Tuesday, September 20, 2011

Community Monies

The Wall Street Journal today ran an article about community monies in Brazil called "In Pockets of Booming Brazil, a Mint Idea Gains Currency." Curiously, the author does not mention that 1,000s of other communities worldwide have local monies in circulation. The author seems to think that they stimulate growth but they don't. Central banks tolerate them because they are no threat to them: community monies in Brazil and elsewhere are fixed to sovereign currencies (e.g., each Ithaca Hour = $10 USD) so they lose purchasing power along with central bank notes. I find community monies downright pernicious because they induce people to hold inferior assets: relatively illiquid, zero interest notes with default risk. The only people benefited by them are the issuers.

If we are ever going to supplant national currencies in a major way, the alternative notes will have to be superior to what governments produce, not inferior to them. That is the idea behind the bearer money market mutual fund shares detailed in my essay "Reducing the Poor's Investment Risk: Introducing Bearer Money Market Mutual Shares."

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