[Kathula]

If by creating a "disincentive to investment" you mean a disincentive to gamble their hard earned money on the stock market, then yes. The current situation where (at least before interest rate was somewhat high) the average man had to spend time and effort by going to the stock market with their money is not healthy. You shouldn't have to gamble your money just so it doesn't lose value by merely holding it. Investments will of course still exist, it will just be of a higher quality/yield. Because now there's actually an alternative to "investing" on stocks.

[adastra22]

Commodity currency does have a "disincentive to investment" which has a measurable negative effect on the economic climate. This was first identified and studied by Silvio Gesell in the early 20th century, then John Maynard Keynes a few decades later. Removing this disincentive is what ushered in the post-WW2 period of prosperity and growth that we're still living in today.

The part your analysis is missing is that for a commodity currency there is a whole segment of productive, non-risky investments which cannot raise capital in a deflationary environment. If deflation is 5% and a civic works project with an effectively guaranteed 3% return is fundraising, who in their right mind would put money into that? Better to hodl than to invest in your community. There is, btw, a deep tie between this result and Henry George's analysis of the impact of rents, if you're familiar with that.

This basic phenomenon of the risk-free interest rate being non-zero, and its ramifications for the economy, is one of the most confirmed results of 20th century economic research. If you could get the risk-free interest rate to zero, it would boost the economy and lower unemployment with absolutely no ill effects whatsoever.

[somenameforme]

The USD was a 'commodity currency' up until 1971 thanks to Bretton Woods. It was convertible to gold at a fixed rate, and other currencies were, in turn, pegged to the USD. The idea was to have the stability/security of a backed currency, with the convenience of a fiat one. The security was intended to come from the fact that if the US printed too many dollars, devaluing the USD, then other countries would buy up those dollars and convert them to gold - both making profit, and punishing poor fiscal behavior.

It was a self-protecting system. The problem is it assumed the US would keep to its word. Instead we got everybody hooked on the USD, started printing a bunch of money anyhow, and then just defaulted on our obligations when other countries tried to convert it to gold, and withdrew from Bretton Woods. This led to the famous quote from Nixon's Treasury Secretary: "The dollar is our currency, but your problem."

So you're only looking from 1971 onward. This not only doesn't look especially pretty [1] in countless sociopolitical aspects, but the tremendous economic gains we have seen can also be largely attributed to a complete tech explosion that reshaped the entire world's economy, which we ended up being the natural epicenter of owing to a relatively large population, English being the defacto global language of science, and the fact that we were left entirely untouched by WW2.

The current completely free floating global fiat experiment may end up being the shortest lived economic experiment in our entire history should it turn out that we're just blowing up the mother of all bubbles. And it sure does feel that way!

[1] - https://wtfhappenedin1971.com/