tag:blogger.com,1999:blog-8764541874043694159.post4795293073268751060..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: The nature of moneyFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-8764541874043694159.post-85344324403490128412012-11-02T13:36:51.872+00:002012-11-02T13:36:51.872+00:00You're getting close to the real crux now.
Yo...You're getting close to the real crux now.<br /><br />You left out another major function of money: as a medium for settling accounts. This is an incredibly important function because it creates the demand for a particular currency. The state imposes taxes and decides the currency in which these taxes must be paid.<br /><br />Failure to pay in the determined currency leads to imprisonment. So as long as Her Majesty's Revenue and Customs insists on receiving GBP to settle your account with them, you'll need to get hold of GBP, regardless of what other currencies might be available.Jamie_Griffnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-91379126290105416002012-07-29T01:22:02.830+01:002012-07-29T01:22:02.830+01:00Malcolm, that primary currency is the monetary bas...Malcolm, that primary currency is the monetary base. No other measure of money is capable of being "democratically controlled" where there are many different media of exchange in circulation, some of which are international, others local, others with restricted use. Money is so much more than primary currency.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-4998000925129348342012-07-28T15:31:04.970+01:002012-07-28T15:31:04.970+01:00I'm sure you're right to say that new curr...I'm sure you're right to say that new currencies will emerge over time, and that we need to account for these when measuring money supply and deciding policy, but there will always be a primary currency that is generally accepted within a nation's (or federation's) borders and that's the one that needs to be democratically controlled.Malcolm Henrynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35655757776216900632012-07-27T11:37:05.909+01:002012-07-27T11:37:05.909+01:00None of the examples you give are e-currencies. Wh...None of the examples you give are e-currencies. What we are looking at is the development of currencies that are issued by multinational corporations, not countries, and are therefore independent of borders. And at the other end of the scale we are also seeing growth of local currencies - I cited the Lewes pound, but actually my own area, Medway, also has its own form of money, and it is not the only one. International use and local use of money are entirely different and I doubt if people will have any difficulty at all getting their heads around this. Obviously government will continue to expect its taxes in the currency that it issues, but otherwise I think competing currencies are here to stay and we need to change our measures of money to accommodate them - and recognise that our approach to monetary policy may also have to change.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-19202237189108179722012-07-27T08:59:36.850+01:002012-07-27T08:59:36.850+01:00"Do you really think that private currency cr..."Do you really think that private currency creators won't respond to shortages of national currency by making it easier and cheaper to get credits?"<br />Well, we've been suffering from an acute shortage of sterling for the last three or four years and I haven't seen a single offer of credit from any alternative currency creator. At the moment the private currency creators (the banks) are all wedded to sterling and are competing to be as conservative as possible in issuing credit.<br /><br />"Your problem is that you can't imagine having competing currencies."<br />I can imagine it. I've experienced it in countries where people accept both the national currency and the U dollar. It's inconvenient, requiring a lot of mental arithmetic to ensure you're not being ripped off. The thought is having to do the sums for three or more competing currencies is not attractive. <br /><br />Even competing means of exchange within the same currency are a pain. In the 1980s in the US my cheque from the Camden Bank was unreliable as a means of exchange even in other parts of Maine. In neighbouring New Hampshire and beyod it was useless. Scottish banknotes are still refused in some parts of England.<br /><br />Primary currencies evolve because they're convenient - general acceptance is a very powerful attraction. But when a currency becomes ubiquitous the people who control its supply control the economy and the well-being of the population that use the currency.Malcolm Henrynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61857933518609752962012-07-26T22:23:45.594+01:002012-07-26T22:23:45.594+01:00I disagree that the money SUPPLY under normal circ...I disagree that the money SUPPLY under normal circumstances is controlled by anyone. Demand for money generates profit for private banks, and it is demand for money that is manipulated both by central bank (interest rates and other tools) and private banks (interest rates and other incentives to borrow). I agree the distinction is a fine one, though. At the moment banks are actively discouraging borrowing by anyone except really good risks, and central banks are trying to counter that by keeping interest rates low. <br /><br />Do you really think that private currency creators won't respond to shortages of national currency by making it easier and cheaper to get credits? That's how competition works. Your problem is that you can't imagine having competing currencies.