Hi Ed,
At 17:35 26/05/01 -0400, you wrote:
>
>Keith:
(KH)
>> But little bit by little bit I am becoming increasingly convinced that we
>> will see the emergence of a single universal currency. Whether this will
>> come about via some new grouping of large companies starting an
>> asset-backed bank (probably e-money via the Internet), or the sole
>survivor
>> of the continuing contest between the official currencies I don't know.
>> Either way, there will be immense benefits to all countries, businesses
>and
>> organisations.
(EW)
>I believe we're pretty close to a single currency now. It's the Almighty US
>$$. The US would never accept a currency which it does not control. The
>reason that countries like Canada keep their own currency is because it
>permits them some control over domestic monetary affairs, even if the
>international value of their currency is determined by what happens to the
>Greenback.
I don't think that even the US government could prevent the formation, and
subsequent wide-scale use, of a new currency because it could start in
entirely innocent ways which could not be outlawed without intruding into
the very heart of commercial practice. For example, air-miles. I don't have
any of these and know very little about them but I gather that they are
regarded as valuable by their owners who have "earned" them. (I understand
that an air-mile "millionaire" is someone who has enough air-miles to be
able to fly around the world ten times.) The same applies to certain types
of loyalty cards at supermarkets which can be exchanged for food and thus
possess tangible value.
But neither of these is likely to develop into a world currency -- few of
us need to fly frequently and there's no single food supermarket chain
which straddles the world and is accessible to all (though WalMart is
trying!) -- but it's just about possible to imagine that some other similar
scheme could somehow take off and (accidentally, as it were) become a
genuine currency. (By "genuine" I mean that it satisfies the most important
condition of a currency -- that it is always exchangeable into other goods.)
However, this accidental birth of a new currency is less likely than a
proactive decision to start one. This is much easier to imagine. For
example, if, say, Microsoft, General Electric (the finance division
thereof), VISA, IBM, Citibank, WalMart and one or two more of the biggies
decided to issue a new e-currency, fully backed by their assets, with
guaranteed exchange value against a defined package of goods, and able to
be securely transferred, then it's possible to imagine this becoming a
useful currency for individual use. The new currency would only then
require the formation of investment banks to pool individual savings, and
it would then become a fully-functioning currency. I cannot see how even
the US government could stop this.
(KH)
>> As some FWers will know I have been a critic of official currencies
>because
>> they are not backed by value and can thus be be manipulated by governments
>> and currency speculators. However, the criticism largely falls if there is
>> a single official currency because its value would be self-correcting via
>> the interest rate. I say "largely" because printed banknotes can still be
>> forged (as the US$ is in vast quantities) and then laundered.
(EW)
>I'm not with you here Keith because I don't believe there is anything that
>has absolute value. Or if there is, it's something that lies outside of the
>economic sphere and perhaps in the moral one, like human life or the things
>that are in the UN Charter of Human Rights (which no one pays much attention
>to). National currencies have a given value as long as governments and
>central banks can maintain it. When I was in Russia a few years ago the
>value of the rouble had fallen from an artificially maintained approximate
>parity with the US$ to virtual worthlessness. The government and the
>Russian banking system had simply not done their job. Everybody wanted US$s
>because their value held. What I'm saying is that it's all relative; there
>are no absolutes.
I don't believe that I said that a currency has to have "absolute" value.
It suffices if it is widely believed to be exchangeable against essential
goods and services. I think you give the game away when you write that
"National currencies have a given value as long as governments and central
banks can maintain it." So what happens when they can't maintain it? This
has happened innumerable times throughout history and even the US
government could lose control over the US$ at some stage in the future.
Indeed, I believe the US Federal authorities have largely lost control
already and are only able to influence domestic investment and spending.
Indeed, I would very much like to know facts about the US$ (and other
official currencies) which are (in my experience) never discussed publicly
-- at least in any rigorous way. There is a massive amount of US$ liquidity
sloshing around the world -- which indeed speculators, such as Soros,
occasionally use to disturb official exchange rates. How much of this is
due to investment of valid official $s by ordinary people (via insurance
companies, pensions funds, etc) and how much is actually due to grey
economies and, within those, a further proportion of counterfeit money?
