Chipping away at government’s currency monopoly status … and MMT does not help.

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Modern monetary theory appears to convey on money the characteristics of a utility.  Under MMT, as monopoly issuers of money, governments and central banks can print as much money as they want without considering the implications from deficits or inflation, and if inflation is a concern, it can be offset with increases in taxes.

An unregulated, natural monopoly can get away with manipulating the supply of its product by freely changing the price for its output.  It can reduce the price of its output when it observes a competitive threat in the form of a new firm attempting to enter the utility’s market and when the new entrant is vanquished, it can then raise its prices to take advantage of customers captured in the emboldened single-provider market.

Bank trading desks input central bank overnight rates and discount window rates into their exchange rates for reselling currency and while they expend resources forecasting a central bank’s next policy rate move, they are apparently beholden to central bank decisions over which they have little to no say.

I can imagine that indirectly bank trading desks via their local reserve banks convey messages to the Federal Reserve that the current state of the economy may call for rates to move in a particular direction.  How much influence they may have I cannot provide any definitive answers to that question.

If anything, it does not appear that modern monetary theory is concerned about introducing a competitive component into the money monopoly held by the government and the central bank.  MMT is in part a tactic for buying votes from the electorate.  The more money that can be printed, the more goodies that government can purchase in order to sway votes to a particular party.  But going back to its utility component, the question how can we make the monopoly market on money more competitive could be raised.

For example, if cryptocurrency proponents were really serious about crypto being a technology that facilitates banking for the underserved, there would be as intense an effort to build an underlying political economy that networks the agricultural, transportation, electric/water/gas utilities, and service sectors such that there is significant use of crypto to buy and sell services. 

While this network is being established, crypto proponents should also work diligently on protecting the interchangeability of crypto with the current legal tender in order to maintain compliance with the tax payment requirements of the government.  While the federal government may be the sole collector of national taxes, the primary aim of crypto proponents should be to provide a viable alternative to the federal government as a national currency issuer.  

What could a viable alternative currency issuer look like? They could look like Archer Midland Daniels, Delta Air Lines, or Amazon.  They would be individual large suppliers of platforms that are already used to exchange goods, services, or ideas.  These individual platforms could interconnect in order to increase the value of their offerings and the currency (tokens) that ride on top of their platforms.  Their major issue would be to coordinate with government regarding a legal framework that allows for one-to-one interchangeability of their “currency” with that of the federal government.  

 Alton Drew

29.11.2021

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

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