Money is the medium of exchange, this is the concept of money. Moreover, money itself can circulate in the society independently. The main character money should have is everyone agrees on the value of money. Therefore, if we can have one thing that has these three characters, it can be used as money, even if it is not produced by the government. We can find this type of things: for example, gift cards. Gift cards are not made by any government institutions or banks, they are made by companies and have all these three characters. If one day all companies have their gift cards and different companies’ gift cards are exchanged without any limited, then why do we need the money printed by the central bank? When such exchange happens more frequently, the society itself will start to allow the companies to issue money in terms of the values of their production. The only role of the government in the field of monetary would be the watchdog of the markets.
The most important is under what rules the private issue their money. Without putting any rules on it, the society will not all agree on the value of the money that the private issue. I think there are three fundamental rules that we should set when allowing the private to issue their money. The first rule is who has the right to issue the money. The second rule is what quantity of money one private institution should issue. The third rule is how the private-issued money circulate in our financial system. Then we need to test if these rules work. Firstly, these rules should allow money to flow and exchange freely. Secondly, the rules need to avoid hyperinflation or deep deflation, or at least have the tools to solve such problems. Thirdly, these rules give the third party a way to intervene in the financial system just in case that something goes wrong. The last, the rules will encourage competitions instead of monopoly. For the next few days, I want to focus on this question how we can possibly establish a system of private -issued money.
Three basic rules that might make the private issuing money system work. The first rule is a complete separation between ownership and management. The second rule is that private firms only issue money to pay their workers’ wages, instead of owners’ profits, the revenue received will be used to reinvestment or paid back to the owners as profits. The third rule is the government taxes a firm on its revenue at a higher rate, if the ratio of the total wages to revenue is higher. These three rules can decrease the likelihood of dangerous levels of deflation or inflation. Because the system increases the amount of money at the level of the nominal GDP. And the government has the control of the supply of money, that by increasing the whole tax levels the government can reduce the amount of money issued by the private firms, as the cost of paying wages increases. Moreover, such system will increase the level of competitions. Firstly, it lowers the entry barriers, especially in the service sector where labour cost is the main cost of production. Secondly, workers want to work in a firm that generates more revenues, which means they are likely to get higher wages. Thirdly, the labour productivity might improve as workers’ wages have a direct link with their production. Fourthly, firms will always be careful to control their sizes within an efficient scale.
After setting the three rules, I think the next step is how we test if the model works. The first phase is to build up a model by computer programs. Computer programs can give us some ideas how the system will work in our real world. The second phase is to start from a small community, if it passes the computer test. Containing it in a small community can also contain the possible damage within a small scale. The money generated by the new system could be seen as a kind of foreign currency, with a floating exchange rate. The floating exchange rate can use the market force to value the new currency. In addition, it helps to prepare the next phase. The final phase is to transfer the old money system to the new. The exchange rate can help this stage and replace the old money with the new money.
