Determining interest rates and determining the nominal value of currency are two sides of the same coin, so to speak. In order to be useful, the nominal value of a currency should be relatively stable. As you’ve noted, due to nominal rigidity, it is also beneficial if the value of the currency depreciates over time. If you take these two conditions as a requirement, you arrive at average inflation targeting (which is what the US Federal Reserve currently does). As a final condition, money needs to be widely used in order to be useful (which is why you cannot simply set up your own Federal Reserve).
Could the task of determining the supply of money be taken over by an institution other than the Federal Reserve? If you try and do this in the real world, you will likely get a lot of push back from the actual Federal Reserve. But if we ignore the switching cost, there’s no reason that we couldn’t have the same job done by a decentralized institution (say perhaps on a blockchain).
What would be the benefits of this? First, it would eliminate the fear that the Central Bank my change rates due to political pressure. Second, it would make it harder to monitor and censor unpopular financial transactions. Although depending on your point of view, this might be a bad thing.
How will this play out in practice? I suspect that countries with poorcentralbank independence will gradually lose the ability to issue currency as citizens move to safer alternatives. More importantly, better financialtools will allow people to hold their savings in assets other than money and quickly change between types of assets. I expect some sort of “robot advisor” will eventually take over this job for most people.
Of course, this is assuming that the singularity and post-scarcity don’t make the whole concept of money irrelevant for 99% of people.
I’m curious what people think is most likely say 50 years from now?
current system
2-5 regional currencies
single currency, governed by nation state or UN
single currency governed by blockchain/decentralized/free banking
Considering the work of Krugman an others on Optimal Currency Areas (and taking the lessons of the Euro crisis into account) it looks like being able to depreciate currency in a stable way in a limited area is a useful tool. I would expect the current system to continue, with a slow transition towards fewer currencies as regions tie closer together (eg if N. and S. Korea unify they won’t keep separate currencies).
Even post scarcity there will still need to be a unit of account to prevent trolling, so I don’t see that replacing currencies.
Considering the work of Krugman an others on Optimal Currency Areas (and taking the lessons of the Euro crisis into account) it looks like being able to depreciate currency in a stable way in a limited area is a useful tool.
I would expect as the world becomes more economically integrated in the future, the size of the optimal currency area will grow. My take on this is that growing trade is basically inevitable and the current headwinds are mostly a result of China decoupling from the world economy and blowback from the poor handling of the 2008 financial crisis.
Even post scarcity there will still need to be a unit of account to prevent trolling, so I don’t see that replacing currencies.
I agree that there will still be some unit-of-account post-scarcity. However I think most people will simply never look at their bank-account in the same way that I never look at my water-bill (which is paid automatically and generally a small amount).
Determining interest rates and determining the nominal value of currency are two sides of the same coin, so to speak. In order to be useful, the nominal value of a currency should be relatively stable. As you’ve noted, due to nominal rigidity, it is also beneficial if the value of the currency depreciates over time. If you take these two conditions as a requirement, you arrive at average inflation targeting (which is what the US Federal Reserve currently does). As a final condition, money needs to be widely used in order to be useful (which is why you cannot simply set up your own Federal Reserve).
Could the task of determining the supply of money be taken over by an institution other than the Federal Reserve? If you try and do this in the real world, you will likely get a lot of push back from the actual Federal Reserve. But if we ignore the switching cost, there’s no reason that we couldn’t have the same job done by a decentralized institution (say perhaps on a blockchain).
What would be the benefits of this? First, it would eliminate the fear that the Central Bank my change rates due to political pressure. Second, it would make it harder to monitor and censor unpopular financial transactions. Although depending on your point of view, this might be a bad thing.
How will this play out in practice? I suspect that countries with poor central bank independence will gradually lose the ability to issue currency as citizens move to safer alternatives. More importantly, better financial tools will allow people to hold their savings in assets other than money and quickly change between types of assets. I expect some sort of “robot advisor” will eventually take over this job for most people.
Of course, this is assuming that the singularity and post-scarcity don’t make the whole concept of money irrelevant for 99% of people.
I’m curious what people think is most likely say 50 years from now?
current system
2-5 regional currencies
single currency, governed by nation state or UN
single currency governed by blockchain/decentralized/free banking
post scarcity, money doesn’t exists
other
Considering the work of Krugman an others on Optimal Currency Areas (and taking the lessons of the Euro crisis into account) it looks like being able to depreciate currency in a stable way in a limited area is a useful tool. I would expect the current system to continue, with a slow transition towards fewer currencies as regions tie closer together (eg if N. and S. Korea unify they won’t keep separate currencies).
Even post scarcity there will still need to be a unit of account to prevent trolling, so I don’t see that replacing currencies.
I would expect as the world becomes more economically integrated in the future, the size of the optimal currency area will grow. My take on this is that growing trade is basically inevitable and the current headwinds are mostly a result of China decoupling from the world economy and blowback from the poor handling of the 2008 financial crisis.
I agree that there will still be some unit-of-account post-scarcity. However I think most people will simply never look at their bank-account in the same way that I never look at my water-bill (which is paid automatically and generally a small amount).
Except if you are Tether?