WHY NOT CREATE PRIVATE CURRENCIES ?
Some days ago, an article in the Financial Times (1) dealt with a peculiar monetary question: now that big enterprise activities are crossing borders, why wouldn’t they be able to issue their own money, or at least, create a currency that can be used internally?
The idea is not incongruous. Certain groups are already using money baskets for invoicing internal transactions (for example, the purchasing in various countries of manufacturing components that are to be assembled in another one).
It is of course only virtual and strictly accounting money for the interface of these enterprises with their financial clients is always in official currencies (USD, Euro, etc.). But we could dream of real new currencies, peculiar to corporate groups that would see their equivalents evolve together with the official currencies.
These new monetary standards would of course have to project sufficient confidence to serve at the same time as a means of payment and of hoarding. Google created its own currency, Google bucks, but the idea was abandoned in view of the juridical difficulties that came with one such an initiative. Facebook also developed a credit system so as to acquire virtual goods. Thanks to electronic money transportable via cell phones, we could think about private persons selling kilowatt-hours, m³ of water or cell phone minutes that would de facto become hard money!
And for time is money, this reminds us of “the Swatch Internet Time”, invented in 1998, that consisted in replacing hour belt fragmentation by a universal decimal hour, divided in 1000 beats 24-hour day.
Some liberal economists, amongst which Hayek and Friedman, theorised about private currencies creation so that states are compelled so as to not use money to their advantage. It is true that states with too many debts always end up using the printing plate to reimburse their public debts at the price of losing money purchasing power, i.e. confiscatory inflation. In today’s monetary system, the counterpart of banknotes issued by the ECB is coming from public debt… financed by the same banknotes. This is moreover one of the reasons for which states demand that the banknotes they print are obligatory accepted so as to settle debts. For the rest, we see that during fragile monetary periods, private persons hide in supranational money (such as physical gold and silver, the issuer of which is nature) or in real goods (such as real estate). Yet, Hayek’s idea is not unanimously shared.
Other economists, such as Stiglitz, advance that the possible emergence of private money (created by enterprises that are not active in the banking sector) has become lapsed for it is private commercial banks that are the real economic operators. The latter decide on monetary value, relegating central banks to an accessory role. I intuitively feel that Stiglitz is wrong, for financial institutions are currently financed and supported by the states, obliging them to hold control over their own public debts. Private commercial bank money creation is thus all but nationalised.
But this is not all! There also exist peripheral private paper money experiments. In Germany alone, the Bundesbank counts some thirty, lyrically named currencies (le Riogeld, the Berliner, the Carlo, the Justus, the Cherry tree, etc.) that, together with the Euro, exist beyond the Rhine river. Of course, these currencies have no legal tender.
It concerns rather romantic and parallel currencies, accepted by some traders. The Berliner, which can be used in the city which holds the same name, is struck in three colours, printed by the Federal printing office so as to avoid forgery. In Bavaria, the Chiemgauer was launched in 2003 and printed banknote volume has exceeded 4 million euros. There also exist similar experiments in France. In the village of Lot-et-Garonne, for example, traders accept a parallel currency, the abeille. There are notes of 1,2, 5 and 10 abeilles, connected to the Euro in a fixed exchange rate: 1 euro is 1 abeille. The abeille is thus adjusted to the euro. But the abeille is a currency that cannot be hoarded; it has to circulate and allows the stimulation of local product acquisition. Similar experiments are counted in Toulouse, with an ethical currency, the Sol-Violette, and in the Ardèche, with a currency called Luciole.
In the United States there also exists the Ithaca hour, with which you can change one hour of work for 10 dollars. Moreover, in Japan, a local system grants credits in exchange for elderly people care services.
And then, we must not forget the most harmless and widely spread currency that exists, apart from legal tender currencies: airline company miles with which you can receive a flight at reduced cost.
These initiatives have one thing in common. So as to stimulate their circulation, they depreciate at regular intervals. In other words, they progressively lose their nominal value so that their successive holders speed up using them for purchasing.
It’s the economist Silvio Gesell (1862-1930) who invented this system that he described as “melting money”. Gesell claimed that hoarding is damaging the economy. According to him, the only way to inject money in the economy is to force natural depreciation at regular intervals. The idea is original: instead of increasing inflation, it’s the money that is going to impose its own purchasing power loss and thus its circulation rhythm. Gesell would have organised depreciation under the form of banknote printing (or stamping) so as to decrease their nominal value. Another technique would have consisted in drawing lots and cancelling a particular banknote series amongst the types which circulated: the cancelled notes thus have to be swapped for new notes with an inferior value of 5, 2% with respect to the precedent notes. The fidelity cards, service vouchers, discount coupons and old Club Med tickets use the same logic.
To conclude, private currency emergence is no longer in its first steps, but peripheral experiments will definitely pop up; progressively when commerce will be plunging into internet virtuality. Sovereign states will logically prohibit its broad development, for it would be impossible to modify the monetary mass issued for popular use so as to reimburse public debts.
A money creation operation, such as the ECB has recently carried out, would for example be impossible with private money. The money emission monopoly is thus not ready to dilute in private initiatives.
Moreover, this is the reason for which gold commerce, private money by excellence, is prohibited during big crises, such as in the United States in 1933. But the private currency reflexion leads us to the existential money question: the grounds of money have to be being founded in confidence and acceptability, but what do we have to think of our Euro that is currently being printed so as to finance public debt, i.e. the one that we have contracted for our own benefits?
(1) : More flash than cash, Financial Times, March 21st 2012
