What is money anyways?

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March 3rd, 2017 at 5:26:12 PM permalink
Nareed
Member since: Oct 24, 2012
Threads: 324
Posts: 11134
Quote: Pacomartin
I think that time has come and gone. [..]

At this point the desire is to introduce electronic transactions to replace small value banknote and coin transactions.


Maybe when the minimum wage hits like $10,000 an hour and one dollar is worth what a lira used to, they'll consider replacing the paper note with a polymer one (*)


(*) Just kidding. Of course they won't consider any such thing.
If Trump where half as smart as he thinks he is, he'd be twice as smart as he really is.
March 3rd, 2017 at 8:12:52 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 722
Posts: 8413
I think more and more countries will try and emulate South Korea (possibly even Mexico). South Korea has declared that all coins will no longer be legal tender as of 2020. I think a natural consequence will be that the use of the smallest banknote will also diminish radically. Almost all cash transactions will consist of two denominations only.

Circulation per capita in number of notes or coins (31 December 2015)
BANKNOTES
25.4 KRW 50,000
34.0 KRW 10,000 ---- US$8.68
5.2 KRW 5,000
29.4 KRW 1,000
COINS
45 KRW 500
185 KRW 100
41 KRW 50
165 KRW 10

South Korean Won↔Mexican Peso
1 MXN = 59 KRW
March 3rd, 2017 at 8:37:03 PM permalink
petroglyph
Member since: Aug 3, 2014
Threads: 12
Posts: 2031
https://aeon.co/essays/if-plastic-replaces-cash-much-that-is-good-will-be-lost

It is about control
Everyone gets thrown from the plane to maintain altitude
March 3rd, 2017 at 10:07:49 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 722
Posts: 8413
Quote: petroglyph
It is about control


Which is why the South Korean experiment is unique. Most people who write about eliminating cash want to start with the highest denomination banknotes. The world governments have more or less agreed that the really big bills, the US$500,$1000, $5000, $100000, the Canadian $1000, the Swedish 10,000-kronor, the SGD$10,000 and the 500 Euro note are all on or headed for the chopping block. But more and more aim is being taken at the mid level bills like the British 50 pound note.

South Korea simply notes that the greatest efficiency will occur if there is no legal coins. But even in a pinch you would only lose a maximum of US 86 cents if you didn't want to pay electronically and simply passed on taking your change. But the bigger bills are no immediately affected. It may well turn out that they are simply laying the framework for abolishing all cash, and just starting with the coins as an easy way to force every single person to adopt an electronic payment system.

But Sweden is considering adopting a digital currency that has no credit risk like commercial bank money. In many ways it would be similar to banknotes. But the soda machine in the article still might not work.
March 4th, 2017 at 12:05:29 AM permalink
petroglyph
Member since: Aug 3, 2014
Threads: 12
Posts: 2031
Quote: Pacomartin
But Sweden is considering adopting a digital currency that has no credit risk like commercial bank money.
How about inflation protected?
Everyone gets thrown from the plane to maintain altitude
March 4th, 2017 at 5:47:42 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 102
Posts: 6655
Quote: petroglyph
https://aeon.co/essays/if-plastic-replaces-cash-much-that-is-good-will-be-lost

It is about control


Absolutely. Eventually you could freeze a person out of the system. Or the courts could let their creditors take every last cent from their "wallet" not even leaving enough for food. The next generation will embrace it.
The man who damns money has obtained it dishonorably; the man who respects it has earned it
March 4th, 2017 at 8:22:04 AM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 722
Posts: 8413
Quote: petroglyph
How about inflation protected?


It's an interesting question. It is one of the questions that Sweden is wrestling with in their discussion of a digital currency (the e-krona). They seem unsure if the interest rate should be zero, positive or negative.

No commercial bank in the world has actually advertises a "negative interest rate". Usually the loss of a customer's money is a result of fees. A few central banks (like Sweden) charge negative interest rates to commercial banks, but that practice only began in the last five years.

Quote: Should e-krona generate interest?|central bank of Sweden

Other examples of strategic questions are whether the Riksbank should issue unlimited amounts of e-krona if there was a high demand on the market, and whether ekrona should generate interest. These two questions concern both monetary policy and the financial stability of the banking sector. From a monetary policy perspective, an unlimited issue could be expected to increase the Riksbank's possibilities to steer the money supply, that is, issuing could in some situation function as a monetary policy tool
.
Some economists advocate that the central bank should replace cash with a digital currency that can be given a negative interest rate, for instance by reducing the balances on e-krona accounts or not redeeming e-krona at their full value. These advocates say that this would make it easier for the central bank to implement an efficient monetary policy with a negative interest rate. This reasoning is based on the central bank being prevented from setting a negative interest rate to the extent considered necessary to stimulate economic activity. Personally, I am not convinced that this problem would arise in Sweden and I would once again like to say that the Riksbank has a statutory requirement to issue banknotes and coins. I see e-krona primarily as a complement to cash.

