As we noted in the
previous posting on this subject, occasionally we get questions from our
readers the answers to which we think would make a good blog posting or two. This particular set of questions came from
someone in another country who wanted to know how we would go about
establishing some kind of global standard for all the different currencies of
the world.
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| Athenian "Owls" served as a trade currency in the ancient world. |
This is actually not that new
an idea. It’s been tried officially and
unofficially from the time currency — as distinct from money — was invented. Currency is a standardized form of money; all
currency is money (or should be, if sound principles were used in its issue)
but not all money is currency. Athenian
drachmae served as an unofficial trade coin in the ancient world, as did in
later times the Tetradrachms of Alexander, English silver pennies, Spanish
pieces of eight, the British sovereign, and the U.S. dollar.
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| Newfoundland coin with the denomination given three ways. |
In the latter half of the
nineteenth century for a number of reasons there was a concerted effort to
abandon silver as a standard and adopt a universal gold standard. A number of interesting experimental coin
designs were developed, and there was even a circulation strike, the Newfoundland
two-dollar gold piece (1865-1888) that had the denomination in three ways, in
dollars, cents, and pence. It is also
the only British colonial gold piece issued for circulation (the gold
sovereigns struck at various colonial mints were imperial, not colonial
issues). The idea was that, regardless
of which country issued a coin, it could circulate anywhere in the world
because each currency had a fixed value in terms of all others.
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| Keynes demanded government debt-backed currency. |
The effort failed, in part
because as the nineteenth century wore on, ownership of productive wealth
became increasingly concentrated.
Governments began assuming more and more of the cost of social welfare
as people were less able to take care of themselves and their families with what
they were able to generate by selling their labor.
In order to meet the increasing
burden, many governments abandoned precious metals altogether and turned to
inflation to finance expenditures by backing the currency with government debt. By 1935, most governments had made control of
the value and quantity of the currency a political issue instead of an economic
and financial one, with the result that those who controlled money and credit
worked to ensure that they maintained their power by keeping as many people as
possible without ownership of capital and thus without access to money and
credit, except to finance consumption, which does not pay for itself.
The problem of establishing a
global monetary standard, therefore, is twofold. One, to replace all currency backed with
government debt with currency backed with private sector assets. Two, to have governments — and those who
control government — give up the power gained through the control over money
and credit.
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| U.S. 1880 pattern $4.00 trade coin |
The first task, therefore,
would be to convince at least one government to give up direct control of its
currency. This means, principally, governments
giving up the power to continue monetizing their deficits and surrender of control
over who owns.
As the benefits of an
asset-backed currency over which governments exercise only regulatory control
became obvious, other countries would join in what has the potential of
becoming a global currency union. This
would not necessarily mean giving up their respective national currencies, but
pegging the national currencies of countries in the currency union to the
uniform global reserve currency, and making all currencies of the union legal
tender in every other country in the union.
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| Spanish Milled Dollar, "Piece of Eight." |
Ultimately there should be a
single uniform currency, but whether the new global reserve currency is parallel
to or completely new with regard to existing currencies during transition is a
political decision. We would recommend,
however, not to cancel old national currencies, but to redeem them gradually in
the new global reserve currency once the decision is made to join the currency
union.
At some point the union
authorities — with the concurrence of all members of the union, of course — could
decree that all old currencies are legally the same as the new currency, just
with a different appearance. The old
currencies would then be phased out gradually and replaced with a domestic or
global version of the reserve currency.
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| United States Trade Dollar |
Consistent with the principles
of a personalist system, ultimately a global currency should be uniform,
stable, and backed with private sector assets, not government debt, thereby
removing any political influence from the adoption of the global reserve currency
as the national currency. One way to
implement such a system would be to redeem existing currencies backed with
government debt over time with a single currency backed with government
debt. The same government debt that
backed the old currencies would back the single new currency; all that would
change would be having one currency instead of multiple ones.
At the same time, the single
new currency backed with government debt would be gradually replaced with a
currency that looks exactly the same, but that is backed with private sector
hard assets. As the government paid down
the debt backing the existing currency under a reformed personalist tax system,
it would be replaced with asset backing as new capital is financed, but without
anyone being able to tell which units of currency were still debt backed and
which were asset backed. This would
avoid speculation and maintain public confidence in the currency and the government.
All government expenditures
should be covered by revenue raised by a just, personalist tax system. Any borrowing should be short term, and
deficits should not be monetized.
Monetizing government debt is a special form of bill of exchange called
a “bill of credit,” which under personalist monetary theory is not legitimate.
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