From: Gary Howland <gary@systemics.com>
Date: Mon, 6 Jan 1997 14:13:52 -0800 (PST)
To: "E. Allen Smith" <EALLENSMITH@ocelot.Rutgers.EDU>
Subject: Re: Inflation-index bonds and private e-currency
In-Reply-To: <01ID64VQ21UOAEL9VT@mbcl.rutgers.edu>
Message-ID: <199701062213.XAA20921@internal-mail.systemics.com>
MIME-Version: 1.0
Content-Type: text/plain


"E. Allen Smith writes:
> 	Privately-produced currencies, with a few (unfortunately minor)
> exceptions, are currently more of a free market economist idea than a reality;
> current governments are quite close on keeping their monetary powers (witness
> the protests in Europe against going the opposite way, to a common currency;
> also witness governmental attempts at keeping the free market from determining
> exchange rates).

I would argue that it is the people, not the governments, that don't want a 
common currency in Europe.  Of course it's a different story with the poor EU 
countries....


> It is possible that private digital currencies will solve
> this problem, since they are much cheaper to produce than paper money is to
> print and can be traded privately much easier.

But digital currencies will never become fiat currencies, let alone legal 
tender, unless governments say they are.  So why should they worry?  (OK, OK, 
they will worry about tax evasion etc. etc.)


> There are likely to still be
> some legal problems with them, although A. selecting the proper country to
> base an issuer out of and B. not actually making avaliable through the issuer
> the reverse transaction - privately produced money to governmental money -
> only transactions for governmental money to privately produced money and
> privately produced money for services and/or goods may do the trick.

You seem to be forgetting that trade is a two way operation.


> 	Greater spendability refers to that when this bond is converted to
> government-backed dollars, most businesses will currently accept such dollars.
> This is unlikely to be the case for the first few years for a private
> currency, although an increased ease of exchange of a digital (as opposed to
> governmental paper) currency may make up for this difficulty.

I doubt this - I'm sure companies as well as people are more inclined to trust 
some private organisations than they are governments.  Of course there will 
always be a cost attached to the risk and ease of use.


> 	I doubt that most of the governmental types involved in making this
> decision know about privately produced currencies... but some may, and may
> have encouraged central bankers et al (and those who oppose Greenspan for
> his (quite admirable) opposition to inflation, like numerous politicians) to
> encourage this idea; assuming complete innocence of a particular motive on
> the part of any large organization is generally about as ignorant (and often
> stupid) as assuming complete guilt. Moreover, government competition with
> the private sector is rarely beneficial; in this particular area, I'd point
> out that it isn't reducing the cost of borrowing, it's increasing it - when
> lenders can lend to the government, they're _not_ lending to private
> businesses and others who can make far better use of the money. This factor,
> in a large part, is why most economists are in favor of a reduction in the
> government deficit.

Since you mentioned Greenspan, I thought I'd use the opportunity to quote him:

  "Regulation - which is based on force and fear - undermines the moral base
  of business dealings. It becomes cheaper to bribe a building inspector than
  to meet his standards of construction. A fly-by-night securities operator
  can quickly meet all the S.E.C. requirements, gain the inference of
  respectability, and proceed to fleece the public. In an unregulated
  economy, the operator would have had to spend a number of years in
  reputable dealings before he could earn a position of trust sufficient to
  induce a number of investors to place funds with him. Protection of the
  consumer by regulation is thus illusory."

    -- Alan Greenspan


> P.S. Sorry about the lateness of this reply, but I'm just getting around to
> some of my earlier mail.

Likewise.


Gary