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In the decade after the 2008 crisis the trend of financial speculation has been as strong as before, whereas the objectives of innovating and rendering sustainable real economies have remained far in the background.
A central aspect for curbing this overwhelming financial course relates to monetary policy, and to the governance of banking and financial institutions. In this debate, two major issues come to the fore:
(I) What institution should create money, the State and/or the Central Bank? Several scholars advocate the former option, as a way to bypass the power of central banking. This would be fine, but the problem cannot be solved by just “printing more money for everybody”.
The shortcoming of such measure, taken in isolation, would not be hyperinflation, but just irrelevance, because it would not change “the fundamentals” of the system. Hence, if the state has to create its own money, such provision needs to be matched with an overall reform of the mechanisms of credit creation, according to which loans will be provided through clear and transparent rules.
(II) What should be the role of alternative currencies, like LETS (Local Exchange Trading Systems) and time-credits?
These currencies, according to most of their supporters, are not only useful “per se”, but would also help overcome the “monopoly” of credit creation. The latter aspect was put forth in particular by the Austrian school, and claims that it is unfair that only the state (or a central bank) should be entitled to create money. Hence, no limit should be put to the creation of new currencies by individuals and firms. While agreeing in principle with this idea, I also think it is rather misplaced.
As a matter of fact, the reason why only the state and/or the central bank (backed by the state) are empowered to create money “ex-nihilo” does not reside in their monopoly power but in the circumstance that the state is supposed to represent the social community. Ultimately, then, the power of money creation originates not in the state but in society.
For all these reasons, the issue becomes not to eliminate “official money” but rendering the whole process of its creation democratic and transparent: namely, a real expression of the common will.
This would involve a principle of subsidiarity. Thus, if alternative currencies can, in particular fields, facilitate transactions more than official money, so much the better.
This process would be strengthened by a better collaboration between official money and alternative currencies (e.g., between the common will and local realities).
This process would go in tandem with a better policy coordination at horizontal level (between, for instance, macroeconomic and structural policies) and vertical level (between various institutional levels, for instance, supranational, national, regional, local).
Further comments/proposals welcomed.
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