Currency system theory

Author: White
Publisher:
Publication Date: 2004-04-01
Features: People are accustomed to believing that money should be issued by the central bank, but this book tells us that this view is wrong. The author, using detailed historical examples and rigorous analysis, shows that private issuance of money has occurred in the past and may still occur in the future. In the current era, the overextension capability of credit cards and the consumption function of gift certificates have given credit cards and gift certificates the characteristics of commercial issuance of money. They operate outside the issuance of central bank money and are the prototypes of private issuance of money. Market forces have led to the emergence and early development of money and its forms of expression. Before government intervention, the forms of money successively experienced commodity money and money issued by free banks, where the latter, in the form of banknotes, was usually backed by gold, silver, or hard currency. Only after the emergence of a central bank, the monopolist of currency issuance authorized or directly established by the government, did non-redeemable money backed by state credit and forced circulation take the stage. White explains the emergence of modern non-redeemable money and the institutions and policy operations related to it. Among the five functions of a central bank, only the monopoly of currency issuance and the implementation of monetary policy are definitional characteristics of a central bank. Private clearinghouses can fully perform the other functions. By examining the public good characteristics of money and the industrial characteristics of banking, White opposes government monopoly of money issuance and intervention in banking. Subsequently, White introduces and discusses several major issues related to the operation of non-redeemable money systems and their theories—seigniorage, the bureaucratic nature of central banks, political business cycles, discretionary policy, and the resulting dynamic inconsistency. The author also believes that money rules, competitive non-redeemable money, and "cashless" payment systems are alternative solutions to the current non-redeemable money system, and they are associated with the names of economic masters—Friedman, Hayek, Fama, and Yeager, among others. While introducing these proposals, White also introduces the criticisms of them. However, as White states, regardless of whether these proposals ultimately become reality, understanding them is useful. Thinkers dedicated to monetary and monetary system reform attempt to simplify the key features of the current monetary system, address its flaws, and improve and perfect the monetary system.