It's impossible for someone like me to know. As to the latter point, we can
be certain that whatever technological tricks the authorities use in
printing money can be simulated by criminal printing outfits.
(I know someone who is the chief engineer of one factory of a firm that
prints banknotes [of a foreign currency which is unknown to me]. There'll
be nothing about the technical specifications of these banknotes and their
production which he does not know. If he were to be tempted by a criminal
gang able to offer him a fortune, he could undoubtedly set up a printing
outfit that would produce identical banknotes.)
Sitting here this morning with my first pipe and pot of tea, I'm tempted to
speculate as to what proportion of, say, the US$ is actually grey economy
money and, within that, counterfeit money. We have a few clues that it's
enormous. For example, in France at this time there is a huge increase in
private house-building going on -- something like a 25% surge I understand.
France is already over-supplied with housing but there are huge quantities
of grey economy francs being pulled out of mattresses and spent on building
before the euro comes on the scene next January. The percentage of
grey/official economies in Europe is sometimes quoted at between 15% (in
the UK) rising to 40% (in Italy). I've little doubt that it's actually more
than that, and even less doubt that, in Russia and central European
countries, it's even higher. And, on top of individuals and firms who evade
taxation, there are what can only be called huge "industries" in the form
of illegal drug smuggling, immigration, and mafia-controlled prostitution.
And then, within the grey economies, there's a component of counterfeit
money. Huge quantities of US$s, produced in Italy, are said to be imported
into Russia. This is why the Federal authorities have issued new notes
($10, $20, $50?) recently. At the moment, it is said that large quantities
of Germans Deutschmarks are being counterfeiting in iorder to be directly
exchanged for euros at banks on January next. The mafias involved assume
that the authorities will be so overwhelmed with exchanging money that they
won't be able to prevent counterfeit money being proferred along with the
genuine stuff.
Of course, all grey econony and counterfeit money appears in the form of
tangible property and goods sooner or later. But at any one time, how much
of the liquidy of the US$ is not under the control of, or able to be
measured by, the Federal authorities? It could be as much as 50% in my view
at any one time. Under certain circumstances (as frequently happens when
there are wild gyrations in exchange rates), all this or a large proportion
of it could suddenly appear and cause the US$ price to collapse.
The more I think about it, the more I'm tempted to believe that official
currencies, particularly the US$ (simply because of its importance and
wide-scale use), will be increasingly vulnerable to massive speculation. A
fully asset-backed universal currency is inevitable, in my view.
How could this be done, and how would it operate? It would have to be
digital, because otherwise it, too, would suffer from counterfeiting. It
would have to be enumerated on a central register accessible to all, and
its back-up assets would have to be audited regularly. To authenticate it,
an e-$ would also have to carry its own audit trail from the time of its
production and through every change of ownership. Smartcards would
therefore have to have large processor memories but this doesn't seem to be
an insuperable problem (and when they accumulate in banks individual audit
trails could be composited and re-issued by referring back to the central
register.)
This might seem to suggest that governments would have to supervise this in
order to tax incomes and transactions as they do now, and therefore there
could be no privacy of transactions -- which any true currency must
possess. But the complexity would be too much. Authorities cannot supervise
the illegal use of official currencies now, never mind the complexity of an
e-currency. They couldn't possibly do so in the future and would have to
resort to the taxation of visible property alone.
Well, those are my thoughts as I finish my first pot of tea of the day and
get ready to take my dog for her walk. The dog I used to mention in the
early years of FW, Gemma, died about two years ago and I have a new one, a
Welsh border collie. She is one of those thousands that Welsh farmers no
longer need and was destined to be destroyed a year ago until rescued by
the local Dog's Home. She's still pretty wild, though, and still tries to
round up cars and cyclists in the street as though they were sheep. It
makes for plenty of daily drama in my otherwise sedentary life.
Keith
___________________________________________________________________
Keith Hudson, General Editor, Calus <http://www.calus.org>
6 Upper Camden Place, Bath BA1 5HX, England
Tel: +44 1225 312622; Fax: +44 1225 447727;
mailto:[EMAIL PROTECTED]
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