How difficult would it be to convince business to adopt a new currency?

Where/how would you exchange it? Who would control the exchange rate? Who would be in charge of printing this new "money"? The idea is completely unworkable.

golden lane wrote: »

look at the irish building boom as one example......

there are many others.

....and that has what to do with Euro specifically?

Valmont wrote: »

I was just trying to make the point that the only difference between the euro and any other paper currency not in circulation is political power. So my answer to the original post would be very difficult unless one had the backing of the state.

Certainly governments will ultimately protect their monopoly on the control of money, and have done so in the past, however you're also missing the point I'm making; which is even without this protectionism, confidence in a new currency would face insurmountable limitations which will inevitably lead it to only limited and localized adoption at best.

Valmont wrote: »

What about gold? You brushed off its practical uses earlier but these uses are what sets it apart from any fiat currency -- it will always hold some value.

It's not so much practical uses as practical use. The use of commodity money has been around since the classical period and it does work, however there are some practical limitations; for a start, there's not enough gold in the World to replace the present money supply.

And based on your quote above, do you believe that without state backing, no nationally accepted currency would evolve?

I think it unlikely; at least for widespread or national acceptance.

There's plenty of scope for alternative currencies with limited adoption though.

Valmont wrote: »

http://www.indianapolismonthly.com/features/story.aspx?ID=1725808

The Liberty Dollar was never really a currency. "Hundreds of merchants nationwide" eventually chose to accept the currency, which is not exactly a serious uptake and this is because it was never in reality meant to be such, but as a means to back up one's wealth with precious metals as a means of avoiding inflation. In short, it was an investment.

Problem was that it wasn't a very good investment. If you examined the value of precious metal in the coins or that one could redeem your notes for, it actually was a fraction of what you paid for it (in USD). In essence, you might have bought 50 USD of Liberty dollars that were underpinned by 10 USD of silver.

None of which should be surprise, because it costs money to design and mint coins, design and print banknotes, distribute and administer them, and so on. It was a business.

Why the US government chose to chase the Liberty Dollar and ignore some of the other alternative currencies out there, I can't say, but I'd imagine that it is down to a combination of the exploitative business model and that while strictly speaking not counterfeiting, you can hardly deny that there was a large element of 'passing off'. For example, take the following Liberty Dollar coin:



While it clearly does state that it is a Liberty Dollar, it also borrows heavily from the US Dollar too. The symbolism is similar and text, such as "trust in God" is almost a cynical reworking of "in God we trust" that you'll find on US Dollars.

So my feeling is given that the US government has largely ignored other alternative currencies with similar money supplies, their prosecution of the Liberty Dollar was more about it 'passing off' as the US Dollar, while screwing the buyer on the value of 'redeemable' silver.

The question now should be: how far could you get with a gold backed currency, before the state stopped you to preserve their monopoly?

The Wörgl Experiment probably is the best answer to this. In essence, the experiment's initial results were extremely positive (although it is important to note that it only ran for little over a year) and as a result other towns in Austria began to seek to join the experiment. This resulted in the Austrian government shutting it down, for fear that they would end up losing control of monetary policy.

So to answer your question, a government would likely step in when a currency begins to see accelerated adoption, before it reaches a critical mass that might undermine the national currency.

If you wanted to avoid this, I would imagine the best strategy would not to sell it as a 'currency' but as an 'investment' that happens to lend itself to be used like a currency - like barer bonds.

hatrickpatrick wrote: »

Our currency is a fiat currency anyway though. What difference does it make whether or not the governments "officially" back it, if they're not willing to take the necessary steps to safeguard it?

It's not so much that they're not willing to take the necessary steps, rather than they don't know what they are. Ultimately all macroeconomic policy is based on theories that operate in an ever changing environment that includes variables that inevitably are omitted. In reality, we don't actually know anything.

In simple terms, any macroeconomic policy that is exerted upon an economy is a bit like slapping an ass (of the four legged variety) - doing so should cause it to move forward, but on occasion it may also decide to kick you instead.

Why is impossible to measure; statistical data may be accurately collected, but by the time it is, its already out of date. Consumer behaviour changes for a multiple number of reasons that we could not possibly track. And there are as many variables in an economic model as there are stars in the sky, so we end up aggregating them - which is economists way of saying "we're ignoring the details and looking at things in broad, general terms".

All of this means that we at best know what is likely to work, what should work or what did work in the past. But we don't actually know if it will work, or how well, in the future.

Look at the Eurobonds idea; on the face of it pooling all of the EU's credit should drastically reduce the pressure against the Euro and bring back real confidence in the currency. But what if it doesn't and the market reaction is mooted or sceptical? Or what if it simply puts oil on the fire of overspending in some of the PIGS nations? Germany, and the other stronger EU economies, would suddenly find themselves in the same mess as Greece, Spain or Ireland, with little control on how to enforce good governance and the firewall that divided national debts from each other, thus protecting them, will be gone.

A collapse of the Euro, however disastrous, would appear to be the lesser of two evils, for them.

So in reality, it's not so much that governments are not willing to take the necessary steps to back a currency, it's that they're not sure what those steps are and if any policy will do so or make things even worse.

The reason I post threads like this is effectively that I'm trying to understand something which falls outside economic theory, that is, why the artificial means of trade (in this case, currency) dictates how much trade can happen, rather than actual physical realities.

