Not everyone's cup of tea, but a start on considering alternatives to government [Treasury- issued] money or [Federal Reserve-issued] debt/money.

Those who currently control monetary systems profit from their privileged positions. Evidence points to a US president and several congressmen who opposed the Federal Reserve dying prematurely. Within the last month, a large amount was confiscated from a dealer in BitCoins, circulating as an alternative to officially-sanctioned money.

The current explosive growth of US debt-money may lead to rampant inflation. Public outcry could lead to replacing the current system. The selection below addresses blueprints for possible monetary reform.

.................................................. ...............................


Irving Fisher proposed a new monetary system to correct the flaws that led to the Great Depression -- it was only discovered in 2009.

Tell me if it reminds you of anything.

Irving Fisher's 1939 plan for Monetary Reform discovered


A Program for Monetary Reform was a proposal to return the American economy to full employment following the Great Depression. It was written in 1939 by a group of academic economists and circulated within the academic community. A Program for Monetary Reform (1939) was never published. A copy of the paper was apparently preserved in a college library. Copies of the paper, stamped on the bottom of the first and last pages, “LIBRARY - COLORADO STATE COLLEGE OF A. & M. A. - FORT COLLINS COLORADO” were circulated at the 5th Annual American Monetary Institute Monetary Reform Conference (2009). A Program for Monetary Reform was attributed on its cover page to six American economists: Irving Fisher, Paul H. Douglas, Frank D. Graham, Earl J. Hamilton, Wilford I. King, and Charles R. Whittlesey.

The Fractional Reserve System

The 100% Reserve System

How to Establish the 100% Reserve System

Government Creation of Money

Lending Under the 100% Reserve System

The Protection of Banks

Banks Under the 100% Reserve System

The 100% Reserve System May Be Inevitable


"A Program for Monetary Reform": full text


The Standard of Stable Buying Power

The Criteria of Our Monetary Policy

Constant–per–Capita Standard

Constant-Cost-of-Living-Standard



Germany’s main financial daily Frankfurter Allgemeine has published in the last few days two articles seriously discussing the money reform proposals.
On 17th August it was an article entitled “Do we need a new money system?”.
The article explains in detail how the money is created today by private commercial banks when they make loans. It even contains an illustration entitled “Money from nothing: How banks create money”, which explains how can the commercial bank create from 100 EUR an amount of 10,000 EUR of new electronic moneyand how is this new money destroyed when the loan is repaid.
(Note: unlike UK where the minimum reserve requirements have been abolished long time ago, in Eurozone there is still a minimum reserve ratio of 1%)
[IMG]file:///C:\Users\Spirit\AppData\Local\Temp\msohtmlclip1\01 \clip_image001.jpg[/IMG]
The article then introduces the Sovereign Money reform proposals advocated by the Swiss campaign group “Monetäre Modernisierung” and the German group “Monetative“.

“All the money should be created exclusively by an independent public body – the Central Bank. It is important to regain control over the money supply. Otherwise, the banks would produce money until the system collapses.”
Prof Joseph Huber, Chair of economic and environmental sociology at Martin-Luther-University, Halle, Germany, Member of the board of the organization Monetative.
If you speak German you can read the article here.

Another short article on this subject was published on 24th August: “Money that only central bank can create”:

“Sovereign money” is the name of an idea to reform the monetary system: Banks should no longer be permitted to create money. So far, banks can do this – by crediting customers’ checking account…”
“5.2 trillion euros are there in Europe – but only 879 billion euros cash.”
http://www.positivemoney.org/2013/08...orm-seriously/

Austrian School Economist F. A. von Hayek - who actually made his reputation at the London School of Economics advocated taking money out of the hands of the governments of nations. He did not see the big international banking dynasties as a problem. Though such a system would be pure free market." But at least he was not a fool for gold.

