The Free-Banking vs. Central-Banking Debate
April 14, 2011 9:41 AM Subscribe
Out of thin air?
posted by kliuless (47 comments total)
53 users marked this as a favorite
"Have you ever said something like 'Let me buy you a beer next week'? I'm sure you have. We all issue promises of this sort. And we frequently use such promises as a form of currency... I have just described a simple credit exchange. Societies rely heavily on promising-making and promise-keeping. It is the foundation of all financial markets. I'd like to point out something about the promises you make. They are made 'out of thin air.' "
At the end of his post David Andolfatto ('a Vice President in the Research Division of the Federal Reserve Bank of St. Louis') asks what I think is a really great question:
Let's divert attention to more substantive issues. For example, the Fed has a legislated monopoly over the supply of small-denomination paper. Is this a good idea? What if we keep the Fed as is and allow free-entry into the business of money creation? If an unfettered private money system works well enough, it might drive Fed notes out of circulation. On the other hand, perhaps the demand for Fed paper will remain. Government paper (in the form of US Treasuries) drove out private money (AAA tranches of MBS) in the repo market in the past financial crisis. Now, isn't that interesting?
- How to Start Your Own Private Currency - "It's not as complicated as it sounds. You can 'back' it with gold, or mimic an I.O.U. for one hour's worth of work. All you need is a system other people can understand and, most importantly, trust."
- On Private Money - "a survey of elderly in Japan found that they preferred workers who were paid in Fureai Kippu to those paid in Yen, because the care was better (or more 'authentic'). The absence of interest rates is what creates this effect — different currencies foster different relationships between people"
- Currency Solutions for a Wiser World - "civilization needs a new operating system"
- Online-Only Currency BitCoin Reaches Dollar Parity - "The BitCoin peer to peer currency briefly reached exchange parity with the US dollar today after a spike in demand for the coins pushed prices slightly above 1 USD:1 BTC. BitCoin was launched in early 2009, so in only two years this open source currency has gone from having no value at all to one with not only an open market of competing exchanges, but the ability to buy real goods and services like web hosting, gadgets, organic beauty products and even alpaca socks."
- Why the Dollar's Reign Is Near an End - "For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies." [1,2,3]
- The free-banking vs. central-banking debate - "Long ago, a remarkable debate took place about the optimal way to organize an economy's money and banking system. The proponents of free-banking eventually lost out to those who favored some form of central bank regime..."
- Inflation confusion - "The Fed, like every other central bank, is powerless to prevent fluctuations in the cost of living and increases of individual prices. We do not produce oil. Nor do we grow food. Or provide healthcare..." [1,2,3]
- The revolution in central banking - "For a generation, the accepted orthodoxy has been to focus on taming inflation. Financial stability has taken something of a back seat. Now, whether mandated to do so or not, western central banks have bought up sovereign debt to sustain the financial system, printed money by the truckload to stimulate their economies, sacrificed some of their independence to coordinate monetary policy more closely with fiscal decisions, and contemplated new ways of preventing asset bubbles. Some -- such as Bank of England Governor Mervyn King -- have joined wider political protests at commercial banks that are still behaving as if they are 'too big to fail', and as if being bailed out is just a hazard of business."
- King helps the case for banking reform - "The governor of the Bank of England did not mince his words when talking about the need for financial reform. Along with some digs at the industry's ethics, he suggested that bankers were still not living in the market economy. That was why they were still able to pay themselves such high bonuses... banks are still able to borrow at artificially low rates because creditors do not believe they will be allowed to fail. This in turn encourages risky behaviour and excessive remuneration." [1,2,3] (contrast w/labour...)
- Modern Monetary Theory - "MMT offers the most promising toolkit for crafting a desperately needed replacement of status quo central banking."
- Disrupting the banking system - "on whether and how Internet startups are disrupting the banking system" (cf. payment systems)
- The Bank of Facebook: Currency, Identity, Reputation - "There has been much speculation recently about the role Facebook Credits could play in becoming a global virtual currency, and even the possibility of Facebook becoming a bank. In many ways, it already is becoming a bank – just not in the traditional sense. Facebook is harnessing the power of the social graph, and has certainly adopted an expanded definition of what 'currency' means. It's time for the rest of us to hop on board."
- Facebook, Your Future Bank - "Forget sharing photos. Mark Zuckerberg may soon manage your finances..."
- What happens when Facebook becomes a Bank? - "It starts with a Facebook piggy bank, payment system and credit card. Then it's a savings account and a loan perhaps for university. What about a mortgage, life insurance, health insurance, car insurance, house insurance and a pension? Afterall with a billion users these should be the best deals on the planet. Volume speaks price. Low price. This is before you offer your members peer to peer lending like Zopa giving them better interest and lower risk on their savings. Could it really happen? Are the existing banks holding your attention right now? Do you trust your existing bank? Do you trust Facebook to manage your money? Would you lend Facebook money? Would you invest in Facebook's public offering of shares? I guess trust is the killer app and it all depends if Facebook can pull that off."
Of course there's been talk of an Apple iBank
, a Google Bank
, a Walmart Bank
and state banks
for awhile now, and while they can all be rightly criticized, I'm not sure that the status quo
-- w/r/t money, banking, payment, credit and value systems -- can be maintained either.