"One Currency for the World?"; porcupine comments:
I haven't given this a lot of thought, because, like a lot things, it is so far beyond any possibility of political enactment that I tend to focus on things that have some hope of adoption, like, for example, at least a partial privatization of Social Security.
But, on its face, the gold standard appears to be a return to barter, with all bartered transactions being expressed in terms of a gold-equivalent transaction. This would reverse several centuries of development in commercial practice. Fractional reserve banking, and fractional reserve currencies, exist because the Market demands a way of facilitating commercial activity in which expenses precede revenues. As in all cases where activity essential to markets is outlawed, banning fractional reserve banking would shrink the market, except to the extent an inevitable black market was unable to circumvent it.
Fractional reserve banking, like all credit schemes, is a promise of a future benefit in exchange for a current one. Like all promises, some eventually get broken, some are unrealistic from the outset, some are cynically entered into because both lender and borrower get salaries for entering into loan agreements and don't worry about tomorrow, and, to use the bicycle analogy, because if they stop, the bicycle falls over, so they continue to buy time until the bicycle crashes.
Bad as all of this is, fixing the limit of commercial activity by the amount of gold available to back every promise to pay is, in principle, no different from fixing it by the amount of corn, or oil, or any other commodity. There is a supply and demand for promises to pay, and there will always be a market for that supply and demand. As with any market, unregulated expansion of supply will inevitably overwhelm demand, profits will collapse, and so will the market, until supply shrinks again.
In the case of the market for credit, the fact that a credit collapse due to overexpansion pulls the rest of the economy down with it is the measure of how vital credit is, and how impossible it would be to permanently limit credit expansion to a commodity, whatever the commodity. (Hence, William Jennings Bryan's immortal "Cross of Gold" speech.)
It is amazing that advocates of free markets continue to advocate this quasi-socialistic notion that markets can't be trusted with setting the amount of credit, because they will abuse it. But, the argument against liberty has always been that it will lead to excess. And, it always does. But, as it turns out, tyrannies have even more trouble turning out long term profits than do free markets. Hence, the remarkable resilience of free markets.
As to the problem of governments using fractional reserve currencies to tax by stealth what they cannot tax via candor, the overwhelming global trend is toward monetary discipline. Governments seem to have learned the lesson that inflation limits growth by wiping out savings, which is the source of investment.
In summary, credit expansion cannot be unregulated, but it can't be outlawed either. Therefore, there must be fractional reserve banking and currencies and there must be a central bank to regulate them. And, one world currency seems to be the direction in which the world is headed. Those countries that have adopted currency boards seem to have accepted the Federal Reserve as their de facto central bank. Europe's adoption of the Euro appears destined to make the Bundesbank Europe's de facto central bank. And, when the dust settles in East Asia, Japan may wind up the de facto central bank for that region. |