The issuing of e-krona together with a positive interest rate on e-krona could affect financial stability in the banking sector. Today, the banking sector functions as a system of communicating vessels. If a consumer or a company withdraws money from a bank, this money comes into another bank, either as a deposit or as payment for a product or service. If the Riksbank launches an e-krona with a positive interest rate, it can in some situations be very attractive for both the general public and companies to convert their account balances in the banks to e-krona with the Riksbank. The banking system could then be drained of the funding for its lending, and become unstable, which could damage the supply of credit in the economy.


I put the rate of growth of cash for 2011-2015 in different countries in a wikipedia page
https://en.wikipedia.org/wiki/Cashless_society#Amount_of_cash_in_circulation

Avg. year Country
12.1% Turkey
11.9% Korea
8.0% Mexico
7.9% India
6.0% Brazil
6.0% Hong Kong SAR
5.5% Singapore
5.4% Saudi Arabia
5.1% United States
4.4% Switzerland
3.8% Russia
3.8% Australia
3.2% Canada
3.2% Japan
3.2% United Kingdom
-3.7% South Africa
-6.9% Sweden

Of course Mexico's increase in cash is in the peso. Relative to the USD it would be a lot less. South Africa is showing overall negative change, but it is also very unstable rocketing up and down from year to year. Only Sweden is steadily losing cash.

United States is increasing cash at a rate (5%) which is considerably higher than any population or GDP growth. It has been doing that for nearly a century.
March 5th, 2017 at 4:52:48 PM permalink
Fleastiff
Member since: Oct 27, 2012
Threads: 49
Posts: 4708
Although often thought that coins develop as a quick, easy means of barter, it seems that sociologists and historians tell us that unlike in Adam Smith's fanciful world, real world societies do NOT form a barter system based on equalizing value, the barter systems are social barter systems lacking any enforcement: sort of a I'll mow my lawn to protect teh value of your land. It is thought by some that coinage developed to pay soldiers who otherwise could be paid only in conquored females. Sort of a hire soldiers, have them fight a war and bring home slaves to work the fields, then pay the soldiers with coins. So its either society with only social bartering or its societies with wars, conquests and coins.

If we have sustained periods of no enslavement, no wars, no need for a medium of exchange... does coinage have to maintain its value? Can coinage find its own value internally within a country's borders?

The Chinese invented the paper currency and also invented the practice of running the presses day and night to produce them. In China it is said 'The Emporer is Far Away' but in the modern world all governments are near. So perhaps we should have no need for an electronic currency to have any index to inflation or deflation.
March 5th, 2017 at 6:04:14 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 722
Posts: 8413
Well right now central bank interest rates are very low or negative in Europe and Japan in order to keep money expansionary.

Swiss interest rate SNB Switzerland -0.750 %
Swedish interest rate Riksbank Sweden -0.500 %
European interest rate ECB Europe 0.000 %
Japanese interest rate BoJ Japan 0.000 %
Danish interest rate Nationalbanken Denmark 0.050 %
Czech interest rate CNB Czech Republic 0.050 %
Israeli interest rate BOI Israel 0.100 %
British interest rate BoE Great Britain 0.250 %
Norwegian interest rate Norway 0.500 %
Canadian interest rate BOC Canada 0.500 %
American interest rate FED United States 0.750 %

Norway has pretty much held its currency in circulation steady for the last decade. Additional spending because of GDP growth is covered by electronic means. Population is fairly steady, but increasing very slightly. One would think that would be the norm

Instead, every country is furiously increasing their currency supply at a rate much faster than GDP growth. USA is on a 12-14 year doubling cycle. The only exceptions are Sweden and to some extent South Africa (which is more unstable than anything else).
March 5th, 2017 at 8:00:59 PM permalink
Fleastiff
Member since: Oct 27, 2012
Threads: 49
Posts: 4708
Politically unstable I would think, ultra high crime rate, private guards and walled enclaves abound... land reform by coercion or murder is, I've heard, common. So I don't think the South African currency would be stable. Life there is too cheap for there to be stability in the economy.

I have respect for teh various Scandinavian countries though their problems are slowly climbing regarding crime and cultural identity. Scandinavian Noir literature notwithstanding, I think their fundamental stability is fine but they soon must address crime and border protections.

I wonder what Fukishima did to the Japanese economy or what a few eruptions in quick succession might do to Iceland's economy and I hear French agriculture is lacking in diversity, so might become subject to some pest. Wrecking the economy can wreck confidence in the currency.
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