<br /><br />The Euro is not a global currency in the sense that I mean it - which is a currency that simply transcends national borders and is not the "national" currency of anywhere. It is the national currency of 17 independent sovereign countries, and therein lies the problem. But I did comment in the post that globalisation of currency might require international co-operation in the management of those currencies - something like a new Bretton Woods. Economic divergence would only become an acute problem, though, if global e-currencies were adopted as national currencies (i.e. nationalised in individual countries or taken over by a group of countries, Eurozone-style). Despite my comments about Kenya, I don't think this is very likely, nor do I think it is desirable.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-2025350408542530602012-07-26T18:04:35.372+01:002012-07-26T18:04:35.372+01:00Money doesn't just appear out of nowhere. A se...Money doesn't just appear out of nowhere. A select band of people make it and destroy it to suit their purposes. <br /><br />The money supply is controlled directly by the central bank (issuing or destroying notes and coins) and by the private banks extending loans and determining the repayment period. The latter don't respond to demand, they respond to what will make them the biggest profit. In fact, they're very good at creating demand - the mortgage boom being a prime example of this, credit cards being another.<br /><br />"Restrict the supply of one good and people will switch to competitors." <br />How does that work with money? If I'm short of money how can switching from sterling to an e-currency get me more money?<br /><br />"We are reaching the end of the era of national central banks, centralised money issuance and attempts at national money supply control."<br />You seem to be stuck on this notion but the evidence of the eurozone is suggesting the opposite. Trying to run disparate economies with a common currency can only work with common political and fiscal policies. What makes you think this is going to happen on a global scale?Malcolm Henrynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-83280077757718149512012-07-26T10:50:07.288+01:002012-07-26T10:50:07.288+01:00Money supply as such is not directly controlled by...Money supply as such is not directly controlled by anyone: it responds to demand. Central banks indirectly control demand for money by means of interest rates and other tools - or at least they try to, though the effect is very diluted - but the monetarist notion that the money supply can be directly controlled is simply unworkable unless the central bank has a monopoly over currency issuance, which in an era of global e-currencies it can't possibly have. Restrict the supply of one good and people will switch to competitors. <br /><br />We are reaching the end of the era of national central banks, centralised money issuance and attempts at national money supply control. Just as business now transcends national boundaries, so too will currencies.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-31037600410387580052012-07-26T09:21:30.408+01:002012-07-26T09:21:30.408+01:00Frances,
Replacing one currency with another as t...Frances,<br /><br />Replacing one currency with another as the primary means of exchange doesn't remove the need to control the quantity and velocity of money in the economy.<br /><br />If the M-pesa replaces the shilling as Kenya's de-facto currency this means that the owners of the M-Pesa system will have become the central bank of Kenya and will have the responsibility to ensure that the Kenyan economy has an adequate supply of money.<br /><br />A global e-currency may emerge to replace the US dollar as the primary currency for international transactions but it won't become the primary currency for national/regional transactions. If it did we'd end up with a mess similar to the one we see in the eurozone. Different economies need different quantities and velocities of money to keep them running sweetly. Different societies have different ideas about how money should be used for the common good. Without political and fiscal union a common primary currency won't work.<br /><br />Regardless of it's geographical reach, the quantity and application of a primary currency will be controlled by someone. We can leave it to the operators of the exchange systems for their private benefit, or we can control it for the benefit of the population as a whole. Positive Money might not be proposing the best solution but they're certainly heading in the right direction.Malcolm Henrynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66345068152091905842012-07-26T01:00:53.287+01:002012-07-26T01:00:53.287+01:00Malcolm,
I seriously suggest you stop looking at ...Malcolm,<br /><br />I seriously suggest you stop looking at this with Western eyes, and see what is happening in the rest of the world. M-Pesa is set fair to become Kenya's PRIMARY medium of exchange, overtaking the Kenyan shilling. We are not as far ahead as that in acceptance of e-money as primary exchange media, and that is because here most people have bank accounts so it is easier to use bank payment systems. But in most of the world the majority of people DON'T have bank accounts. In the world as a whole, far more people have mobile phones than have bank accounts. That is why e-money is so important, and we will have to adopt it if we wish to do business with emerging markets in future. <br /><br />There is absolutely nothing to stop people transacting in global e-currencies if they wish - and I believe they will increasingly choose to do so. It is only a matter of time till mobile phone companies introduce e-credits here: mobile money platforms are already well established in many emerging markets, not just Kenya. They will of course enter our market as competitors to existing payments systems - but that is a good thing, surely? <br /><br />Our measures of "money in circulation" are already deeply flawed because they exclude other forms of money. Nationalising and centralising the "money supply" when currencies are becoming global and borderless is a doomed strategy. That is why I think Positive Money's ideas simply miss the point. Their definition of money is far too narrow and they don't see the implications of developments in global finance.