What Would the World be Like without Cash or with One Currency

A recent CBS World News article quoted Bjoen Ulvaeus, former member of the group ABBA, saying, “I can’t see why we should be printing bank notes at all anymore,” advocating that the world’s economy should run without cash.

Our ancestors did not need money. Early humans were self-sufficient, hunter-gatherers, who relied on their surroundings for shelter and clothing. There are still remote tribes that do not use money as a medium of exchange but barter with other tribes when they have excess food. We are still bartering services today in modern societies.

The most famous example of bartering is “Peter Minuit’s swap in 1626 of $24 in beads and trinkets for the island of Manhattan. Its property value in 1998 was assessed at $23.4 billion.” (Wall Street Journal editors)

Bartering is more difficult because it is based on an economic “coincidence of wants” which takes time, whereas currency enables consumers to postpone purchases. In modern society, bartering can be done through advertising, which is costly, or by word of mouth.

Commodity currency was used throughout history. Roman soldiers were paid with salt, salarium, a rare commodity at the time, hence the word salary. Pelts, tobacco, animal teeth, beads, stone wheel money on Yap Island, ivory, cigarettes, elephant hair, tusks, brick tea money in Siberia, soap, perfume, silk, chocolate have served as commodity money.

Species, a form of gold promissory note, was a guarantee that the carrier had a certain amount of gold in the safe keep of the village goldsmith.

Babylonians expressed the idea of money in bills and receipts dating back to 2500 B.C. Earliest notes can be traced to China. “In 1282, Kubla Khan issued paper notes made of mulberry bark bearing his seal and his treasurers’ signatures.” The Kuan, the oldest surviving paper money, was issued in China by the Ming dynasty between 1368 and 1399. Sweden was the first European country to issue paper money in 1661. The British offered promissory notes (IOUs) to soldiers in Massachusetts in 1690. (Kenneth M. Morris and Virginia B. Morris)

Twenty-six countries around the world call the dollar their currency. The dollar was a silver coin called Joachimsthaler from 1519, minted in St. Joachim valley in Bohemia, now the Czech Republic. Thaler is German for valley.

Prior to the National Banking Act of 1863 that established a uniform currency, we had locally issued paper money called scrip, gold and silver coins that could be compromised by shaving off the edges and selling the gold or silver dust (hence the ridges on our coins to prevent such shaving), and even wooden coins. Colonists cut up coins to make change and they called them four bits or two bits.

Coins were valuable, durable, and portable. They were made of silver, gold, copper, and electrum (an alloy of gold and silver). The current U.S. penny is worth more because the price of copper is relatively high. When money was based on silver and gold, it was called commodity currency. When it could no longer be redeemed for precious metals (since 1971), it became fiat currency. Fiat currency value is determined by faith in the government and the people’s desire to purchase assets and goods in the country of issuance of that currency.

Fiat money printed in excess of goods and services produced in a year causes inflation. During the American Revolution, $1 was worth 2 ½ cents. During the Weimar Republic, between 1918-1923, one German mark was inflated to 726,000,000 marks.

Zimbabwe’s hyperinflation is a more recent example of a grossly mismanaged monetary policy and economy. Inflation, initially caused by the civil war and the subsequent confiscation of white-owned farmland, snowballed into hyperinflation when food capacity fell by 45 percent, manufacturing fell drastically, and unemployment rose to 80 percent.

The recent U.S. QE1 and QE2 (quantitative easing) printed dollars to cover our budget deficit. The Federal Reserve System (Fed) calls this monetizing the deficit. Every time money is printed repeatedly in excess of goods and services produced by the economy in a year's time, inflation results. Keeping interest rates low reduces the speed with which inflation grows.

U.S. dollar is used to quote world oil prices (petrodollars) which further complicate its worth or lack thereof,  vis-à-vis the price of oil and its available, deliverable, or refinable supply. Add world instability, futures speculators, and bad energy policy into the mix and you have a Gordian knot.

The CBS World News article presents Sweden as being at the forefront of digital money vs. cash, advocating a cashless global economy. Globalists prefer a one-world currency. A small number of businesses in Sweden accept only credit cards, including some churches. Elderly people prefer cash, especially in rural areas.

Bjoen Ulvaeus believes that cash encourages theft, citing his own son who was the victim of armed robbery three times. Cheating and theft have declined in Sweden but cybercrimes are on the rise.

Privacy issues are important since electronic transactions leave a trail. There is no anonymity left to donors. Technology to use smart phones as digital payment is already in use. Opponents believe that the drive to a cashless world is driven by banks and their desire for higher profits.

