Inflation, Public Debt, and Silent Strangulation: Why We Need Ethical Stablecoins

Introduction

We live in an era where money constantly loses value, states accumulate record debt, and the average citizen feels that although "the economy is growing," their standard of living is deteriorating. Coincidence? No. It's a deliberate and silent mechanism that has been operating for decades.

In this article, we'll explain:

• How inflation reduces public debt without the state paying a single euro
• Why governments need inflation to survive
• How stablecoins and CBDCs can amplify control
• What an ethical stablecoin is and why Koinonos wants to build one

1️⃣ The Key Idea (in One Sentence)

2️⃣ Simple Example: From Family to State

Imagine that:

• You take out a €100,000 mortgage
• Your salary is €2,000/month

Now, over 10 years, due to inflation:

• Your salary rises to €3,000/month
• The price of everything goes up
• But the debt remains €100,000

3️⃣ Example with Real Government Numbers

Let's suppose:

• Public debt: €1 trillion
• GDP: €1 trillion
• Debt/GDP ratio = 100%

Now there's 5% annual inflation for 5 years (simplified):

4️⃣ Why Inflation Helps the State

🔹 1. Taxes Rise Automatically

• VAT, income tax, social security contributions → rise with prices and wages
• The state collects more without officially raising rates
• This is called the inflation tax (but almost nobody calls it that)

🔹 2. Debt Is "Frozen"

Most public debt:

• Is issued long-term
• At fixed rates
• Doesn't automatically adjust to inflation

🔹 3. Citizens' Savings Lose Value

• Money in accounts: loses purchasing power
• The state: benefits indirectly

5️⃣ Why This Is NOT Coincidence

Historically, after:

• Wars
• Massive crises
• Pandemics

States have always used inflation to:

• Reduce debt
• Avoid sovereign bankruptcies
• Buy political time

📖 Historical Examples:

• USA after World War II
• Europe in the 1970s
• Post-2008 period
• Post-COVID period

6️⃣ Where Stablecoins and CBDCs Come In

This is where things get interesting (and concerning).

🔸 Programmable Money

State stablecoins / CBDCs allow knowing:

• Who spends
• When
• On what
• Where

🔸 Control of Money Velocity

A government could:

• ✅ Incentivize spending
• ❌ Penalize saving
• ⏰ Put expiration dates on money
• 🚫 Limit certain uses

7️⃣ So… Is Inflation "Raising Living Standards"?

❌ Not exactly.

Inflation:

• ✅ Raises prices
• ❌ Doesn't guarantee wages rise equally
• 📉 Reduces the real value of savings

That's why:

• Citizens feel they're "living worse"
• Even though "the economy is growing" in numbers

8️⃣ The Moral Paradox

The system needs inflation to survive, but:

• ❌ Punishes the prudent (those who save)
• ✅ Benefits the:
  • Indebted
  • Money issuer
  • State

9️⃣ Ultra-Clear Summary

🔟 Koinonos' Response: An Ethical Stablecoin

Do We Have the Perfect Solution?

No. We'd be dishonest if we said yes.

But we do believe it can be done better.

What Is an Ethical Stablecoin?

It's NOT "one that can't be controlled" (that depends on design and legal framework).

Principles of an Ethical Stablecoin

1️⃣ Privacy by Design (Without Being "For Crimes")

• No mass surveillance "by default"
• Selective and proportional compliance:
  • KYC/AML where it matters (fiat on/off-ramps, limits)
  • Not for every coffee purchase
• Support cryptographic proofs (ZK) to demonstrate:
  • "I'm not sanctioned"
  • "I don't exceed limits"
  • "Lawful origin"
  • Without revealing your entire identity and history

2️⃣ Minimal Censorship with Due Process

• No arbitrary "freeze" by an operator just because
• If there's freezing/blacklisting, it should be:
  • ⚖️ With legal order + public traceability of reason (at least metadata)
  • ⏰ Time-limited
  • 📝 Appeal mechanism
  • 🔍 Independent audit

3️⃣ Radical Transparency of Reserves and Risks

Frequent proof (ideally: daily) of:

• 💰 Reserves
• 🏦 Custody (where they are)
• 📊 Composition (cash, T-bills, repos…)
• 📈 Duration/interest rate risk

External audits + SOC/ISAE-type reports when applicable.

Publish a risk policy: what can be purchased with reserves and what cannot.

4️⃣ Credible Governance

An issuer with rules that don't change on a whim:

• 📜 Bylaws, risk committee, internal controls
• 🔐 Multi-signature / multi-party control
• 👥 Board with independent members

If there are contract upgrades:

• ⏱️ Timelock
• 🗳️ Voting (if applicable)
• 🚨 Emergency break glass very limited

5️⃣ Design That Doesn't Punish the User

• Clear parity (1:1) and guaranteed fast redemption
• Predictable fees
• No "money expiration" or spending restrictions except by specific legal mandate

6️⃣ Access and Inclusion

"Light" modes:

• Small balances with simplified KYC (if regulation permits)
• Limits by tier

Support for non-custodial wallets

Recommended Architecture (3 Layers)

Layer A: Issuance and Reserves (off-chain)

• Regulated issuer (ideally EMI if in Europe, or equivalent structure)
• Segregated accounts, first-tier custody
• 100% collateralized policy in ultra-liquid assets (cash + short-term T-bills)

Layer B: Token and Compliance (on-chain)

• "Simple" contract (mint/burn/transfer)
• Modular compliance:
  • Rules at entry/exit (fiat ramps)
  • On-chain, the minimum necessary (sanctions lists, risk-based limits)
  • Avoiding "panopticon"

Layer C: Verifiable Privacy (ZK)

For everyday payments:

• "Proof of compliance" without revealing complete identity
• This is what makes it ethical: you comply with rules without turning the system into a total surveillance tool

Operational Ethics Checklist (Concrete Things)

Conclusion

Inflation is not an accident. It's a political tool that:

• Reduces public debt
• Increases tax collection
• Punishes savers

And with the arrival of CBDCs and programmable stablecoins, control can become total.