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-67755335137821819762012-07-25T17:56:51.034+01:002012-07-25T17:56:51.034+01:00Frances,
You're right, of course, to include ...Frances,<br /><br />You're right, of course, to include Tesco credit, Air Miles, and the rest of them as types of money. What you appear to be missing is the notion of 'general acceptance'. <br /><br />If any of my clients tried to pay me in any of the above I'd tell them to get lost and pay me in sterling. If I tried to pay Her Majesty's Revenue with any of the above their response would be similarly dismissive. <br /><br />Money is only money if two people agree that it is. The vast majority of us agree that sterling is our primary currency - the one that everyone will take. Dollars, euros, Tesco points, Air Miles are all secondary currencies that have limited appeal for transactions within the UK.<br /><br />Positive Money is proposing democratic control of the amount of primary currency that is available in our economy. Their proposals for exercising that control are flawed but not nearly as flawed as the present system where the amount of money in the economy and where it is spent is determined by private, profit-driven companies.<br /><br />MalcolmMalcolm Henrynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-37074605172696318242012-07-23T18:19:02.560+01:002012-07-23T18:19:02.560+01:00Ralph,
The issue I am raising is that central ban...Ralph,<br /><br />The issue I am raising is that central banks do not, and cannot, control the entire money supply where there are privately-created currencies circulating, especially when those currencies are international. Therefore Positive Money's central proposal that central banks should control the money supply directly as the main macroeconomic policy tool is in my view fundamentally flawed. It wasn't workable when Friedman proposed it and it's even less workable now when we have international e-currencies floating around the place. Whether those e-currencies are "full reserve" or "fractional reserve" is frankly irrelevant. The point is they aren't under central bank control and if they are international they never can be. <br /><br />I know there are many notable economists who support full reserve banking and centralised control of money. Their analyses take no account whatsoever of virtual currency. On that basis I believe their analyses are incomplete. But even if they were complete, I don't have to agree with them.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-10546509372604075642012-07-23T18:03:53.176+01:002012-07-23T18:03:53.176+01:00Frances, Your article gives the impression that Po...Frances, Your article gives the impression that Pos Money are the first to advocate full reserve banking: they are not. Milton Friedman, Irving Fisher, Lawrence Kotlikoff, and several Nobel laureate economists advocate or have advocated the idea.<br /><br />Re the idea that full reserve somehow rules out Air Miles or Tesco loyalty cards, I don’t agree. Under full reserve, what’s to stop Tesco crediting customers who had spent the requisite amount just as they do now? Tesco does not create money ex nihilo, which is what advocates of full reserve object to the private sector doing. Tesco awards “credits” to those who have ALREADY spent money at Tesco. I.e. Tesco effectively gives back to customers some of the money those customers have spent.<br /><br />Re internationally transferable e-money, I agree that the easier this is to transfer and exchange for the currency of any given country, the more difficult it becomes for those running a full reserve system to control the situation. But very similar problems occur under fractional reserve.<br /><br />For example when a central bank under a fractional reserve system (and assuming no exchange controls) raises interest rates with a view to damping down an overheated economy, that just draws in hot money which counters the intended effect of the interest rate rise.<br /><br />Having said that, I’m not really up to speed on how a central bank trying to operate a full reserve system stops incoming money from boosting the money supply. But I assume Prof Richard Werner who advocates full reserve has go this worked out.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-36498413451840370332012-07-23T12:39:50.104+01:002012-07-23T12:39:50.104+01:00It's the direction in which we are going, I th...It's the direction in which we are going, I think. Cashless society and virtual payments are the future.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25134223193743901142012-07-23T12:33:04.003+01:002012-07-23T12:33:04.003+01:00Hello, I read your post and found it extremely int...Hello, I read your post and found it extremely interesting. I try a much less integrated approach of the "physical meaning" of banknotes in my post at gobanknoteless.wordpress.com, where I propose the abolition of banknotes and the use of only coins for the small transactions and electronic or mobile payments for all others.<br />I' d like to have your comments on this idea that seems capable to tackle effectively the Euro zone countries' debt crisis along with a great deal of social issues.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-37497507558959720112012-07-23T11:42:57.869+01:002012-07-23T11:42:57.869+01:00You're absolutely right :-)
