From: IN%"rfiero@pophost.com" "Richard Fiero" 1-OCT-1996 04:50:07.73
E. Allen Smith wrote:
One of the attractions of privately-produced currencies is as a hedge against inflation; this development may be a competitor to this idea. On the other hand, this setup does have an unavailability in _time_ of the money (more so than other, equal-security bonds of the same duration), which may offset its greater spendability.
I don't get it. Why is this bond not saleable like any other? What "privately-produced currencies" are a hedge against inflation? If this bond is saleable like any other, why is the money unavailable? What means "greater spendability?" Is this assumed to be yet another government plot because it competes with other offerings and reduces the cost of borrowing?
The bond in question is salable... but its value is only guaranteed (to the extent that any government promise is guaranteed) when it comes due. Money supplies can be continuously adjusted by a private issue to keep a privately-produced currency's value stable. Privately-produced currencies, with a few (unfortunately minor) exceptions, are currently more of a free market economist idea than a reality; current governments are quite close on keeping their monetary powers (witness the protests in Europe against going the opposite way, to a common currency; also witness governmental attempts at keeping the free market from determining exchange rates). It is possible that private digital currencies will solve this problem, since they are much cheaper to produce than paper money is to print and can be traded privately much easier. There are likely to still be some legal problems with them, although A. selecting the proper country to base an issuer out of and B. not actually making avaliable through the issuer the reverse transaction - privately produced money to governmental money - only transactions for governmental money to privately produced money and privately produced money for services and/or goods may do the trick. Greater spendability refers to that when this bond is converted to government-backed dollars, most businesses will currently accept such dollars. This is unlikely to be the case for the first few years for a private currency, although an increased ease of exchange of a digital (as opposed to governmental paper) currency may make up for this difficulty. I doubt that most of the governmental types involved in making this decision know about privately produced currencies... but some may, and may have encouraged central bankers et al (and those who oppose Greenspan for his (quite admirable) opposition to inflation, like numerous politicians) to encourage this idea; assuming complete innocence of a particular motive on the part of any large organization is generally about as ignorant (and often stupid) as assuming complete guilt. Moreover, government competition with the private sector is rarely beneficial; in this particular area, I'd point out that it isn't reducing the cost of borrowing, it's increasing it - when lenders can lend to the government, they're _not_ lending to private businesses and others who can make far better use of the money. This factor, in a large part, is why most economists are in favor of a reduction in the government deficit. -Allen P.S. Sorry about the lateness of this reply, but I'm just getting around to some of my earlier mail.