There are many issues to ponder in the policy dilemma of no cash or a one-world currency, and the list is not exhaustive:

-         On the upside, there are savings deriving from a cashless society in terms of special paper, printing, ink, labor, and metal alloys

-         If an attack occurs on the Smart Grid and there is no power, there are no financial transactions possible without cash

-         If there is a national disaster, earthquake, tsunami, hurricane, tornado, or power interruptions, there will be no transactions of goods and services without cash

-         An EMP attack or intense solar flares would make cash or a one world currency worthless, we would have to resort to barter or theft

-         A cashless or one global currency could result in extraordinary powers given to banks, potentially, with no cap on interest rates

-         Cashless transactions would leave no option to be off the grid, everything would be traceable

-         One world currency would eliminate exchange rates, currency trading in futures, eliminating a substantial sector of the job market and thus revenues

-         There will be no black market involving cash or illegal activity, everyone would be forced to pay taxes

-         Children under 18 would be excluded from holding credit cards and thus excluded from financial transactions if cash disappeared.

-         Migrant and illegal workers would be paid electronically, forcing accountability in taxation and employment if society became cashless

-         Prostitution would have to be legalized, taxed, and clients’ names be public record

-         Muslims would no longer be able to use hawala transactions which are based on cash

-         Conducting monetary policy, money stock, interest rates, and inflation would be altered in a cashless society

-         In the case of one-world currency, who would conduct monetary policy, decide interest rates, the digital money stock, and taxation? Would it be the United Nations?

-         Would society alter dramatically because labor will be purchased with digital credit as opposed to cash? How would the one-world currency value be decided? Will it be tied to precious metals such as silver, gold, and platinum or will it be arbitrarily decided by the United Nations?

-         In a time of war, how would one country destabilize the economy of another by dropping off counter fit currency over another country’s territory if the entire world uses the same currency?

-         In the case of cyber attacks and hacking, how much would be affected if all banks, companies, and institution would be connected to a single grid of digital money

-         What would happen to third world nations that are not so electronically wired and depend heavily on cash or barter? Could they be required to make transactions in digital money?

-         Finally yet importantly, who would police the counter fitting of a one-world currency across the globe?

The idea of a digital money society or a one-world currency may capture sound bites on TV and the imagination of liberals and conservatives alike, especially when running for political office, but it opens a new Pandora’s box of ills that most countries are not yet equipped to resolve.

Ileana Johnson

Copyright 2012  All Rights Reserved

Inflation the Economy's Code Blue

In ordinary parlance, when there is a lot of paper or “fiat” (Latin for “let it be”) money in circulation, prices go up and our dollars buy less. This is inflation. In two famous photographs of 1923, a German housewife burned “marks” in her kitchen stove because it was cheaper to burn money than to use them to buy firewood and a gentlemen pushed a wheelbarrow full of cash to buy a loaf of bread.

The U.S. government issued its first money in 1862. They were called greenbacks because of the peculiar green ink that distinguished them from gold certificates. Before greenbacks, banks used paper money called scrip. The dollar could be exchanged for fractions of its stated value.

Dollars were backed by gold and silver reserves and, until 1963, U.S. bills were called silver certificates.  Today dollars are called Federal Reserve notes and are backed by the economic integrity of the U.S. government. In 1971, the Nixon administration ended the backing of the U.S. dollar by gold and silver.

The oldest surviving paper money is the Kuan, issued in China by the Ming dynasty in 1368. Sweden printed the first European bank notes in 1661 and France had paper money in wide circulation in the 18^th century. The British issued promissory notes in place of paper money. Massachusetts soldiers received these promissory notes in 1690 after the siege of Quebec. There was not much to steal in order to pay the grunts.

The Federal Reserve keeps a count of the paper money in circulation by M1, M2, and M3 (money stock). M1 includes all money in spendable or liquid form: cash and money in checking accounts. M2 includes M1, savings, and short-term deposits such as CDs (certificates of deposit). M3 includes M1, M2, and the assets and liabilities of financial institutions such as long-term deposits.

In a strong economy, demand for currency goes up without any Federal Reserve intervention and the money in circulation goes up. In a weak economy, demand for currency goes down.