Literature of Liberty: A Review of Contemporary Liberal Thought , vol. 5, No. 3, Autumn 1982,

Constitution or Competition? Alternative Views on Monetary Reform: A Bibliographical Essay by Pamela J. Brown

excerpt

Hayek and the Denationalization of Money

F. A. Hayek's 1976 pamphlet, Choice in Currency: A Way to Stop Inflation, represented the beginnings of the first major attempt to investigate seriously the practical possibilities of a system of competing paper issues. It was here that Hayek began to address the question, "Why should we not let people choose freely what money they want to use?" —and to answer it: "There is no reason whatever why people should not be free to make contracts, including ordinary purchases and sales, in any kind of money they choose, or why they should be obliged to sell against any particular kind of money."64


The program presented in Choice in Currency involves domestic competition among different national government monies, each of whose circulation is presently confined almost exclusively to its country of origin. But over a period of eight months, the program quickly evolved into a full-blown scheme of competing private (as well as governmental) monies. The result of this development was Hayek's pathbreaking Denationalisation of Money: An Analysis of the Theory and Practice of Concurrent Currencies. First published in 1976, this work was subsequently revised and extended.65 It provides the best existing account of, and the best case for, free competition in the production and control of privately issued token monies. Hayek's analysis of the hypothetical working of a laissez-faire monetary system may seem deceptively simple, due to its brief treatment of a novel idea. The analysis should be closely read and carefully considered by the interested reader, as it has been misunderstood by more than one writer in the area.66 The author comes to the firm conclusion that "the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process."67
Since Hayek's Denationalisation of Money was first published, several other authors have made significant contributions to the small but rapidly growing discipline of currency competition. These include Lance Girton and Don Roper, whose "Substitutable Monies and the Monetary Standard" (1979) gives a clear and concise statement of the "theory of multiple monies" and discusses some of the major issues connected with the choice-in-currencies question.68 Roland Vaubel's "Free Currency Competition" (1977) is an excellent study offering an extremely thorough overview of the subject and its controversies. In addition, it provides some personal predictions concerning what Vaubel believes to be the most likely outcome of a competitively determined currency industry.69 Vaubel refers to two as-yet-unpublished works, Wolfram Engels' "Note Issue as a Branch of Banking" and Wolfgang Stutzel's "Who Should Issue Money? Private Instead of Public Institutions? Bankers Instead of Politicians!", that further discuss and argue for a free market in money.
Among lay audiences concern with understanding the existing monetary mess has reached a high level of intensity in recent months. In order to satisfy this popular demand, a number of nontechnical introductory articles on the competing token monies alternative have recently appeared. Among these are pieces by economists Martin Bronfenbrenner, F. A. Hayek, Lawrence H. White, and Peter Lewin.70 In addition, a number of works have examined historical incidents of privately-issued monies (token, fiduciary, and commodity), complementing research done on the purely theoretical level.71
The Competitive Process of Currency Production

The hypothetical day-to-day operation of an established competitive token monetary system is in fact no more (or less) mysterious than is the working of the market process in any other production domain. Private issuers would compete in a number of dimensions to meet the community's demands for monetary services: purchasing-power behavior over time, convenience of use in exchange, convenience of use in accounting, and so on. Depending upon the preferences of currency consumers, the producer would adjust the existing supply of nominal units of his money so as to provide the appropriate degree of appreciation or constancy in his money's value. The purchasing-power control technique (or "rule") employed in actual practice by any given firm is, under a competitive system, a matter to be determined exclusively by the subjective judgments of the monetary entrepreneur.
Because people's exchange needs are different, preferences with respect to changes in the exchange-value of currencies can be expected to vary over the population of money users. This would result in issuer specialization to meet the unique requirements of particular user interests. Similarly, tastes may differ with respect to the index of commodity prices devised to monitor deviations from the desired level or rate of change of the purchasing power of a money. On this point, Hayek explains: "Experience of the response of the public to competing offers would gradually show which combination of commodities constituted the most desired standard at any time and place."72 In short, under competitive conditions, the monetary standard, the monetary rule, and the purchasing-power behavior of money are all determined by expressed choice in the marketplace rather than by arbitrary political command.
Over time, those issuers who most effectively satisfy the demand for monetary services would profit and expand their market shares. Others who, for example, increase the value of their currencies when most money-holders prefer stable tokens, or stabilize their monies when most users prefer appreciating tokens, would be driven out of business or be forced to maintain a more modest circulation due to reduced profits. Which sort of monies would actually prove most popular, only the competitive market process can tell. For instance, Roland Vaubel points out, while purchasing-power appreciation tends to enhance a money's desirability as an asset (or "store of value"), purchasing-power constancy may enhance its desirability as an accounting device (or "standard of value").73
The case for competition appears the logically superior one. However, doubts and queries about the operation of the system have nevertheless been expressed. Critics have especially emphasized potential problems concerning the stability and emergence of efficient supplies of currency when competition is allowed to regulate its production.
Is a Free-Market Monetary System Stable?

