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.
|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.
|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.
|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.
|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.
|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.
|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.