The Only “Rules-Based” Monetary System That Has Ever Worked

BusinessPolicyThe Only “Rules-Based” Monetary System That Has Ever WorkedByNathan Lewis,Contributor.Forbes contributors publish independent expert analyses and insights. I write about economic policy for the 21st century.Follow AuthorJun 10, 2026, 11:53am EDTJun 10, 2026, 11:55am EDTRemember the Federal Reserve’s “2% Inflation Target”? It has been 63 consecutive months since that target has been met. In May, the official Consumer Price Index (which has been continually modified since the 1980s to make it look better) was 4.2% higher than a year earlier.Value of the US Dollar, in milligrams of gold, 1900-2026TradingView.comBut even if the Federal Reserve was able (har!) to meet this target, it smells suspiciously like a plan to gradually devalue the currency over time. This makes political sense – a cheaper currency benefits debtors, at least for as long as interest rates don’t reflect expectations of continual currency debasement. Since the government is the biggest debtor, and since a lot of voters are also big debtors, there is a kind of constant political wind toward cheapening the currency.This CPI target is somewhat informal. It has been mentioned many times, but does not form an institutionalized part of the Federal Reserve’s procedure. Other than this element, which added a sense of legitimacy before it became an embarrassment, the Federal Reserve pretty much just makes it up as they go along.This gives rise to a catalog of various “rules-based systems," promoted by various organizations (notably the Cato Institute) who think they can do better. But can they? I don’t think so.What is the purpose of floating fiat currencies? Why do they exist? As I describe in my eight-part YouTube series on monetary topics, the basic motivation is macroeconomic manipulation, often devolving into government finance. Borrowing the terminology of Federal Reserve Bank of Richmond economist Thomas Humphrey, I called this the “Mercantilist” approach to money, or the Soft Money...