The issue of stability centers on the question of the controlability of a currency's value under a "perfectly" competitive scheme. This is sometimes framed, inversely, as the problem of "infinite" levels of money prices presumably resulting from a laissez-faire regime. Boris Pesek, for example, expresses the belief that in the long run a competitive paper currency system would generate a situation in which "money is so 'abundant' as to sell for a zero price and be a free good," producing a "regression into full-time barter since free money is worthless money, incapable of performing its task of facilitating exchange of goods among persons."74 Benjamin Klein, as noted earlier, has demonstrated that such a result depends on improperly specified or protected property rights in the currency industry, and would emerge in any market in which brand names could be counterfeited. In such a market, producers and consumers lack a signaling mechanism by which to identify the outputs of different firms in the industry, so that a low-quality product cannot be identified and shunned in advance. Explains Klein:
It is true that if, for example, a new money producer could issue money that was indistinguishable from an established money, competition would lead to an overissue of the particular money and the destruction of its value. The new firm's increase in the supply of money would cause prices in terms of that money to rise and, if anticipated, leave real profit derived from the total production of the money unchanged. But there has been a distribution effect—a fall in the established firm's real wealth. The larger the new firm's money issue the greater its profit; therefore profit maximization implies that the new firm will make unlimited increases in the supply of the money, reducing the established firm's profit share close to zero (unless it too expands.)
If the established firm legally posseses a trademark on its money, this "externality" of the new firm's production represents a violation of the established firm's property right and is called counterfeiting. Lack of enforcement of an individual's firm's property right to his particular name will permit unlimited competitive counterfeiting and lead to an infinite price level. This merely points up the difficulties in the usual specification of competitive conditions. If buyers are unable to distinguish between the products of competing firms in an industry, competition will lead each firm to reduce the quality of the product it sells since the costs of such an action will be borne mainly by the other firms in the industry…. [I]ndistinguishability of the output of competing firms will lead to product quality depreciation in any industry.75
Thus, in order to solve the paradox of infinite price levels, we need only introduce into a competitive currency model that was designed to prove the instability of free trade in money an assumption implicit in all standard analyses of competitive industry: the premise that products are distinguishable with respect to origin. (This is not inconsistent with another assumption of "perfect competition" models: that products are completely indistinguishable or identical with respect to their flow of services.) On making this assumption the proof is reversed, and we may deduce stability properties typically found in a perfectly competitive world. Criticisms of the stability properties of a free-market monetary system in this case point up a potential problem concerning the appropriate legal structure necessary for a properly functioning competitive system, rather than a problem of the competitive market structure itself, given a well-defined system of property rights.
Could Private Token Currencies Emerge? Would They?