I even know they ...You're absolutely right :-) <br />I even know they hoard it without government insurance in offshore accounts as long as it stays out of sight of the tax department.Wil in Amsterdamhttps://www.blogger.com/profile/01298462425522567212noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-80432576456641709632012-07-23T11:16:52.207+01:002012-07-23T11:16:52.207+01:00If the money is used to buy shares, property etc. ...If the money is used to buy shares, property etc. then it is not in an account any more, is it? It's been converted into a true store of value, as I suggested. <br /><br />Interest on offshore accounts may or may not be money. It depends how the return is generated and what is done with the interest. <br /><br />These days you need to think about funds in NON-interest bearing accounts, too. People are hoarding currency in non-interest bearing accounts because they have government insurance - a form of safe deposit box. <br /><br />I am very reductionist in this post, so there will be "grey areas" where my definitions don't appear to fit. That's part of the fun. Humans are messy creatures and rigorous logic isn't always an adequate descriptor of their behaviour.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-87900934056826630182012-07-23T10:46:00.263+01:002012-07-23T10:46:00.263+01:00But all these offshore accounts yield interest or ...But all these offshore accounts yield interest or is used to buy shares, property etc. So it is still in circulation isn't it?<br />I do agree that currency stuffed under mattresses is out of circulation and is not counted as money by others than the owner. As long as it is legal to buy stuff with it he can still regard it as money.Wil in Amsterdamhttps://www.blogger.com/profile/01298462425522567212noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69686233276437445562012-07-23T10:36:21.467+01:002012-07-23T10:36:21.467+01:00"they just spread it thinner" so then yo..."they just spread it thinner" so then you make extra money only it is thinner. Everybody knows it is still money even if the bank runs out of paper money.<br />Frances just explained how money creation actually works: you go to the bank and tell them you need money to buy a house, they create out of thin air the deposit for you to use and a loan you owe the bank. When you use your deposit and transfer the money out of your deposit into your sellers deposit there is money created and it made its way into the money supply of the nation you are transfering the money to.Wil in Amsterdamhttps://www.blogger.com/profile/01298462425522567212noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-16256577646717189292012-07-23T10:13:14.117+01:002012-07-23T10:13:14.117+01:00On the contrary, you are confusing money and curre...On the contrary, you are confusing money and currency. I would deny that currency hidden away in offshore accounts, and therefore removed from circulation, is money at all. Nor is currency stuffed under mattresses - the non-computer equivalent. If it isn't circulating, it isn't money. <br /><br />Currency can of course be used as a store of value. I did point out in the post that fiat currency is not a good store of value because it is subject to inflation, and that less liquid investments would be preferable.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-56069391036914618052012-07-23T09:16:26.211+01:002012-07-23T09:16:26.211+01:00Your definition of money is too narrow. Money can ...Your definition of money is too narrow. Money can be simultaneously a means of exchange AND a store of value (which I think is a large part of the problem**). What of these £13Bn TJN reported is hidden away in offshore accounts by the super-rich? That is money being used simply as a store of value, and who can blame anyone for holding "cash" when the prospect for profitable investment is so dire?<br /><br />** Demurrage (?spelling), or negative interest, seems to be a good way of separating these two functions of money - such as to bring about your definition as restricted to a medium of exchange. In that case the aforementioned trillionaires would doubtless seek to invest in more constructive ways (perhaps they might even be long-sighted enough to finance the essential ramping up of renewable energy supply)skintnickhttps://www.blogger.com/profile/12957635621756608215noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-78915165658363737042012-07-23T06:23:34.857+01:002012-07-23T06:23:34.857+01:00But money in bank accounts is only provisionally a...But money in bank accounts is only provisionally a means of exchange, the provision being that it's only available to spend as long as most people don't actually do so. If everyone who thinks they have money in the bank that they can spend were to go out on the same day and try to actually spend it, they would quickly discover that they're wrong. So banks don't actually create money, they just spread it thinner between different people so that lots of different people all think the same money is theirs, and as long as only a few of them try to spend it at once then everything works out.Anonymousnoreply@blogger.com