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Table of contents
The problems caused by using a single currency in the Eurozone
We witness in 2011 several European countries mired in the problem of using a currency which they do not control: Greece, Portugal, Ireland, and soon Spain, Italy, France. They use the euro which is the common currency of the Eurozone. These countries all have an important trade deficit which leads each of them to a chronic dearth of money supply and to the nonsensical situation of needing to borrow money from abroad (Germany, Northern Europe, or directly the ECB) in order for their citizens to be able to exchange goods and services among each other, that is for a Greek fisherman to pay his Greek baker.
Future two currency system in each country
We already explained how we foresee that these countries will inescapably return to a domestic currency for their internal affairs, while they'll keep the euro for their external trade within the Eurozone. In other words, they will use a system of double currency: one internal and one external (see the European monetary crisis explained).
Ultimate multiple currency system
The aim of this paper is to show that the ultimate state toward which this evolution leads us is in every country a monetary system with several currencies in the wallet of the citizens. Each currency will correspond to one of the communities to which he or she belongs: city, region, nation, economic zone, and world. This will represent a sharp change from the times when sovereign nations necessarily had their own unique currency; it was even a mark of their power. The Venetian ducat appeared in 1284 when Venice had gained sufficient clout to coin its own money.
Toward smaller autonomous entities
In the second half of XXth century it was thought that the natural evolution of this system was for several nations to sort of federate and share the same currency, whence the Eurozone and the euro which took several decades to build and finally replaced national currencies in several countries on 1st January 2002. We explain here why we believe that in fact the future evolution will be in the opposite direction: toward smaller communities, enjoying some autonomy, and being able to have their own currencies.
What is a community?
A community is a group of people who have decided to share some commonwealth, to abide by the same laws, and not to rely entirely on Adam Smith's famous proposition that the well-being of the group will result from the pursuit of its self-interest by each member. Therefore such a community needs a form of government which enforces decisions, some taken by itself, the most important ones by a representative body of the community. The best field illustration of these mechanisms was seen in North America in the XVIIth and XVIIIth century when colons in New England organized into democratic communes with grass roots elective systems. Since then democracy was tried with different measures of success in many parts of the world. In 2011 we see the Arabic peoples of the ex-Ottoman empire one after the other shake themselves free from their tyrans and hope for a better future.
Each community must be able to control its own money
The money of a community is just a system of signs recording who owes what to whom (with a mechanism of mutualization of claims), very much like the slate at the grocer's where he or she marks what the clients owe him or her. In fact such a grocer is not much different from a bank, and several famous banks in history indeed were started by textiles producers and traders in Tuscany in the late Middle Ages. So money is one of the tools that a community bestows on itself for its common operations. The possibility that the community do not control its money is as nonsensical as the possibility that a foreign entity prevent two members of the community from exchanging among themselves. It leads to dysfunctionnings exactly like we observe in the Eurozone today - which is unfortunately or fortunately a rare laboratory of monetary experiments at the beginning of the XXIst century. In summary, money is a tool/system-of-signs of one community, it should have nothing to do with the money of another one - unless they are not different communities. We also illustrated this fact with the example of household money which is simple, didactic and works very well.
The old centralization-minded conception
When the republican constitutional system was deemed the best political organization for any nation on earth, mostly in the XIXth century all over the world (even though city-States have proved very successful too in the past), a centralized government was thought to be necessary to pursue the development of each country. An extreme example is provided by France where the republic has preserved most of the features of the monarchy which it replaced: aristocracy (of privileged high ranking civil servants), highly centralized decision center (in Paris), and even more national uniformity than the kings ever dared to enforce (wiping out local tongues to impose French as the unique language throughout the land).
Centralized banking
The monetary means were also kept in the hands of the central authority, with the justification that it was one of the fundamental pillars of power. In the XXth century attempts to make central banks independent of the executive ended in failures. For instance the US Fed or the European ECB have demonstrated that they cannot but do what they are told by governments.
Changes brought about by the computer revolution
Most of this took place before the computer revolution, the beginning of which we can place for convenience at 1980. It is the time of the emergence of computerization, among other sectors, of banks and financial markets, of the appearance of the personal computer, and it is just ten years before the birth of the Web. This computer revolution has been described by several authors as the third revolution of humankind: the first being the agricultural revolution in Neolithic times, which lead to sedentarization, cities, politics, etc.; the second, the industrial revolution, which began at the end of the XVIIIth century in England and launched the modern word; we are now in the third one then: the revolution of managing and exchanging signs (we call it the computer revolution), which is likely to profoundly modify the political organization of communities all over the world.
City local money
There is no good reason why a city could not use its own money for its internal operations (what economists dub its "sheltered activities"). In fact it happens here and there, it is called a local exchange trading system, and is "tolerated" by central authorities as long as it doesn't become too big, and doesn't shirk taxes. Taxes are certainly necessary for a community to function. But they should indeed be in the several currencies used by that community.
Advent of multiple currency systems
The same reasoning applies to several levels embedded like Russian dolls: city, region, nation, economic zone, and world (we could even think of transverse groups). Such a multiple currency system will naturally solve the problem of citizens abusively importing goods and services with the unique currency they have in their hands.
We recommend that civil servants of a community be paid with the money of that community, not a lower one nor a higher one.
In order to import, citizens will ought to have exported, or at least their most immediate community will. Imbalances in the balance of payments while still possible, will be much less easy to generate than today, when it plagues the economies of several countries of Southern Europe.
No contact payment devices
On a practical level, a multiple-currency system requires that payments be made no longer with paper banknotes and coins but with some convenient electronic devices. The new systems of no contact payment with our mobile phones provide a solution. In the background, our payments will be recorded and managed in large databases, just as they are today. Such complex databases are not a thing of the future, Google adsense is one of them, argueably more complex than what we advocate.
André Cabannes
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