The emergence of a competitive token monetary system from the existing domestic government monopoly raises two questions. First, there is the issue of how in theory a system of multiple monies could emerge; and second, there is the question of whether in practice such an evolution should be expected to take place once the requisite property rights structure has been established for the industry.
Posing the first question, Henry Hazlitt asks:
(H)ow does a private issuer establish the value of his money unit in the first place? Why would anybody take it? Who would accept his certificates for their own goods and services? And at what rate? Against what would the private banker issue his money? With what would the would-be user buy it from him? Into what would the issuer keep it constantly convertible? These are essential questions.76
Indeed, new currencies would not appear or be accepted overnight. During the gradual process of establishing a private currency, the issued certificates would not immediately be greeted by money-users as currency. At the outset they would be supplied to the public in the form of money substitutes. These money substitutes would be supplied under an explicit contract guaranteeing the bearer some minimum rate of exchange between these certificates and one or more commodities or pre-existing currencies. Currency entrepreneurs would of course decide which commodities or monies to use in this process, and money-users would then choose from among the alternatives offered.77
Only later, after the issuing firm had fostered sufficient consumer confidence in its trademarked tokens by making the necessary investments in the firm's "brand-name capital,"78 would the issued notes begin to take on a monetary life of their own. The point marking this transformation is reached when currency-users effectively acknowledge the new currency as "monetized" by no longer routinely demanding that it be converted into another more liquid asset. Instead transactors begin circulating the notes as an independent exchange medium in their daily business.
Empirical doubts about the second question—whether a competitive currency system would in fact spontaneously emerge under the right legal conditions—are almost without exception framed in terms of the economic concept of "transactions costs." They are presented on the basis of a number of confusions, widespread within the economics profession, concerning the notions of "cost," "choice," and "competition." Such confusions are all too familiar to Austrian economists.
Arguments that deny the likely emergence of concurrent privately issued monies under laissez faire typically run as follows. People employ goods "having currency" for a variety of reasons, the most important among these being the purpose of transacting economic exchanges. In its capacity as a medium of exchange, a monetized commodity, due to its quality of being highly marketable, provides the transactor with a device which allows him to economize on the time and resources required to complete his desired set of exchanges. Thus far the argument is unobjectionable. Confusion enters in the form of a non sequitur when the argument leaps to the conclusion that, to the individual agent, "money is more useful the larger its transactions domain." On this basis Roland Vaubel argues that
Since the cost of using money falls as its domain expands, the quality (and, hence, the value) of the product money and, consequently, the marginal value productivity of the factors engaged in its production increase so that the money industry must be viewed as a (permanently) declining-cost industry.79
This argument leads Vaubel to conclude: "Ultimately, currency competition destroys itself because the use of money is subject to very sizeable economies of scale. The money-industry must be viewed as a 'natural monopoly,' which at some stage must be nationalized." He adds that since it is "undisputed that lines of production that are subject to permanently declining cost must at some stage be nationalized (or, in an international context, be 'unified'), the fact that currency competition will lead to currency union must be regarded as desirable."80
This argument labors under some rather common misconceptions. First, only individuals transact, and they do so only with one other individual or organization at a time, rather than with the entire economic order or "transactions domain." Further, there are likely to be many sectors of the monetized system with which these actors have little or no interest in dealing. These submarginal transactions areas vary from person to person. It is not at all obvious, then, that a money will be "more useful" to any given agent, the more universal or extensive the domain within which the money (or monies) he uses circulates. Some degree of specialization and heterogeneity in the currency industry's supply of services may in fact persist indefinitely because of persistence of differences in the needs and purposes of the various money-using members of a community.81 In that case, several different issues may circulate side by side, each servicing the individuated demands of a separate subset or "neighborhood" of the "global" transactions domain. And, of course these currency areas may overlap.
