Competing Currencies in a Free Society

[MysterionMuffles]

Seeing as we are mostly bound by a centralized currency of bank notes, I find it difficult to see how money would be used and received in a free society. Would it even be wise to have competing currencies within the same geographical location? How would people even be paid for work and what would happen if you get paid in one form, but want to buy something from a vendor that doesn't accept that form of currency?

would it be similar how we have dollars in forms of paper, coins and digital debit or would it be much more different? I am not very well versed in terms of economics, but I have been contemplating what would happen to all of our Monopoly money with an old woman's face on it/faces of dead presidents, once the state is abolished. 

 

[Wesley]

I think that cash registers, cell phones, and computers will be able to accept any forn of currency as they can instantly connect to the internet. The internet will have any exchange rates, adn even a reputation metric for the currency itself as to how reliable or how volatile the currency is. Those currencies can be instantly checked or scanned (whether physical or digital) with certain checksums or physical features. I think in an environment of open currency, there will tend to be certain currencies that will become more popular and convenient that will emerge and will be generally accepted in time. Eventually, if one of them gets shaky or a new technology is invented, people can switch easily to a new system rather than being stuck with toilet paper. Banks will protect themmselves in a basket of the most reliable currencies so that if one falters or becomes obsolete, then you still retain the bulk of the value in your savings acocunt.

I'm sure there are other pieces to this vision, but this is what I am able to come up with now.

[Robert Stempien]

I think Mises regression theorome would basically come to pass, we would start out bartering everything, and then one of the commodities bartered would come to be excepted by almost everyone, so it would become feasible to make an indirect trade into that commodity for everything. After that people would start keeping their commodity in a decentralized network of full reserve banks for safe keeping and the banks would issue wherehouse recipts denomiated in the commodity. (ie grams of gold) these wherehouse recipts could be paper notes, annonymous digital tokens similar to bitcoins, and debit cards. Perhaps a more annonymouse version of the debit card could develop that when scanned just deposits the digital tokens in the amount needed, leaving no personal info attached. Infact, with no IRS, money laundering, or business licensing laws perhaps completely annonymous banks could develop, so no personal info would be attached to the account at all. The only time where this could get dicey is if the banks attempt fractional reserve banking, but hopefully this could be caught and punished as fraud in a free society.

[ribuck]

... The only time where this could get dicey is if the banks attempt fractional reserve banking, but hopefully this could be caught and punished as fraud in a free society.

A bank cannot lend any money unless it practices fractional reserve banking. As soon as a bank lends out some money, it no longer holds enough reserves to satisfy all of the depositors at once.

Fractional reserve banking is only fraudulent if it's deceptive, i.e. if the bank tells the depositors that their money is safely held in the bank vault whereas it has actually been borrowed and spent by some property developer who is about to go bankrupt.

There are, of course, alternatives to fractional reserve banking. Instead of receiving interest for providing your money to the bank to be lent out, you could pay the bank a fee for keeping your money safe without lending it out. And those who want to borrow could do so from investors (who understand that they might lose everything) rather than from unwitting depositors (who think their money is "safe in the bank").

[Robert Stempien]

 

Fractional reserve banking is only fraudulent if it's deceptive, i.e. if the bank tells the depositors that their money is safely held in the bank vault whereas it has actually been borrowed and spent by some property developer who is about to go bankrupt.

 

Fractional reserve banking is by definition deceptive, if everyone is fully aware of the fact that their money isnt in the bank then it is not a bank but a very poor investment vehicle, like buying stocks only with a lot more risk and not a lot of return.

[ribuck]

 

 

Fractional reserve banking is only fraudulent if it's deceptive...

 

Fractional reserve banking is by definition deceptive, if everyone is fully aware of the fact that their money isnt in the bank then it is not a bank but a very poor investment vehicle, like buying stocks only with a lot more risk and not a lot of return.

If everyone is fully aware, I don't see how there is any deception.

In most (if not all) countries, when a business becomes insolvent, bank loans must be repaid before the shareholders can get anything. Therefore, an interest-bearing bank account will have a lower risk than stocks, but also (as you say) not a lot of return.

[Robert Stempien]

 

 

 

Fractional reserve banking is only fraudulent if it's deceptive...

 

Fractional reserve banking is by definition deceptive, if everyone is fully aware of the fact that their money isnt in the bank then it is not a bank but a very poor investment vehicle, like buying stocks only with a lot more risk and not a lot of return.

If everyone is fully aware, I don't see how there is any deception.

In most (if not all) countries, when a business becomes insolvent, bank loans must be repaid before the shareholders can get anything. Therefore, an interest-bearing bank account will have a lower risk than stocks, but also (as you say) not a lot of return.

 

                       

I think if most people r actually made aware of the fact that their money isn't really in the bank then most people won't put their money in, or they will put a much reduced amount in.

 

[Agalloch]

 

Seeing as we are mostly bound by a centralized currency of bank notes, I find it difficult to see how money would be used and received in a free society. Would it even be wise to have competing currencies within the same geographical location? How would people even be paid for work and what would happen if you get paid in one form, but want to buy something from a vendor that doesn't accept that form of currency?

 

What do you do when you get payed in money but your body doesn't accept that as a form of food?

 

would it be similar how we have dollars in forms of paper, coins and digital debit or would it be much more different? I am not very well versed in terms of economics, but I have been contemplating what would happen to all of our Monopoly money with an old woman's face on it/faces of dead presidents, once the state is abolished. 

