Theoretical Monetary Experiment: Population-Based Currency

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Time to put our sci-fi thinking caps on and really examine what we believe would happen if a new monetary system was proposed to help resolve some of our world's current debt issues.

I just had a conversation with someone in another thread when I started reading about the pros and cons of a gold standard when I realized that a lot of the elasticity problems went back to population complaints, ie. if the population keeps growing you have less fluid currency per person. Mind you, I'm not an economic expert, I like to think I have a decent-enough overall grip even though I'll admit that it's as nuanced as it could be if I were to go back to school and get a masters degree in econ.

My question is this: Lets say that we hit a point where all of the Western and emerging Eastern markets loan to each other until they can't service their debts anymore. Being that its mostly indebtedness to each other, in an epic historical Solon-like move one world leader convinces all to declare bankrupcy together and wipe the slate clean. The question then going forward at this point - this consortium of presidents, partliaments, etc. does not want to repeat the same mistake - they want to come up with a proposal where they can deal with a diminishing workforce due to increasing technological friction and be able to take care of their relative populace without borrowing back and forth until they're back as square one. All of these leaders are now, say, either clustered in Brussels, Geneva, or on the most luxurious knockoff of GoToMeeting ever created. They're looking at proposals when a particular one crosses their desk; this particular proposal brings forward the idea of a population based currency, ie. one where each country has its own version of the....soia, which still bears the $ worn by many western currencies. Each country would valuate its minting of soia based on its population and a calculated optimal demand at the time of the institution of the new currency. This would mean that more people born, more currency, less people born would mean less currency. Valuation of this currency would be based on that particular country's productivity in ratio to the number of soia still in circulation (ie. per capita production). The US would have the US soia, the UK its own soia (unless an English, Scottish, and Welsh seem more feasible), and each country's soia and its monetary value would mean something the same way it does today in this respect, however inflation and deflation would be limited to population and then, potentially and only where needed, every five or ten years an opportunity would be presented for each country to revalue its soia but only on the grounds that other countries still holding its soia are given a firm effective date and a value estimate within a 5% margin of error (or less) at least a year in advance of the change.

*If* you were on an advisory panel at this point and had to rate the pros and cons of the international institution of the soia, aside from jokes about the world getting more windy, what pros and cons would you give this system? Where would be better than fiat or gold-standard currency valuation? Where would it be better or worse than Sharia-based zero interest accounting? What type of structural/systemic artifacts would you be concerned about that could come of currency supply being based on population which could make certain societal issues worse? What kinds of structural/systemic artifacts might make standard of living or global condition significantly better?


Part of why I'm throwing this out here is that I've looked around Yahoo - no such discussion, no such hypothetical. I don't feel like opening a Yahoo email account just for this yet but I might get curious enough to float this same question there as well and see what kind of responses I get.

1. People are entitled to a fair compensation for the goods and services they produce.

2. The value of these goods and services can only be fairly determined by market demand. The price will of course, fluctuate as demand increases or decreases at different times.

3. Usury (unfair or excess interest) has been considered for a long time to be any amount in excess of 20%. Any interest above this amount makes it unlikely that the debtor can ever get out of debt, and will just keep digging themselves deeper into trouble. There have been laws preventing exceeding this amount for that reason. The laws should be reinstituted, or if still in place, enforced.

4. Governments should be required to reach and maintain a balanced budget. If a crisis occurs that would indicate a need to exceed the balanced budget for a time, then there must be a 3/4 majority of both houses of Congress in favor of TEMPORARILY exceeding the budget, and for a SET AMOUNT. Any additional borrowing must also be subject to a 3/4 approval vote.

5. If the exceeded budget amount is not paid down in a reasonable time period, then there must be an across the board cut in all programs, except defence, until the budget is again balanced. A small percentage cut across the board should take care of things without too much inconvenience.

6. We have to stop returning dead beat politicians to the capital. If they won't cut the crap out of the budget then they must be cut out of DC.

7. There is too much garbage in the federal budget that violates the limits placed on the federal government by the Constitution. In order to cut this waste from the budget we must return to those limits. Most of this crap belongs in either state or local government budgets, or in the private, or corporate sectors.

8. If we want the situation to improve, we must keep after our so called representatives, and replace them when they choose to violate the Constitutional limits on what the government is supposed to be paying for.

9. We should also require that all members of both houses of Congress take--and pass--a course in what's in the Constitution, and another course on budgeting. They are obviously clueless on both issues.

10. Remember, we bear some of the responsibility for the mess we are in, because too many of us either kept voting pro-waste crooks back into office, or just didn't bother participating in the process at all. If you aren't going to vote, then don't complain.

If we can turn our country around, this will have a positive ripple effect on the economies of the rest of the world, because we are the world's shopping mall.

SAVE AMERICA! VOTE THE BUMS OUT!

Please note with the starting scenario - I'm not talking about any other changes made; every country in this example stays just as capitalistic, just as socialistic, or just as blended as it currently is. The primary difference: the 'population' standard being a potential happy-medium between fiat/inflationary economics and gold standard/static monetery supply.

That's it. All other things are held equal.

If you believe that monetary supply has no real effect then just say it.

just have everyone go through an automatic bankruptcy every 7 years ought to fix the economy.

For almost all central banks issuing freely exchanged currencies (pegged currencies are a different beast), monetary policy has one, and only one goal: the control of inflation. As a result, the proper measure for currency (at least notionally) is to maintain stability in relation to nominal GDP. If your GDP rises, then you need more dollars in circulation in order to maintain stable prices for goods and services. Conversely, if your GDP is contracting, you need fewer dollars in circulation to achieve the same goal.

Central banks have two particular levers with which to regulate the money supply: the amount of currency in circulation, and the cost to put that money into circulation (interest rates). The particular situation that most currency issuing banks find themselves in today is that they have no further room to work with on interest rate policy--most are charging interest at rates which are 0 or negative in real terms (in other words, interest rates lower than the rate of inflation), which means that the money supply is the only took available to them until the economy is healthy enough to increase the cost of borrwing and sustain higher interest rates.

The difficulty with the OP's proposal is that it deprives monetary authorities with the capacity to manage currency supply and interest rates, because these will be dictated by the need to maintain predetermined pegs. If your economy races forward, and your money supply and exhange rate are locked down, then there is huge deflationary pressure, because there are too few dollars chasing after too many good and services. This serves to punish savers and reward borrowers.

You can't just keep paying interest on debt forever. That's is why there are the Jubilee laws which of course the Religious Right opposes.