Central banks facing insolvency?

http://www.cato.org/pubs/journal/cj21n2/cj21n2-8.pdf

If you have 20 or 30 minutes to kill, this is a pretty good piece on the future of the central banks, including ours.

Increasing technology in the way of payment and settlement systems is driving down the demand for dollars, and in the process, taking away central banks' ability to control inflation.

The solution, they say: bring back the commodity standard.

Really interesting read, if you ask me.

 

I've always thought fiat currency was funny money anyway. And really, it is.

 

Money isn't real. I've read that less than 10% of money in existence is represented by cash anyway. Rest is bits and bytes on bank computers.

 

That's what the paper discussing -- the even further dwindling of demand for currency.

 

Is Kris Kristofferson the inventor of the motorboat?

 

I don't have 30 minutes to kill right now, though I may look at it later.

The Federal Reserve controls the money supply by the interest rates it controls, which is the rate it loans money to banks. If someone could always predict what interest rates will do, they would be very rich.

When I visited the San Francisco Federal Reserve Bank in the 1980s, they had two games side-by-side.

In the first game, you were the Federal Reserve chairman. You had to balance the money supply with interest rates, and if you were successful, you would be reappointed as Fed chairman. That was a fairly easy game, and I always succeeded.

In the second game, you were the President of the United States. In this game, you tried to control the interest rates, but you had to balance unemployment and inflation. This game was much harder, and I never was reelected as President.

So long as the Federal Reserve has some independence, it will be easier to control the money supply. A money crisis can always be a problem, but the fact that there are fewer tangible dollars with the pictures of Presidents, Franklin and Hamilton really doesn't mean much. What will really be reduced is the number of checks - I have been told I am a dinosaur because I still like to write checks rather than use an ATM card.

 

Let's go back to the gold standard - way back - to paying for everything with a pinch of gold dust (Not Goldust as in Dustin Rhodes but ...er... revealed too much).