Some young children believe that the stork delivers babies. Similarly, people think that, based on the sovereign monopoly for money circulation, solely institutions like central banks, create money.
Indeed, our current financial system is based on central banks governing currencies (bills, coins, loans to banks, etc.) and, additionally, banks and other financial institutions themselves creating deposit money. Deposit money is incremental money created for mortgages, for example, without involving investors’ money or that of a bank’s savings account clients. The money is created in the loan department of a bank and surfaces in the checking account and consumer finance department. The bank solely needs to make sure it maintains its equity covenants.
An alternative to this is positive money3, which can solely be created by the central bank. Positive money is like cash, whereas it can be created via cryptographic processes and be stored physically or electronically. Comparatively, money in the checking account is only a promise of cash by the bank. Should a bank go bankrupt, the account is last. In large-scale crises, state-organized deposit insurance will not be sufficient.
Additionally, current monetary policy incorporates additional goals like economic growth, employment. Therefore, central banks currently pursue the strategy of scalage4, by targeting a certain inflation rate (the ECB’s goal currently stands at 2%). This implies that a decreasing in value of money is part of a strategy.
The current financial system therefore is highly fragile in the event of a large-scale financial crisis. The system neglects the need for value stability as well as the original roles of money as form of a payment and debt instrument.
The question arises whether, governed by private central banks, to allow parallel currencies that are not based on a sovereign but rather on corporates and brands. These new currencies would compete with each other. These private currencies could be offered as positive money and the creation of additional money, entirely independent from its corporate entity or brand, would only be possible via the private central bank). Money circulation and quantity by the entirely independent private central bank would be aligned with a) the actual business a brand generates, b) the extent of currency trading and c) the desired monetary policy for the issuing corporate or brand – all without intervention of any sovereign.
The current crisis of the Euro and the high debt burden of many Western states educates the public about the structure of the financial market and its inefficiencies. This creates the environment for innovation.