I think I need to study currency to understand the US dollar, the Chinese yuan, and the Japanese yen.

I think I need to study currency to understand the US dollar, the Chinese yuan, and the Japanese yen. /// [Curious] “Sovereign Currency – Beyond Reserve Banking”..”Sovereign currency as a solution to the financial crisis”

Reporter Name Park So-yeon Enter 2023.11.1014
[Post Journal] The prototype of “Sovereign Money” is American currency.

American coins are issued by the Treasury Department, not by the central bank (FRB). U.S. bills are the liabilities of the central bank, but coins are recorded as the assets of the central bank.

The author points out that this sovereign currency is the key to solving the economic and financial crises that are the fate of the modern economy.

The current banking system emphasizes that economic fluctuations are amplified because the supply of money depends on commercial banks’ commercial judgment and the willingness of households and companies to take out loans.

Economics textbooks assume that there is a stable proportional relationship between the amount of reserves and the amount of money held by banks. In other words, it teaches that the size of the loan is limited by the size of the existing payment reserve.

However, the author points out that the stable relationship between reserves and money supply does not appear in reality.

The author summarizes the economic fluctuations in the current banking system as follows, which is very similar to the recent reality of Korea.

If the economic outlook is good, banks will try to increase lending by chasing profits, while the demand for loans from households and businesses will also increase. Therefore, the optimistic atmosphere of the economy risks causing a financial crisis by easily causing economic overheating and a bubble in asset prices. In particular, when newly created currency supports the purchase of real estate and financial assets, it creates a chronic problem. The increase in loans increases demand for assets, but the supply of such an asset market reacts very late, so asset prices easily surge. Moreover, since most loans are used to purchase existing assets, the production capacity of the real economy does not improve that much. Therefore, the level of private debt increases, but it does not directly increase national income. So the level of private debt increases faster than income growth.”

The author proposes the issuance of money that does not involve debt as a solution to the chronic problem of the current economic system.

Many are concerned about inflation if the money supply increases.

However, for the smooth growth of the economy, the money supply must continue to increase in line with productivity improvement.

Otherwise, deflation, the most negative phenomenon of the commodity money economy, occurs, and companies cannot realize profits and liquidate debts through sales.

In the end, the economy grows smoothly only when the money supply increases steadily.

However, in the current monetary system, the monetary base, such as cash, increases through the accumulation of national debt, and the circulation currency increases through loans.

The author’s conclusive diagnosis is that under the current system, the economic crisis and financial crisis are doomed because the currency required by the economy entails an excess of public and private debt.

The author proposes a sovereign monetary system in which the state creates “debt-free money” (through the central bank) and supplies the money through government spending, not bank loans. Can you really imagine a “currency other than debt”? The author proposes American coins as the prototype of sovereign currency.

Professor Hoover’s claim of sovereign money is not unique to him.

From the beginning of the 20th century, the problem of the modern monetary system, which issues money as a bank’s debt, emerged.

During the Great Depression, a group of prominent American economists at the University of Chicago proposed the so-called “Chicago Plan” to transform the partial reserve system into a full reserve system.

In 2012, economists from the International Monetary Fund (IMF) reminded them of the ‘Chicago Plan’ and proposed a reform plan to the full payment reserve system.

In the United States, the United Kingdom, and Europe, civic academic movements are actively underway to abolish the partial payment reserve system and introduce sovereign currency.

In the wake of the 2008 global financial crisis, the modern monetary system has actually changed significantly.

Through the policy of quantitative easing, the central bank relied on the printing press to issue money and buy financial products with that money.

Reflecting such changes in reality, a new approach to money has recently emerged, and Professor Hoover’s “Sovereign Currency” is also a representative work published in the context of such a new global discussion.