Re:Global Currency

[Padmanabha Rao <kvprao@igidr.ac.in>]

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On 25 Apr 2001, Srinath S wrote:
 If we contend that "gold is valuable because people value it -- because
 there exists a demand" we can also note that "people have a demand for
 gold because it is valuable."...  The non-linearity comes from a system
 that feeds unto itself. Gold at some point in time started to be used
 not just as a commodity, but as a "marker" that held information, and
 which could be exchanged for commodities or services or markers in turn.
 This abstraction for gold made it even more lucrative: people could now
 hoard one single thing -- gold rather than food or whatever commodity
 they need or would need at some point in the future. Consequently the
 "value" of gold itself increased in the eyes of people... Complexity of
 economics comes from non-linearities like the above...
-----

True. The problem arises when the monetary gold comes to be valued for its
own sake -becomes a commodity. And we know that's how the monetary systems
exist today around the world.

But I would like to revert to the same argument of integrity to show why
this is avoidable. Money becomes a commodity when an agent becomes an
issuer, and does so without integrity. S/he may have all the integrity but
s/he doesn't have all the information that an issuer has. All the money
that only an issuer can ever have (an issuer creates all the money in an
economy; we are refering to money and not wealth of course). So either
s/he doesn't do that or does that with the express intention of subverting
the monetary system.

I think hoarding anything is not a problem by itself; we might hoard to
insure against an uncertain future. What is the problem is the intention
behind hoarding and the regime which allows it. If an agent wants to usurp
the role of issuer without actually being an issuer, i.e. without having,
without being responsible to the full information of the economy (the
whole money in the economy), then the problem arises in that this agent
has limited information and when unchecked goes about *creating money*
(from the personal bank expressly and earnestly built up by hoarding over
time, instead of merely to insure against an uncertain personal future).
That is, a non-issuer agent does banking and havocs the information flow
that exists if only issuers created money. There can only be one issuer
for one currency. And there can of course be hundreds of currencies in a
single town, and all the towners can still exchange goods if all the
hundreds of issuers agree to trade their currencies only *amongst
themselves* and not by any of the economic agents. If each of those issuer
has unquestionable integrity then their trading their neat currencies will
only benefit the whole town and themselves (charges from the sale of other
currencies too!). It will be a fine competition alright and nobody's going
to lose anything.

In this sense, we can say the nationalisation of banks in India was right
because there is only one currency here and there can only be one issuer,
one controller of information/money; in this case the RBI.  How do we
ensure that the currencies trade only amongst the issuers or in the case
of the single issuer that no agent *trades* (i.e. lending for a fee, an
interest and someother agents buying with a fee, with an interest and so
on) the currency with another agent is the problem. I think only an agent
who has no integrity would trade a currency with another agent. Because
s/he is usurping the privileges/power/money of the issuer without the
issuer's responsibility. If we can disallow this then the money problem
would be quite solved, I think.

_____

 Even if every issuer were to be staunchly integral, the entire system would
 still create chaotic turbulences. 
______

Why would this be, if we can ensure that only the issuers of each currency
traded amongst themselves and when each of them was sure of everyother's
integrity ? 

Thanks.

Padmanabha Rao


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