[P2P-F] Fw: [gang8] The international monetary system - Quo vadis?

Sun Jun 3 15:09:38 CEST 2012

----- Forwarded Message -----
From: Hugh Whinfrey <market at svarsmaal.dk>
To: gang8 at yahoogroups.com 
Sent: Sunday, 3 June 2012, 9:00
Subject: Re: [gang8] The international monetary system - Quo vadis?

>Hugh, would this be treasury-based fiat system plus fractional-reserve credit system for bankers?

OK. This is all coming pretty much off-the-cuff. So I reserve the right to backtrack and change it in the face of feedback :-)

The main idea I was looking at was to dispose of this hybrid system where money creation by fiscal polcy and monetary policy measures respectively negatively interfere with each other.

The private banking sector should get out of the business of dictating to governments and the government should in turn get out of the business of dictating to the private banking sector. So I'm proposing a divorce. 

As Arno just posted while I'm writing this, I think it comes down to a 2-currency system being a really good idea. I would call it two classes of currencies though. Government-issued and privately-issued. With some simple rules for the interaction between the two.

The government-issued currency would be the only legal tender for payments to and from the government. The existing tax system would be expanded to a system of accounts in which the users would essentially have checking accounts at the state bank with credit balances from which they could make transfers to other entities having accounts at the state bank.

So one flavour of money would be government-issued money. The general rule here is that the government does not lend money under circumstances that are comptitive with what the private sector can offer. Rather, they spend it into existence. Discipline is enforced by the spending vs. tax revenue tradeoff.

The other flavour of money would be private bank-issued money. Each bank is not only free to issue its own currency, but *must* issue its own currency. There are no government guarantees for any accounts at the private banks. If you want guarantees you have to keep your cash in the state bank. If you want interest you have to keep it in a private bank. Private banks cannot offer accounts in the government currency. They must use their own currency. So we have "Barclay's Britos" and "Citibank Ameros" and so on. When you go shopping you spend what "private brand" of currency that the merchant accepts. Arbitrage opportunities will become an industry in itself. Groups of banks can band together to keep their currencies having identical values.
The point is that if the private banks lend too much or are otherwise mismanaged, discipline is enforced by the value of their currency dropping relative to that of better managed banks. You won't have bank runs, the value will just drop relative to the currencies of other banks. 

So,coming back to the original question about reserves. There would be no need for reserves - the private banks could issue all the currency they want to - backed but absolutely nothing. They would live and die by what the market thinks their currency is worth. The smarter banks would of course maintain something to back their currency with to keep its value up. The point though is that the customers of private banks would have to become a bit more educated and proactive about the choices they make. It becomes the consumer's responsibility in that sense. 

Hugh

----- Original Message ----- 
>From: Gunnar Tomasson 
>To: gang8 at yahoogroups.com 
>Sent: Sunday, June 03, 2012 3:42 AM
>Subject: RE: [gang8] The international monetary system - Quo vadis?
>
>
>Hugh, would this be treasury-based fiat system plus fractional-reserve credit system for bankers?
> 
>Gunnar
> 
>From:gang8 at yahoogroups.com [mailto:gang8 at yahoogroups.com] On Behalf Of Hugh Whinfrey
>Sent: Saturday , June 02, 2012 7:17 PM
>To: gang8 at yahoogroups.com
>Subject: Re: [gang8] The international monetary system - Quo vadis?
> 
>  
>>2. If such is in fact the case, then the world community can go without such a stable foundation OR attempt to develop one.
> 
>I agree that it's positive to discuss it even if the level of
>desperation isn't so acute as to take it seriously yet.
> 
>What other possible foundations are there? 
> 
>The only alternative I can see to purely "independent" CB-based 
>money or its commodity-based alternative would be a 
>treasury-based fiat system, i.e. with the role of bankers being 
>solely to lend t o the public and not to governments. 
> 
>Money creation could then essentially be balanced by the 
>creation of *publicly owned* infrastructure assets/goods
>which it could be claimed "back" the currency and give it its
>value.
> 
>Hugh
> 
>----- Original Message ----- 
>>From:Gunnar Tomasson 
>>To:gang8 at yahoogroups.com 
>>Sent:Sunday, June 03, 2012 12:41 AM
>>Subject:RE: [gang8] The international monetary system - Quo vadis?
>> 
>>Dear Richard.
>> 
>>I have no more confidence in the saga city of central bankers than the next man!
>> 
>>Nor do I entertain any illusions about that of my erstwhile colleagues at the IMF.
>> 
>>As I see it, the problem is the following:
>> 
>>1. Neither the U.S. dollar nor the Euro – nor any other national currencies, singly or collectively – can serve as a stable foundation for future world monetary arrangements.
>> 
>>2. If such is in fact the case, then the world community can go without such a stable foundation OR attempt to develop one.
>> 
>>Gunnar
>> 
>>From:gang8 at yahoogroups.com [mailto:gang8 at yahoogroups.com] On Behalf Of Dr. Richard Werner
>>Sent: Saturday, June 02, 2012 6:33 PM
>>To: gang8 at yahoogroups.com
>>Subject: RE: [gang8] The international monetary system - Quo vadis?
>> 
>>  
>>Dear Gunnar,
>> 
>>A single currency means even more power to unelected central bankers. This cannot be a good thing.
>> 
>>A single currency will ensure that the monetary ‘mistakes’ of central ba nks of the past century will not only be repeated but have a much bigger impact. 
>> 
>>Has the single currency of the eurozone not taught us any lessons?
>> 
>>Regards, 
>>Richard
>> 
>>
>>________________________________
>>
>>From:gang8 at yahoogroups.com [mailto:gang8 at yahoogroups.com] On Behalf Of Gunnar Tomasson
>>Sent: 02 June 2012 22:40
>>To: gang8 at yahoogroups.com
>>Subject:< /b> [gang8] The international monetary system - Quo vadis?
>> 
>>  
>>Dear Gang.
>> 
>>The recent comments by World Bank President Robert Zoellick on the euro crisis –
>> 
>>http://www.greekcrisis.net/2012/06/europe-must-prepare-emergency-plan.html
>> 
>>– were reported in an Icelandic web-based news service, www.eyjan.is.
>> 
>>Here, in loose translation, are comments on the subject matter which I posted today:
>> 
>>It has not been timely before now – but when the present international monetary system has finally seized up there will be only one way out of the problem.
>> 
>>The adoption of an international currency along the lines of the International Monetary Fun d’s Special Drawing Rights (SDRs).
>> 
>>The IMF has been on the sidelines since the early 1970s with no authority to stem the ongoing structural disintegration of the international monetary system.
>> 
>>Now, some forty years later, it is clear that a future international monetary system cannot be based on the currencies of individual countries (U.S.A.) or country groups (EU).
>> 
>>That leaves no option other than an international currency subject to supervision to ensure that the self-destructive developments of the past forty years will not be repeated.
>> 
>>Gunnar
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