Competing Currencies
A true free market requires true currency competition.
The Need For a National Currency
We have previously looked at how a national currency can arise naturally in the form of Public Service Credits. By treating the provision of public goods and services as an exchange between the government or public service providers and the general public, we get a currency that automatically compensates public service providers for their services without the need for taxation. However, Public Service Credits, or just credits for short, are only a part of the entire picture. If we want a true free market, then we must have a free market not just in goods and services, but also in currency. The complete currency system must allow competition in the issuance and usage of currencies. This is why it is so important to eliminate legal tender laws and taxation. In our current system, the national currency is built around legal tender laws and the need for a specific currency in which the public can settle their taxes. This creates a currency monopoly since it forces people to use this national currency, and any private currencies will struggle to compete. Credits offer an alternative way to create a national currency that doesn’t need legal tender laws and also eliminates the need for taxation.
We should ask the question: do we need a national currency anyway? Why not use a system of private currencies only? The reason for having a national currency has to do with the provision of public goods and services. Government and other public service providers have to be compensated for the public services they provide. If you have only private currencies, then you have two problems. The first is that you have to collect taxes to compensate the government and public service providers. The second problem is closely related to the first, in that the government cannot just accept every private currency in existence for the payment of taxes. Instead, the government will have to choose a select few private currencies in which they will accept their compensation. Most likely they will choose just one such private currency. This gives the selected private currency an unfair advantage over the other currencies. It takes away the choice of the public as to whether they want to use that government-selected private currency or not. The fact that they must use it to settle their taxes forces them to use that currency while their usage of all other private currencies is optional. This puts the system back on the track towards a currency monopoly.
Emergence of Currencies
Currency competition is an inherent attribute of a true free market. As discussed in previous articles, the true free market is best understood by looking at it from the perspective of the bartering paradigm. We are so used to the current currency system that we normally don’t think of currency as something that anyone can create and we simply accept that currency creation is the responsibility of the banks in partnership with the government. However, in a true free market, currency is emergent from the exchanges that take place in the economy. In the bartering paradigm, we view every exchange as being in two halves. In the first half, one party, say P, provides a good or service to another party, say Q. After some time, which may be as short as a second or as long as you can imagine, Q provides P with a reciprocal good or service in the second half, which completes the exchange. In the first half, a token may be generated which can be used by P to redeem the reciprocal good or service from Q in the future. This token is what money is, and as we have seen, it can be a commodity, an IOU, or a UOI. Depending on the parties in the exchange, a new token can be created, or an existing token can be passed on to another party. Thus every exchange has the potential to generate new tokens. In general, most exchanges reuse existing tokens, which are originally created by a few trustworthy parties in the economy.
In the bartering paradigm, we see all manner of exchanges taking place at different scales. Buying groceries at the supermarket, working in a salaried job for your employer, and the government providing public goods like roads, are all exchanges. Thus they can all generate new money, though that money may not necessarily become currency. This paradigm honours the principle of equality in the free market, i.e., all parties have the same rights and opportunities. Under the bartering paradigm, the government and the banks are not special and do not have any rights that other parties in the market do not have. Therefore currency creation is not limited to the government or the banks. Any exchange taking place in the market can beget a currency and that currency is just as valid as the Public Service Credits produced by the exchange between the government and the general public. The only difference is that parties other than the government are involved in private exchanges, so they produce private currencies rather than public ones. This means that the general public is not obliged to accept these private currencies. They may choose to do so voluntarily though if they find value in any of these private currencies.
Some Benefits of Competing Currencies
Competing currencies give the public a choice as to which currencies they prefer to save in, which currencies they prefer to borrow in, and which currencies they prefer to spend in. It would be desirable to save in currencies that offer a high interest rate, but borrow in currencies that offer a low interest rate. Private currencies will also be competing with each other, so this will facilitate the discovery of the preferred interest rates of the general public. Finally, private currencies provide a failsafe for the currency system in the event that the government goes rogue and starts to create Public Service Credits for services that the public has not requested. The public can refuse these new credits, thus preventing the government and public service providers from using those credits to acquire resources. At the same time, the public can fall back on the private currencies so that there is minimal danger of an economic meltdown. I believe that under normal circumstances, Public Service Credits will be used for most spending in the economy, while private currencies will be used mostly for saving and investing. In the event of the public rejecting credits due to government misbehaviour, the use of private currencies for spending can expand to make up for the deflationary shortfall.
A system of competing currencies is an important feature of a true free market. It honours the principle of equality of all parties in the market. It ensures that participants in the market have freedom of choice in the currencies they use, just as they do with other products on the market. They can choose which currencies to save, borrow, or spend in. It also makes the currency system more robust due to how credits are used versus private currencies. If there is deflation in credits, private currencies can expand to meet the shortfall. Conversely, if there is inflation in credits, private currencies can contract. This ensures that a balance is maintained and may make the economy more resistant to unexpected shocks.
