moonbat1775

Zimbabwe: When Even the Central Bank Can't Keep Up

A proposed optimal money and banking system.

1. Fractional reserve banking is neither justifiable or profitable against other money systems assuming those other systems are ethically configured (more later) 100% reserves only!
2. The fastest appreciating commodity in the area served by the money relative to other commodities in the area should be used to back the money.
3. As a consequence of 2.) total commodity backing should be swapped out as needed with other commodities in the area to maximize the appreciation rate of the backing commodity. Best swap price should of course be sought.
4. New money issue should occur when the money has appreciated relative to the commodity backing it in a manner that compensates existing money holders for the dilution of their money stock at the expense of new buyers of the money. Want a thriving money business? Run it ethically.
5. The price level in the money should increase as new money is issued but this should be easily calculable. Businesses could thus be informed how much to raise prices in advance of the new money so as to avoid losses.
6. If loans are made properly, V should increase, Y should increase and P should decline all measured in the money under discussion. The amount of income available for savings should thus steadily increase. The money should become incredibly popular as a result. This will cause a high demand for the current commodity as exchange of this for new money is the only way to acquire new money.
7. Remember no FRB! No loaning out of anything unless agreed upon by the saver for the length of time he agrees to.
8. I suggest the interest be shared equally between the bank and the savers.
9. The collateral should be sufficient to cover the principle plus the interest for the entire term. In case of default, the collateral should be sold and excess proceeds handed to the defaulter.
10. Beware of consumer loans. Productivity increases are the only means I know to grow an economy overall.
11. Keep track of of M, V, and P to determine Y. If Y fails to increase check your loan department. Even an increased preference for consumption should not overwhelm increases in aggregate output, IMO. V should always increase too incidentally as this is a stable money system with optimum growth potential,IMO. Increases in the expected rise in price level due to new money issues should be broadcast to all money holders so prices can be adjusted upward to avoid unnecessary losses. Aggregate output should also increase by new money issues. Available savings should not increase beyond what the new owners of the money wish to save. As that additional supply of savings is lent out, V should increase and later on Y. Perhaps increases in V are temporary despite my previous comments but aggregate output should always increase.
12. This system should not produce the business cycle yet provide optimal increases in the money supply. Chalk that up to a concern for ethics. Give you know Who the credit that you may prosper.
12. Suggestions and comments welcome.