Re: AltInst: One World, One Money

Robin Hanson, <hanson@econ.berkeley.edu>, writes:
> The Economist has an article on the idea of a World Currency:
> http://www.economist.com/editorial/freeforall/current/index_fn7485.html

Another argument for multiple currencies is to stabilize the money supply.
With one monopoly currency, the issuing body has the power to set the
money supply level, and it is often to its advantage to issue new money
for its own spending. This increases its own wealth at the expense
of everyone else, causing inflation and in effect laying a tax on all
holders of the currency. With multiple currency issuers, if one of them
does this then its currency loses value with respect to others, which
drives people away from the use of its currency and punishes the issuer.

This control is not perfect but I think it has helped historically
to limit currency inflation. At least, I've seen that the negative
international consequences are often cited in policy discussions about
the consequences of inflation.

George Selgin, in "The Theory of Free Banking", even suggests going to
multiple currencies per country. He argues that allowing banks to freely
issue their own currency will provide this discipline at a smaller scale.
His theories even show that the money supply will automatically adjust to
money demand under such a system, without the dangers and instabilities
of monopoly currency issue.

Hal Finney
hal@rain.org

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Regarding
(http://www.economist.com/editorial/freeforall/current/index_fn7485.html),

This article points out points out the problems in the current system, but
wouldn't a single currency would need a world central bank and a single
monetary policy? It is hard to see how this would work.

The ability of a country to defend a currency board obviously depends upon its
foreign reserves. So it is possible as long as it has a surplus.

Runs on banks depend upon a lack of confidence in the financial system,
usually the result of bank failures. Run away inflation, massive devaluation,
is a symptom of a banking system failure, national bankruptcy, as in Russia
now.

Confidence is strengthened not weakened by a currency board, at least for
export strong countries. If a country is bankrupt, it does not seem to make
much difference what kind of system they have.

What about international regulation of people like Soros who create the very
problems they claim to want to fix? Why not regulate the international flows
of money capital for purely short term speculative purposes? It seems to me
that we need to make a distinction in the various types of capital flows. If
speculative capital is the problem, it is not at all clear to me that this
problem can be fixed on the monetary level, except in so far as to say that it
would per force eliminate currency speculation.

What we really are moving to is a more regional system of currency for
regional trading. Europe will have its Euro. China is pretty much a region by
itself, so it should have its own currency, or group of related currencies,
pegged to the US dollar of course. The US is its own region. Currency still
has some relevance to international trade, reflecting different price levels
and standards of living in the various countries as well as the consequences
of differences in political-economic systems.

I see more of a need to regulate international capital than to make a unified
currency.

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Received on Tue Sep 29 23:14:09 1998