 

Who knows! We can't better know what currency will look like without violence than we can know what the packaging on different forms of long grain basmati rice will look like.

[tasmlab]

 

Seeing as we are mostly bound by a centralized currency of bank notes, I find it difficult to see how money would be used and received in a free society. Would it even be wise to have competing currencies within the same geographical location? How would people even be paid for work and what would happen if you get paid in one form, but want to buy something from a vendor that doesn't accept that form of currency?

would it be similar how we have dollars in forms of paper, coins and digital debit or would it be much more different? I am not very well versed in terms of economics, but I have been contemplating what would happen to all of our Monopoly money with an old woman's face on it/faces of dead presidents, once the state is abolished. 

 

 

 

I'm giving a kind of indirect answer, but if you see how easily merchants take both Mastercard and Visa (and Diners, Am Ex, Discover) it would seem pretty simple.  Just imagine that Mastercard and Visa were also banks issuing their own currency.  They wouldn't have any problem with the conversions.   In fact, when you travel abroad, almost everyone recommends just paying with Mastercard instead of converting to local cash.  All of the merchants take it and the currency conversions happen automatically.

I bought a rug at a shop in the Casbah in Tangiers,  Morocco where the building was essentially was made out of clay with dirt floors and the clerks wore no shoes - almost felt like I was in the bronze age -  and they took my Am Ex no problem, despite the currency in my USD bank acount needing to be transferred into Moroccon Dinhar's or Euros.  It was seamless, just like buying something here.  Same with the restaurant.  I've had this experience in GB, Italy, France, and Spain even before the Euro.  I'd pay for a hotel room in Venice and the bill would be like two million Lira, pay with the card, and my account was charged $79 USD.  I was impressed.

As for a vendor not accepting certain currency, they would be foolish not too unless the currency was untrusted or the transaction costs were too high, just like some places don't take Am Ex.  Then you as a consumer would just have the invonvience of going to bank to exchange, or more likely, get in your car and go to another merchant who does take the currency.

The most dicey situation, IMO, of competing currencies would be if there were private ones competing against government fiat currency that was rapidly inflating.  The government workers would get paid in it as well as the old age pensioners (SS) and the welfare folk.  Everyone would need it to pay taxes with.  But then everything else would probably transact in the private currency (provided it had real value).  Once a store owner sold enough merchandise to cover his tax bill, he'd probably stop accepting the government currency for that period.  The government-paid might be kind of screwed as they go to vendor to vendor looking for someone who hasn't saved up their taxes yet.  And then may have to pay a premium for their goods.

(Forgive me, armchair conjecture.  But this is the internet :-)

[MysterionMuffles]

Hey thanks for your reply, that was actually the most direct answer I got. I appreciate all the replies but tasmlab's answer has been the most helpful. I completely forgot to consider what it's like to travel and spend your money there. That's right when I went to Copenhagen, Denmark, it was not at all difficult to exchange my dollars into kroners, especially digitally. I suppose it wouldn't be too hard if there were a reasonable amount of currencies. It would be similar to the different credit cards out there as well as travelling and converting the unit values. 

And I had the feeling someone would mention that merchants who refuse a certain type of currency would be losing out so that's a logical reason as to why it should be feasible.

[SimonF]

 

Fractional reserve banking is only fraudulent if it's deceptive, i.e. if the bank tells the depositors that their money is safely held in the bank vault whereas it has actually been borrowed and spent by some property developer who is about to go bankrupt.

 

The original function of a "bank" was to safely store deposited commodity money and I think most people still think of it as something like that to some extent. Safety deposit box vendors are now the true "banks". 

Once banks started trading their deposit notes as money and risking insolvency by overprinting deposit notes and lending they, became risky investment vehicles.

[tasmlab]

 

 

Fractional reserve banking is only fraudulent if it's deceptive, i.e. if the bank tells the depositors that their money is safely held in the bank vault whereas it has actually been borrowed and spent by some property developer who is about to go bankrupt.

 

The original function of a "bank" was to safely store deposited commodity money and I think most people still think of it as something like that to some extent. Safety deposit box vendors are now the true "banks". 

Once banks started trading their deposit notes as money and risking insolvency by overprinting deposit notes and lending they, became risky investment vehicles.

 

 

I would contend that credit, interest and lending are still pretty critical bank functions.  The idea of CD seems like a legit way to do both conservative lending and perhaps even fractional reserve.  The bank explicitly makes a contract with the depositor that their money isn't available for a certain term (three years) in return for agreed upon interest payments.

 

[Robert Stempien]

 

 

 

Fractional reserve banking is only fraudulent if it's deceptive, i.e. if the bank tells the depositors that their money is safely held in the bank vault whereas it has actually been borrowed and spent by some property developer who is about to go bankrupt.

 

The original function of a "bank" was to safely store deposited commodity money and I think most people still think of it as something like that to some extent. Safety deposit box vendors are now the true "banks". 

Once banks started trading their deposit notes as money and risking insolvency by overprinting deposit notes and lending they, became risky investment vehicles.

 

 

I would contend that credit, interest and lending are still pretty critical bank functions.  The idea of CD seems like a legit way to do both conservative lending and perhaps even fractional reserve.  The bank explicitly makes a contract with the depositor that their money isn't available for a certain term (three years) in return for agreed upon interest payments.

 

 

OK, but that's not really storing it in the bank in the traditional sense, its another investment opportunity, that's really what fractional reserve banking is, but most people put their money in a fractional reserve bank on the assumption that it is safe in the bank