When the Fed (Federal Reserve System of banks) follows an easy money policy by increasing the money supply, the economy tends to grow, companies hire workers, consumer confidence grows, consumer spending grows, and the economy improves. It would stand to reason that our economy should have rebounded long time ago since the government and the Fed have been spending and printing money as fast as presses, or electronic transfers could go. Unfortunately, money has been going to Europe, the Middle East, and other overseas entities instead of boosting and creating new jobs in the U.S. The rest was squandered on TARP, bailing out GM and Chrysler to the benefit of Fiat and unions, bankrupt green energy companies, unions, Democrat re-election campaign coffers, United Nations, wars, and fomenting “democracy” in the Middle East.

When the Fed adopts a tight money policy to slow or combat inflation, the economy worsens, spending typically slows, and unemployment increases. As our economy has worsened, unemployment has climbed, inflation grew, but the Fed did not adopt a tight money policy and the government spending has not slowed down, while consumer spending has declined.

We seem to be in an unusual economic period, which defies the traditional economic experience of the past. The intensive care of the U.S. economy has revealed a comatose patient. New factory orders, new housing starts, durable goods, unemployment figures, M2 money supply, the S&P 500 stock index, and the spread between the 10-year Treasury and the federal funds rate are the predictors for our economy’s health. If you were an emergency doctor with the finger on the pulse of this American economy under the current administration and Congress, you would be calling code blue.

Consumer confidence and business confidence are also at an all time low, further proving that the U.S. economy, the comatose patient, needs a heart defibrillator. Small business owners are not hiring because they are worried about the liabilities imposed on them by the high record of new regulations passed last year and the Obamacare. The looming health care regulations, rationing, uncertainty of fees, penalties for non-compliance, taxes, and costs associated with such a massive bureaucratic undertaking with so many loopholes and exemptions has the potential to bankrupt or destroy many businesses.

The Consumer Price Index (CPI) is the measure of inflation. The Bureau of Labor Statistics (BLS) cobbles CPI each month by recording prices of 80,000 goods and services deemed to reflect the expenditures of a typical urban American consumer: housing, clothing, transportation, health care, recreation, education, and others. Currently the CPI is reported at 3.16 percent. Curiously, food and gasoline are not included and Americans know that gasoline prices have more than doubled across the country since President Obama took office.  Food prices have also grown steadily.

The CPI uses a baseline year to compare the current inflation rate to, such as 1982-1984. CPI does not take into account the quality of things consumers buy (which affects price) or a consumer’s change in taste.

In a recession, the Fed creates money to make borrowing easier and keeps interest rates low. As things pick up, sellers sense rising demand for their products or services and begin to raise prices. The rule of 72 is a guide to assess the impact of inflation. Divide 72 by the reported annual inflation rate to find out how many years it will take for prices to double.

The people hit hardest by inflation are those living on fixed incomes such as retirees. Welfare recipients, Social Security recipients, union contract salaried employees, and government employees receive COLA (Cost Of Living Adjustment) remuneration and benefits.

If inflation is slow, it is called disinflation. Deflation is a widespread decline in the prices of goods and services. Deflation does not stimulate employment and production because a declining (contractionary) economy puts people out of work and they cannot afford to buy even at cheaper prices.

Runaway inflation, deflation, or defaults on loans, balance-trade-deficits, and bad economic policies are the sign of an economy and a country in turmoil. Traders manipulate various currencies by trading on the spot, forward, or swap contracts. Some traders have been banned in certain countries for their illegal and overt attempt to bankrupt their currency.

If you think inflation is a modern phenomenon, consider Diocletian’s edict of 301 A.D. to curb inflation. If anyone broke his list of regulations, the punishment was Death. The edict fixed prices for 1,000 items, such as food, raw materials, textiles, transportation, and wages.

When the previous emperor, Valerian, was captured by barbarians in 259 A.D., people all over the Roman Empire, expecting hard times, rushed to spend all their money on goods,  causing  1,000 percent inflation over 17 years.

Diocletian’s prices and income policy did not work but it did not stop him from diverting attention from his government’s shortcomings by putting the blame on speculators and rich people. Diocletian’s edict preamble blames “men who have nothing better to do than carve up for their own advantage the benefits sent by the gods…men who are themselves swimming in a wealth that would satisfy a whole people, who think only of their gain and their percentage.”

I believe that Diocletian’s preamble would please the Occupy Wall Streeters, the unions, people on government dole who pay no taxes, ACORN, the current administration, Hollywood sympathizers of Marxism, and the MSM. They pay constant lip service to “spreading the wealth” and “paying a fair share,” without specifying when that “fair share” is enough and why perfectly healthy citizens do not work and prefer to accept government handouts for their entire lives, from someone else’s stolen wealth. If I think about it, it is a form of reversed slavery, forcing those who work hard to support those who love sloth.