The exact configuration of the resulting monetary mosaic is unpredictable under a competitive monetary arrangement since each currency consumer's choice from among the array of currencies available to him is made according to purely subjective benefit-cost calculations. Accordingly, the aggregate impact of consumers' choices in determining a given currency's domain will be revealed only after the execution of the particular plans that are based upon these calculations. Since their requirements may, for example, be highly localized geographically, it seems unreasonable to conclude a priori that a system of several concurrently circulating monies is "likely to be purely transitory, and that the only lasting—and again desirable—result will be currency union."82
A second problem with the prediction of a "spontaneous monopolization" of the currency industry concerns the misconception of the competitive process that underlies this forecast. Surely, no one can resist reaching the conclusion that "competition destroys itself" in any industry in which marginal costs of production are continuously falling; no one, that is, who has adopted the entrepreneurially static notion of "perfect competition" as a benchmark. In that conceptual framework, the criterion of a "competitive" industry refers to a specific magnitude or pattern ("many" firms or price equal to marginal and average costs), rather than to the end-independent (and unceasing) process (rivalrous pursuit of profits) that characterizes the operation of the system. It naturally follows that any industry not obeying the perfectly competitive "pattern" must by definition exhibit "monopolistic tendencies."83
Once we recognize, however, that real-life competition is a dynamic and unending discovery process, we no longer can meaningfully judge an actual industry's competitiveness by comparing it with some final static state of "optimality," "perfection," or "equilibrium." So long as the necessary legal framework is in force, the competitive process is at work whether one firm or many firms persist. In Brian Loasby's words: "[T]he critical question is, not what should the pattern of resource allocation look like, but how is it to be achieved; and the perfectly competitive model, which has defined the terms of the argument, provides no recipe for achieving anything. Actual competition is a process, not a state; and perfect competition can exist only as the description of a state.84
Vaubel goes on to offer one more criticism of the efficiency of competing currencies. He argues that because "a good like money['s]…precise purpose is to reduce transaction cost, information cost and risk (as compared with barter), a diverse plethora of private issuers in the industry is likely to be "particularly inconvenient" due to the "diseconomies of small scale." He further argues that these effects "do not disappear if all banks of issue are led or forced to denominate their monies in the same standard of value."85 The issue of whether several concurrently circulating exchange media would present an inconvenience to currency-users depends, again, on the individual users' subjective evaluations of the benefits and costs involved. The outcome cannot be conclusively determined a priori by the theorist. What is more, it is of interest to note that economic historian Hugh Rockoff has offered evidence which suggests by analogy that the benefits of a multi-issuer system may in fact outweigh the possible inconvenience in the estimations of consumers:
[I]t seems unlikely that the heterogeneous nature of the currency (of the nineteenth century) was a major brake on economic growth, for in many crucial respects the system was little different from that which prevails today. Locally we use demand deposits. But these are not generally acceptable as a means of payment. Each time we wish to make a purchase by check from a businessman we force him to make some judgement about the quality of the money we are offering. Instead of having to worry about different kinds of bank notes a merchant today must worry about different kinds of deposits which could be as numerous as his customers. Counterfeiting currency is now rare, but forged checks and insufficient balances are a constant irritation. Yet no one today would argue that the heterogeneity of our deposit money is a serious impediment to the growth of national income…[T]he inefficiency of a heterogeneous currency should not be exaggerated.86


