The end of the euro – and the beginning of currency competition
17 September 2012
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14 September 2012
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18 September 2012
Economics
14 June 2024
We are so accustomed to our present currency system that it is difficult to imagine a system of more than one currency circulating side by side. However such a monetary system has existed and successfully functioned in the past in many countries, either de jure or de facto. One very good, long-lasting example is the case of China between 1650 and 1850, where copper coins and silver taels circulated as parallel currencies.
In the 1970s F. A. Hayek ignited a discussion on the subject with the publication of Choice in Currency and Denationalisation of Money, which essentially advocated the end of the government monopoly to issue money, and that private institutions should be allowed to print money, letting the market choose the one deemed best.
With the euro in crisis, we could learn from this analysis. I would also subscribe to the idea of currency competition as the best means to have a stable monetary system, without the ever-present pernicious government intervention. I would envisage a system where there is an ‘anchor’ currency 100 per cent backed by gold, effectively the same as the old gold coin standard. Coinage may be issued by the ECB, by governments (if they wished) as well as by private institutions. It would be 100 per cent backed by gold. However, this gold currency would not be the only currency. It would be a parallel currency alongside any national fiat currency that a country currently within the eurozone wished to reintroduce. The price of goods and services would be quoted in the gold currency. However, both the local currency and the gold currency could be used to settle payments at the spot exchange rate. There could be more than one local currency circulating.
I call this the DLCCS-Dual level Currency Competition System and it would be the best system to solve the current euro crisis. Further details of how it could be introduced can be found in my recent published booklet.
People would hardly have any problem using different currencies. Before the introduction of the euro it was quite common in Europe for people living in cities located very close to the borders of other countries to use two or even three different currencies daily to pay for products and services. Furthermore, in some countries in Latin America, people use the US dollar not only as a unit of account but also as physical currency for their purchases.
Fiat or commodity based currencies that are exchanged at fixed rates set by the government are vulnerable to economic realities, and such arrangements rarely end well. An interesting example took place in the 1960s in the US when silver prices went up and people began redeeming silver certificate banknotes for the underlying silver dollars until the government halted redemption in 1968.
With regard to the concern that different designs of currency (in this case, the proposed currency backed by gold) may cause inconvenience, Hong Kong is an illustrative example. Currently, there are four different designs for the Hong Kong dollar: one from the government and three Hong Kong dollar banknotes issued by private banks in various denominations. There are also different designs on banknotes issued by different banks in Scotland and also different designs used on coins in the eurozone.
The essential reason for government monopoly of the issuance of money has little to do with the notion that government is a better manager of money, and everything to do with power. Government is not an abstract entity; it is constituted of people who have ideas, philosophies and interests, many times colliding with what is best for those who they may simply regard as thehoi polloi. Quoting George Washington: ‘Government is not reason, it is not eloquence – it is force. Like fire, it is a dangerous servant and fearful master.’
In the 1970s F. A. Hayek ignited a discussion on the subject with the publication of Choice in Currency and Denationalisation of Money, which essentially advocated the end of the government monopoly to issue money, and that private institutions should be allowed to print money, letting the market choose the one deemed best.
With the euro in crisis, we could learn from this analysis. I would also subscribe to the idea of currency competition as the best means to have a stable monetary system, without the ever-present pernicious government intervention. I would envisage a system where there is an ‘anchor’ currency 100 per cent backed by gold, effectively the same as the old gold coin standard. Coinage may be issued by the ECB, by governments (if they wished) as well as by private institutions. It would be 100 per cent backed by gold. However, this gold currency would not be the only currency. It would be a parallel currency alongside any national fiat currency that a country currently within the eurozone wished to reintroduce. The price of goods and services would be quoted in the gold currency. However, both the local currency and the gold currency could be used to settle payments at the spot exchange rate. There could be more than one local currency circulating.
I call this the DLCCS-Dual level Currency Competition System and it would be the best system to solve the current euro crisis. Further details of how it could be introduced can be found in my recent published booklet.
People would hardly have any problem using different currencies. Before the introduction of the euro it was quite common in Europe for people living in cities located very close to the borders of other countries to use two or even three different currencies daily to pay for products and services. Furthermore, in some countries in Latin America, people use the US dollar not only as a unit of account but also as physical currency for their purchases.
Fiat or commodity based currencies that are exchanged at fixed rates set by the government are vulnerable to economic realities, and such arrangements rarely end well. An interesting example took place in the 1960s in the US when silver prices went up and people began redeeming silver certificate banknotes for the underlying silver dollars until the government halted redemption in 1968.
With regard to the concern that different designs of currency (in this case, the proposed currency backed by gold) may cause inconvenience, Hong Kong is an illustrative example. Currently, there are four different designs for the Hong Kong dollar: one from the government and three Hong Kong dollar banknotes issued by private banks in various denominations. There are also different designs on banknotes issued by different banks in Scotland and also different designs used on coins in the eurozone.