That's always existed though. 'Paper' money took off because using gold and silver coinage ended up dictating how much trade we could do. In the eighteenth century, trade with China was such that we bought huge amounts from there, yet the Chinese had little interest in buying from us (a balance of trade deficit that we can relate to today). This resulted in a scarcity of coinage domestically as silver and gold coins literally became difficult to come by.

Remember all economics is, is the study of how we manage scarcity; that includes money.

A crop of 500 potatoes planted during the boom will still feed as many people now as it did back then, the farmer is still planting them, people still need food. The system of trade we use has hit major problems, and because of that, despite there physically being enough potatoes and physically being enough people willing to plant them, and physically being enough people who need to eat them, potatoes are rotting unsold and people are going hungry.

The reason that the potatoes are rotting is that the market for them has run out of money. They spent it on other stuff. Or gambled it away.

In reality though the potatoes won't rot. A business will still want to get it's money back somehow (it cost money to produce them, after all) and unless it can sit on them in the hope that things pick up, it will lower its price and/or find another market that will be able to pay.

As far as I can see, "money" comes into "circulation" when a bank issues a loan - with interest due. Hence, the total amount of debt owed back to them is always greater than the total money in circulation.

Not actually true. Money comes into circulation through numerous means; the central bank (or ECB now) lending to other banks, who in turn lend to the public is one means. Government subsidies, social welfare, contracts and public works actually constitute a very large part of how money gets into an economy.

So even if there were no banks other than the ECB, money would still enter the economy; the government would pay civil servants, who would spend it. And suppliers and contracted companies, who would spend it. And welfare recipients, who would spend it. And so on.

I'm basically trying to come up with a system which wouldn't have either of the above problems - an endless debt cycle, or dependence on a for profit company to facilitate all trade. If currency was issued as a public service - not with profit in mind - it strikes me that this could potentially solve quite a few problems.

First of all, you need to differentiate between the accounting and economic definitions of profit.

A school kid goes out, buys some lemons, bottled water, sugar, a juicer, plastic cups and the materials to put up a stand outside their home. All this costs them €50 and in the end they produce enough lemonade for 150 servings at €1 each, which they sell out.

The accounting profit is €100. The economic profit is zero. Why? Because €100 is the cost of their labour and risk; squeezing the lemons, setting up the stand and sitting at it to sell the lemonade. The risk is that anyone would even buy the lemonade - and this is important, because were there no reward for risk, no one would ever invest in or start a business.

So 'profit' is necessary. Without it no one would bother to set up a business. Even if they could earn themselves a salary, why would they risk losing their money when all they'll get is the same as a guaranteed salary in a 9-to-5? Related to this is also why go to college and work (study) for free if you're not going to get a better paid job as a result?

One can argue that the reward is to be your own boss, but in reality, while many entrepreneurs remain so because of this, even though they'd be better off employed by someone else, no one ever becomes one for this reason.

Debt is another matter, as we discovered four years ago. In theory things like debt and inflation are not necessarily a bad thing, as long as they're expected - if we can, we can factor them in as a cost.

The problem arises when they're not expected - when the ass chooses to kick rather than move forward - and this is what we have now. A good example of this is in the practice of leveraging; you borrow, on a short term, a huge amount of money on an investment which you'll flip long before you ever have to pay the principle. This is how most financial trading works; in FX trading, for example, you can easily leverage up to 400 times, as fluctuations are tiny, this means you're in reality only exposed to a tiny loss, unless there is a savage shock to the system, and that's when you're in trouble.

Every economic bubble in history was caused by leveraging that went sour, even Ireland's property bubble.

Which brings us to the biggest leveraged bubble in history; the World Economy. Fiat money used to be backed by gold and exchangeable for it. Except it wasn't, because post-World War II the World economy expanded so rapidly, that there simply was not enough gold in the World to back it. So we essentially wrote IOU's saying that when we dig up the gold, you can exchange your currency for it.

And this pretence continued until 1971, when the US gave up the ghost and as many other currencies and commodities, such as oil, were pegged to it, so did everyone else. Ever since, money is worth only what we believe it to be worth and bizarrely, we price currencies in terms of other currencies that are just as worthless.

This economic expansion essentially became an opiate to distract us from this reality. Just as in China, economic growth is kept artificially high to quell dissent, we've essentially done the same so as to prove to ourselves that it is somehow worth something.

In this regard, I'd hardly blame the banks, or the government, because ultimately we're all part of this same self-deception. It's only because it is being questioned (not necessarily unravelling) now that many of us are out with torches and pitchforks looking for someone to string up and hopefully solve the problem with as little pain as possible.

Valmont wrote: »

If a gold and silver based currency had an exploitative business model, how would you define a currency where the proprietors could print as much of it as they wanted, devaluing what you already own?

I never said it did, I suggested that the Liberty Dollar did.

The 'devaluation' occurred when you 'converted' your US Dollars to Liberty Dollars. You would pay US$50 for currency backed by silver or gold only worth US$10 - 80% of your investment was swallowed up in the 'conversion'.

Of course, if predictions of gold or silver being worth 100 times their present value in the future are true then in the long run you make money - but if that's why you're buying Liberty Dollars, as an investment, then you're better off buying bullion instead.