rates applied to borrowing money. The government entity used to do this, usually called a Reserve Bank, offers to lend money to commercial (public-use) banks at a rate fixed for the day -- say 3.85%.
Banks and other lending organizations can then re-lend this money to members of the public at the Reserve Bank rate, plus a margin to cover their operating costs, usually around 2%, so the individual borrower may pay the bank about 5.85%. The reserve bank tries to stimulate or restrain the local economy by varying this rate, with the aim that Inflation will end up in the 2-3% band.
There is a good explanation of the reasoning behind, and methods used by, Australia's Reserve Bank in "Australia's Inflation Target", at https://www.rba.gov.au/education/ [12].
The HydroDollar proposal
We have seen that historically, currencies have been based on their equivalence to a rare material, such as gold. The current proposal is to base currencies on a universally-available material, Hydrogen.
Hydrogen is the most common substance in the Universe. Of the 3 atoms in a molecule of water (H2O), 2 are Hydrogen, and water is available everywhere people live.
So the proposal is to set up an international currency, the HydroDollar, based in 1 kilogram of Hydrogen.
As of 2025, hydrogen produced from natural gas is cheaper, with a cost range of approximately $1.5 to $5 per kilogram. On the other hand, hydrogen produced by electrolysis, which is more sustainable, can cost about USD 3-7 per kilogram.
Future research may be expected to reduce the cost of extracting hydrogen, in particular from solar devices which use sunlight to split the hydrogen directly from water vapour in the air.
Proposition MT203-P1.
The HydroDollar and Inflation
The HydroDollar should be considerably less liable to inflationary effects, compared with most existing currencies. Runaway inflation is more or less ruled out, since it is backed by a material.
The HydroDollar would be well suited to international use, since hydrogen is available readily in all countries. With gold-backed currencies, countries are subject to big differences in natural mineral resources. With the HydroDollar, international currency trading would be largely unnecessary.
At present, the price of gold continuously increases with time, because the cost of extraction rises with inflation. There is still some likelihood of some inflation with the HydroDollar, but this would be low, as the cost of hydrogen extraction is unlikely to vary markedly in either shorter or longer time.
The HydroSolar Package
A companion AOI article, first published in 2006, deals with the advantages of hydrogen as both an energy and fuel source, and a means of transferring energy from place to place [see Reference A]. Entitled "HY400: The HydroSolar package: A Total Energy System for Today", it's at www.aoi.com.au/Hydrogen/HY400/.
The Package envisages a "HydroWeb", an integrated system for production of energy from traditional, newer renewable, and possible future resources, and its easy transfer worldwide.
Figure MT203-F12. The HydroWeb concept. From [A].
The present HydroDollar proposal goes another step beyond the HydroSolar Package plan, envisaging a further use for Hydrogen, as the basis of currency and world trading economics.
* * * * * * * * * * * * * * * * * * * * * * * *
AOI articles with relevant evidence
[A]. HY400: The HydroSolar package: A Total Energy System for Today.
References and Links
[1]. Cowry shells, a form of currency. https://www.citeco.fr/10000-years-history-economics/the-origins/cowry-shells-a-form-of-currency .
[2] 7 Oldest Coins that Ever Existed. https://www.oldest.org/culture/coins/ .
[3] Jesse Holth. World's Oldest Coin Mint Discovered in 2,800-Year-Old Chinese Foundry. https://www.artnews.com/art-news/news/oldest-mint-spade-coins-chinese-foundry-1234601047/ .
[4] Chris Parker. A short history of the British pound. https://www.weforum.org/agenda/2016/06/a-short-history-of-the-british-pound/ .
[5] Gold standard. https://en.wikipedia.org/wiki/Gold_standard .
[6] British Coins and Banknotes. https://normandyhistorians.co.uk/hwc/coins/index.html .
[7] Old English white five pound note. https://www.dreamstime.com/old-english-white-five-pound-note-old-white-five-pound .
[8] Banknote. https://en.wikipedia.org/wiki/Banknote .
[9] Gold standard. https://en.wikipedia.org/wiki/Gold_standard .
[10] Jane Desborough. Isaac Newton and the Royal Mint. https://blog.sciencemuseum.org.uk/isaac-newton-and-the-royal-mint/ .
[11] Hyper Inflation in Zimbabwe. https://www.economicshelp.org/blog/390/inflation/hyper-inflation-in-zimbabwe/ .
[12] Australia's Inflation Target.. https://www.rba.gov.au/education/resources/explainers/australias-inflation-target.html .
[13] Quantitative easing. https://en.wikipedia.org/wiki/Quantitative_easing .
[14] Zimbabwe 100 Trillion Dollar Banknote, 2008. https://www.100trillions.com/products/zimbabwe-100-trillion-dollar-banknot. .
[15] King Offa's gold coin. https://intriguing-history.com/king-offas-gold-coin/ .
[16] Mercia-Anglo-Saxon Kingdom. https://warhistory.org/@msw/article/mercia-anglo-saxon-kingdom .
[17] Inflation. https://en.wikipedia.org/wiki/Inflation .
[18] Dorothy Neufeld. Visualizing the History of U.S. Inflation Over 100 Years. https://advisor.visualcapitalist.com/inflation-over-last-100-years/ .
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