4.
http://marketmonetarist.com/2013/03/...-in-venezuela/
A modest proposal for post-Chavez monetary reform in Venezuela

Let’s just say it as it is – I was very positively surprised by the massive response to my post on the economic legacy of Hugo Chavez. However, as somebody who primarily wants to blog about monetary policy it is a bit frustrating that I attract a lot more readers when I write about dead authoritarian presidents rather than about my favourite topic – monetary policy.
So I guess I have to combine the two themes – dead presidents and monetary policy. Therefore this post on my modest proposal for post-Chavez monetary reform in Venezuela.
It is very clear that a key problem in Venezuela is the high level of inflation, which clearly has very significant negative economic and social implications. Furthermore, the high level of inflation combined with insane price controls have led to massive food and energy shortages in Venezuela in recent years.
Obviously the high level of inflation in Venezuela is due to excessive money supply growth and there any monetary reform should have the purpose of bringing money supply growth under control.
A Export Price Norm will bring nominal stability to Venezuela
Market Monetarists generally speaking favour nominal GDP targeting or what we also could call nominal demand targeting. For large economies like the US that generally implies targeting the level of NGDP. However, for a commodity exporting economy like Venezuela we can achieve nominal stability by stabilizing the price of the main export good – in the case of Venezuela that is the price of oil measured in Venezuelan bolivar. The reason for this is that aggregate demand in the economy is highly correlated with export revenues and hence with the price of oil.
I have therefore at numerous occasions suggested that commodity exporting countries implement what I have called an Export Price Norm (EPN) and what Jeff Frankel has called a Peg-the Export-Price (PEP) policy.
The idea with EPN is basically that the central bank should peg the country’s currency to the price of the main export good. In the case of Venezuela that obviously would be the price of oil. However, it is not given that an one-to-one relationship between the bolivar and the oil price will ensure nominal stability.
My suggestion is therefore that the bolivar should be pegged to basket of 75% US dollars and 25% oil price. That in my view would view would ensure a considerable degree of nominal stability in Venezuela. So in periods of stable oil prices the Venezuelan bolivar would be more or less “fixed” against the US dollar and that likely would lead to nominal GDP growth in Venezuela that would be slightly higher than in the US (due to catching up effects in Venezuelan productivity), but in periods of rising oil prices the bolivar would strengthen against the dollar, but keep nominal GDP growth fairly stable.
EPN is preferable to a purely fixed exchange rate regime
My friend Steve Hanke has suggested that Venezuela implements a currency board against the dollar and permanently peg the Venezuelan bolivar to the dollar. However, that in my view could have a rather destabilizing impact on the economy.
Imagine a situation where oil prices increase by 30% in a year (that is not usual given what we have seen over the past decade). In that scenario the appreciation pressures on the bolivar would be significant, but as the central bank was pegging the exchange rate money supply growth would increase significantly to curb the strengthening of the currency. That would undoubtedly be inflationary and could potentially lead to a bubble tendencies and an increase the risk of a boom-bust in the economy.
If on the other hand the bolivar had been pegged to 75-25% basket of US dollars and oil then an 30% increase in the oil prices would lead to an appreciation of the bolivar by 7.5% (25% of 30%). That would counteract the inflationary tendencies from the rise in oil prices. Similar in the case of a sharp drop in oil prices then the bolivar would “automatically” weaken as if the bolivar was freely floating and that would offset the negative demand effects of falling oil prices – contrary to what happened in Venezuela in 2008-9 where the authorities tried to keep the bolivar overly strong given the sharp drop in oil prices. This in my view is one of the main cause for the slump in Venezuelan economic activity in 2008-9. That would have been avoided had the Venezuelan central bank operated EPN style monetary regime.
I should stress that I have not done detailed work on what would be the “optimal” mixed between the US dollar and the oil price in a potential bolivar basket. However, that is not the important thing with my proposal. The important thing is that such a policy would provide the Venezuelan economy with an stable nominal anchor while at the time reduce the risk of boom-bust in the Venezuelan economy – contrary to what have been the case in the Chavez years.
Time to get rid of currency and price controls
The massively unsustainable fiscal and monetary policy since 1999 have “forced” the Venezuelan government and central bank to implement draconian measures to control prices and the exchange rate. The currency controls have lead to a large black market for foreign currency in Venezuela and at the same time the price controls have led to massive energy and food shortages in Venezuela.
Obviously one cannot fight inflation and currency depreciation with interventionist policies. Therefore, this policies will have to be abandoned sooner rather than later as the cost of these policies are massive. Furthermore, it is obvious that the arguments for these policies will disappear once monetary policy ensures nominal stability.
End monetary funding of public finances
A key reason for the high level of inflation in Venezuela since 1999 undoubtedly has to be explained by the fact that there is considerable monetary financing of public finances in Venezuela. To end high-inflation it is therefore necessary to stop the central bank funding of fiscal policy. That obviously requires to bring the fiscal house in order. I will not touch a lot more on that issue here, but obviously there is a lot of work to be undertaken here. A place to start would obviously be to initiate a large scale (re)privatization program.
A modest proposal for monetary reform
We can therefore sum up my proposal for monetary reform in Venezuela in the following four points:
1) Introduce an Export Price Norm – peg the Bolivar to a basket of 75% US dollars and 25% oil prices
2) Liberalize capital and currency controls completely
3) Get rid of all price and wage controls
4) Separate fiscal policy and monetary policy – stop monetary funding of the public budget
I doubt that this post will be popular as my latest post on Venezuela, but I think that this post is significantly more important for the future well-being of the Venezuelan economy and a post-Chavez regime should move as fast as possible to implement monetary reform because without monetary reform the Venezuelan economy is unlikely to fully recover from its present crisis.
—-
Jeffrey Frankel has made a similar proposal for the Gulf States. Have a look at Jeff’s proposal here.