1997-06-26 - Re: new money systems

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From: tzeruch@ceddec.com
To: “Vladimir Z. Nuri” <vznuri@netcom.com>
Message Hash: 0b17d8b44ac914b5b13e4c30945cfe312223625bb49e1591f745886fbe22ceb1
Message ID: <97Jun26.113748edt.32257@brickwall.ceddec.com>
Reply To: <199706250027.RAA19105@netcom15.netcom.com>
UTC Datetime: 1997-06-26 15:46:51 UTC
Raw Date: Thu, 26 Jun 1997 23:46:51 +0800

Raw message

From: tzeruch@ceddec.com
Date: Thu, 26 Jun 1997 23:46:51 +0800
To: "Vladimir Z. Nuri" <vznuri@netcom.com>
Subject: Re: new money systems
In-Reply-To: <199706250027.RAA19105@netcom15.netcom.com>
Message-ID: <97Jun26.113748edt.32257@brickwall.ceddec.com>
MIME-Version: 1.0
Content-Type: text/plain

> Tue, 24 Jun 1997, Vladimir Z. Nuri wrote: 

> an interesting book, I think this is one of his I browsed. MF is correct
> in some ways but I believe he is off the mark in others. gold has a  key 
> advantage over money printed by a government in that it can't be
> counterfeited even by that government.  

Gold (content) can be counterfeited, which is why it needs to be assayed
and there are assay marks on gold bars. 

> what I am trying to imply in the post is that there is actually a hidden
> resistance on our money that is not reflected in the fees that various
> entities charge.  this is inflation, and it it can be totally controlled,
> despite whatever lies the Fed tells the public.

If there is inflation, or even the hint, people will shift from dollars
(or pounds, or yen) to something that is not inflating.  It would be
easier to control if they didn't tax you on the inflation (which they call
capital gains).

> >The problem is one of exchange.  A local currency (banks used to issue
> >their own notes) is only good in that locality.  How do I buy a California
> >pistachio with Michigan Money?  Or with British Pounds for that matter. 
> >In all cases you get an exchange rate.  There will be a varying ratio
> >between any two given fiat currencies, and even two currencies based on
> >(i.e. redeemable in) different commodities.
> so what? I understand this obvious and trivial point.

Try spending british pounds at a US fast food restaraunt (at least one
that is not adjacent to a UK diplomatic building).  Then you will have to
go to someone to do the exchange and they will charge a fee.  And then if
you go to the UK and have to change back, there will be another fee.

Although there is an "exchange rate", it is discounted so that the
organization doing the exchange makes money each way.  Canadian
restaraunts just over the border will take american money, but give me 10%
less than the bank exchange rate.

Thus it is not trivial in practice.  If your money was only good for a 50
mile radius, and you lost 3% in each exchange, going on vacation would get
very expensive and you would then call for a universal currency, or
convert into something like it (accepted by every locality very near par)
before going on vacation.  But if you convert it into a universal
currency, why not just leave it as that?

Considering the internet is international, exchange is a big problem and
will get worse as more transactions require foreign exchange. 

> a local economy can have a currency, and ask the question, "why is On
> value being extracted from our local economy when it is a self-sustaining
> unit"? the idea behind a local currency actually encourages local
> autonomy/sovereignty/independence.

I agree with the concept.  If Michigan doesn't want to inflate its
currency and New Jersey does, they can then do so without interfereing
with each other (or BC and Quebec, for that matter).

But as Ricardo has shown, trade advantages all parties, so autonomy is
actually less efficient.  Nebraska is better suited to wheat, Maine to
cranberries, Michigan to Cherries, and Florida and California to Oranges.
To be "autonomous and independent" in Minnesota makes for very expensive

So although I consider autonomy a virtue, I consider trade a greater
virtue, so local currencies are good only to the extent they promote both,
and with the problems of currency exchange, I don't see how trade is
enhanced by local currencies, but am interested on your thoughts on this
point since you are more familiar with the narrow topic.

> >Having 1000 other currencies would mean that each currency would have a
> >fluctuating value relative to each other (great if you are an
> >arbitrageur), 
> no, this is not a problem, but a solution. as our world markets show,
> it is trivial to convert between currencies and each one acts as a
> check and a balance on the other. if a currency declines in value to
> another in the market, I will bet you the country whose currency
> declined is "counterfeiting its own money" via interest rates paid
> on bonds.

Yes, but each currency would then have to be exchanged (at a discount!) 
and that almost every time any transaction occured.  Unless you are
willing to exchange any amount of currency without making any profit on
it, not even to cover expenses or fluctuations in value, this won't work -
it is trivial to convert currency, but it is not without cost.

You can have state and local tyrants who want to manipulate the money
supply.  Power corrupts at whatever level (look for a big municipal bond
crash that dwarfs the S&L crisis - this is one thing the locals can
manipulate to some extent). 

In sum, I have a set of questions:  1. Why would local currencies be any
less subject to manipulation than national currencies which suffer from
inflation and devalutation when the consequences are the same and the
national level can't resist?  2. If they aren't going to set the value
themselves, they will have to fix the value "permanently", since if they
can change the peg, they can manipulate it, but if they fix the value to
X, why won't real X be prefered to the note denominated in X.  3. As
long as they have to pick X, if several localities pick gold as X, then
their currencies then become the same, although having different numbers
(e.g. 31 & change gram notes v.s. 1 troy ounce notes) - why have a dozen
currencies which are merely different numbers representing the same amount
of a commodity (except to manipulate later)?