The essential reason for government monopoly of the issuance of money has little to do with the notion that government is a better manager of money, and everything to do with power. Government is not an abstract entity; it is constituted of people who have ideas, philosophies and interests, many times colliding with what is best for those who they may simply regard as thehoi polloi. Quoting George Washington: ‘Government is not reason, it is not eloquence – it is force. Like fire, it is a dangerous servant and fearful master.’
2 thoughts on “The end of the euro – and the beginning of currency competition”
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Bring back full reserve banking, liberate the payments system, bring back the gold standard (at the same time as allowing people choice of currencies) and we will see savings channelled into investment in the fastest time possible by the most advanced analogue computer known to man – the free market.
RE: What would happen if every human being in the EuroZone had a banking licence?
QUOTE: “Nobody has any idea of what a new invention will really be good for. The crucial question is, what happens when everyone has one?“ – Kevin Kelly[2] – Co-Founder of WIRED magazine
It is odd, but while completing some analyses for my ridesharing project, I came across a couple of very interesting presentations and also an NYTimes article on techno-literacy.
These seem to address the problems with both the EuroZone crisis and the design of a banking system
Consider these technologies – Lighting, Writing, Telegraphs, Telephony, Faxes, Computers, Email, Cars, Air Travel, Hotels and Publishing.
At one stage, they were of limited spread and limited use. Only a few (usually socially elite) people had access to the technology in its infancy. Yet the overall utility of the technology became vastly more useful when more people got hold of it – network effects.
The control over populations enjoyed by elites and tyrants was broken (think of what the printing press did for freedom, when combined with wider literacy).
Consider LITERACY EDUCATION – which basically allowed *anyone* to become a scribe / (wo)man of letters.
Consider EMAIL – which basically allowed *anyone* to become a post office.
Consider BLOGS – which basically allowed *anyone* to become a publisher.
Consider TWITTER – which basically allowed *anyone* to become a newspaper wire Service
Consider AIRBnB – which basically allows *anyone* to become a Hotel
Consider OPEN UINVERSITY / ONLINE EDUCATION – which basically allowed *anyone* to become a “graduate” (or would if there weren’t rules on “needing a degree” for certain jobs)
Consider also what would happen when we completely deregulate transport – which basically would allow *anyone* to be a transport service – thus competing with incumbent monopolies.
The time has come to wonder – what would happen if every human being in the EuroZone had a banking licence? That anyone (using the banking cloud) could act as a source of funds or as a depository of value offering a competitive return on funds in a fully liquid fungible market.
This would, in a stroke, disrupt the banking system and change the behaviour of the very banks who enjoy monopoly protections from the State while delivering a poor service.
Consider a gold backed National banking cloud. People could move move their pension into Gold and Silver and be sure that they were protected against inflation. Better still, any nations using the Gold Standard would enjoy full connectivity between these populations, free from the inflatory machinations of demagogues.
There would not necessarily be a “hoarding problem”, since people could stipulate e.g. 20% of saved funds to be used in lending projects.
(Yes – I know that Money Market Funds are supposed to offer the following – but please humour me)
Just consider this for a few minutes and we may have a way out of the global malaise. It requires a complete destruction and dismemberment of the old ways of doing things (and banks, VC funds and pension funds will all have to evolve), but it could just be what is needed.
The first step is to remove all State protections and privileges for broadband companies and to allow ANYONE to connect to the payments system of a nation without any need for credit checks. The rest will follow in a matter of months.
We are seeing this already with VentureGiant, Seedrs, Crowdcube, FundingCircle and ZOPA, but the problems that remain are the artificial bottlenecks created by ratings agencies.
Bring back full reserve banking, liberate the payments system, bring back the gold standard (at the same time as allowing people choice of currencies) and we will see savings channelled into investment in the fastest time possible by the most advanced analogue computer known to man – the free market.
SOURCES:
1. Yiibu Design | “Adaptation” presentation
http://www.slideshare.net/yiibu/adaptation-why-responsive-design-actually-begins-on-the-server
2. NYTimes Magazine, Sep 2010 | THE WAY WE LIVE NOW Achieving Techno-Literacy
http://www.nytimes.com/2010/09/19/magazine/19FOB-WWLN-Kelly-t.html?_r=1
I personally think that a dual monetary system is possible too, as long as it is going to help with the euro crisis. I also agree that government intervention should only be a last option when nothing else has proven to work anymore to prevent any further problems from arising. The gold and silver system also looks favourable but a little traditional though it is considered as quite a stable resource in terms of its value as compared to currency. Hope that the respective authorities will come up with a solution soon before the economy worsens.