Letter to City AM's Editor

From: Borjabrela
To: allister.heath@cityam.com
Date: 26 March 2009 13:33
Subject: Comment to "Time running out for dollar dominance"

Dear Allister,

I have the pleasure to follow your letter every weekday morning in City A.M.: I learn very much from it so many thanks.

Today's Editor's Letter gave a good solution for the avoidance of the periodical credit bubbles and crunches. Your solution openly addresses the main cause of these credit cycles, i.e., the current money supply structure with fractional reserves and state-controlled currency.

In the current money supply structure national governments or central banks (i.e. the State) have official control of the currencies, which subjects the currency supply and value to the government's whims. At the same time, the fractional reserves give any non-central bank the power to effectively create money with little control of the State. This structure results in a situation of unaccountability: the non-central banks blame the central bank for its decisions, and the central banks blame the non-central banks for their lack of responsibility. As a Spanish saying goes, neither one nor the other and the house is left dirty. At the end the ones who lose are the citizens who always have to pay to clean up the mess with unemployment, inflation and currency depreciation (an outright robbery by the government).

Your solution is creating a super-currency, controlled by no single nation (you suggest the Bank of International Settlements), whose value fluctuated depending on the underlying price of the basket of commodities to which they would be pegged. "A proper store of value, not a fiat currency".

In my opinion, your solution goes in the right direction as it attempts to stripe the governments of power over money; however, it isn't the best solution. I have also read many other suggestions and recommendations, but no one seems to remember that the optimal solution was already proposed by Friedrich Hayek in "Denationalisation of Money" (1976): free market of currencies and financial operations, whereby anyone (even the government!) can set up their own currency and financial operations and compete in equal conditions for the favour of the Market.

As the Market is the most efficient way to distribute resources, it is time to make the Market the only controller of money, which is its main resource. This way the Market will be accountable for its mistakes regarding credit as it already does for almost anything other type of mistakes. This way the States will have it more difficult to spoil the economy again.

It is high time someone remembers Hayek, who gave the best explanation of the economic and financial cycles.

Love and freedom.