Abstract
Abstract. To serve its essential purpose – certainty of value in exchanges among bargainers – convertible currency drew its value as a proxy from that into which it was convertible. Gold came with its challenges as a value standard, and those of physical conversion. The setting of currency value in the discretion of its issuers, by varying the issuance, has led to new and adverse consequences in the fallibility of the discretion. Modern financial markets could provide rule of law conformance to an optimal value standard without physical conversion.The necessary financial device is already at hand, in the market and in the Fed toolbox. REPO, the sale and re-purchase or purchase and re-sale of a Treasury, at the spread of measured currency value to a target of choice, would duplicate in monetary effect that of specie conversion. Technological advance is steadily obsolescing the “cost-of-living” as target. As consumption mutates with invention, the sensible value standard becomes the American standard of living, in the form of a per capita share of total consumption spending. Effective convertibility to such a standard would resolve multiple policy issues, including any conflict in the “duality” of the Fed mandate and the supposed strictures of the “zero bound”, father to the immense distortions of “quantitative easing”. Financial or “fiat” convertibility, as we may call it, effectuated by inflation-priced Fed REPO, could be adopted as a discretionary tool by the Fed, but there are strong arguments for a rule of law. We may need one to deal with deteriorating national finances, and welcome one that returns the “management of the economy” to the free market.
Keywords. Monetary economics, Monetary policies, Convertibility.
JEL. F21, F68, O53, K23.
References
Alexa, how much is it? Technology is making inflation statistics an unreliable guide to the economy (2019) The Economist, Special Report: The End of Inflation? The World Economy (October 12), [Retrieved from].
Allison, J.A. (2016). Making a financial choice: More capital or more government control, Cato Institute, Committee on Financial Services. [Retrieved from].
Amin, M. (2011). A Simple Introduction to Islamic Mortgages, [Retrieved from].
Avalos, F., Ehlers T., & Eren, E. (2019). September stress in dollar repo markets: passing or structural?, BIS Quarterly Review, The Bank for International Settlements (BIS), Basel, Switzerland, December 8, 2019. [Retrieved from].
Bagehot, W. ([1873] 1999). Lombard Street: A Description of the Money Market. John Wiley & Sons, New York.
Baklanova, V., Copeland, A., & McCaughrin, R. (2015). Reference Guide to U.S. Repo and Securities Lending Markets, Federal Reserve Bank of New York Staff Reports, no.740. [Retrieved from].
Barua, A. & Buckley, P. (2019). Rising corporate debt. Should we worry?, Deloitte Insights, Deloitte Development LLC., Member of Deloitte Touche Tohmatsu Limited. [Retrieved from].
Beckworth, D. (2014). Inflation targeting: A monetary policy whose time has come and gone, Mercatus Center at George Mason University, Arlington, VA. [Retrieved from].
Beckworth, D. (2019). Bill Nelson on the repo market stress, the Fed's operating system, and the prospects for a standing repo facility, Macro Musings with David Beckworth, Mercatus Original Podcast (October 7). [Retrieved from].
Beckworth, D. (2019). Josh Galper on the current state of repo markets, key bottlenecks, and a balanced proposal to restore stability, Macro Musings with David Beckworth, Mercatus Original Podcast (December 23). [Retrieved from].
Beinhocker, E. (2006). The Origin of Wealth. Harvard Business School Press, Boston.
Bernanke, B.S. (2009). The crisis and the policy response, Remarks at the Stamp Lecture, London School of Economics, London, England (January 13). [Retrieved from].
Bernanke, B.S. (2013). Transcript of Chairman Bernanke’s Press Conference, June 19, 2013. [Retrieved from].
Brynjolfsson, E., Collis, A., Diewert, W.E., Eggers, F. & Fox, K.J. (2019). GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy, National Bureau of Economic Research Working Paper No.25695. [Retrieved from].
Brynjolfsson, E. & McAfee, A. (2014). The Second Machine Age. W. W. Norton and Company, New York, NY.
Brynjolfsson, E., Rock, D. & Syverson, C. (2017). Artificial intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics”, National Bureau of Economic Research Working Paper No. 24001, Cambridge, MA. [Retrieved from].
Bureau of Labor Statistics, (2018). Handbook of Methods, “Chapter 17. The Consumer Price Index”, BLS Publishing, Office of Publications and Special Studies, Washington DC. [Retrieved from].
Cole, J.I. (2018). Surveying the Digital Future. The 16th annual study on the impact of digital technology on Americans”, 2018 Digital Future Project, Center for the Digital Future at USC Annenberg, University of Southern California, Los Angeles, CA. [Retrieved from].
Coyle, D. (2014). GDP: A Brief but Affectionate History. Princeton University Press, Princeton, NJ. [Retrieved from].
Edwards, S. (2018) American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold. Princeton University Press, Princeton, NJ.
Ehrlich, G., Haltiwanger, J., Jarmin, R., Johnson, D. and Shapiro, M. (2019) “Minding Your Ps and Qs: Going from Micro to Macro in Measuring Prices and Quantities”, University of Michigan. [Retrieved from].
European Central Bank (2019) “Targeted longer-term refinancing operations (TLTROs)”, [Retrieved from].
Federal Open Market Committee, Transcript of the Meeting of the Federal Open Market Committee on October 28–29, 2008. [Retrieved from].
Federal Open Market Committee Transcript of the Meeting of the Federal Open Market Committee on March 17–18, 2009. [Retrieved from].
Federal Open Market Committee Transcript of the Meeting of the Federal Open Market Committee on November 2–3, 2010. [Retrieved from].
Federal Open Market Committee Transcript of the Meeting of the Federal Open Market Committee on September 20–21, 2011. [Retrieved from].
Feinman, J. N. (1993) “Reserve Requirements: History, Current Practice, and Potential Reform”, Federal Reserve Bulletin (June), pp. 570-589. [Retrieved from].
Feldstein, M. (2017) “Underestimating the Real Growth of GDP, Personal Income, and Productivity”, Journal of Economic Perspectives, Vol. 31, No. 2 (Spring), pp. 145–164. [Retrieved from].
Fisher, I. (1911) The Purchasing Power of Money. Macmillan, New York.
Fox, D. R. and McCulla, S. H. (2019) “NIPA Handbook: Concepts and Methods of the U.S. National Income and Product Accounts”, Bureau of Economic Analysis, U.S. Department of Commerce, Suitland, MD, November 2019.
Friedman, M. (1959) A Program for Monetary Stability. 10th printing with new preface, Fordham University Press, New York.
Friedman, M. (1961) “Real and Pseudo Gold Standards”, Journal of Law and Economics, Vol. 4 (October), pp. 66-79, The University of Chicago Press, Chicago.
Friedman, M. ([1962] 1982) Capitalism and Freedom. The University of Chicago Press, Chicago.
Friedman, M. (1994) Money Mischief. Harcourt Brace, New York.
Friedman, M., Schwartz, A.J. ([1963] 1993) A Monetary History of the Marketed States, 1867-1960. Princeton University Press, Princeton, NJ.
Gibson, K. (2013) “U.S. Stocks Sink, Yields Rise After Fed Move”, MarketWatch (June 19).
Glick, R. and Hutchison, M. (2011) “Currency Crises”, Federal Reserve Bank of San Francisco, Working Paper Series, San Francisco, California, prepared for the Encyclopedia of Financial Globalization: Evidence on Financial Globalization and Crises, (September 15).
Greenfield, R. L. and Yeager, L. B. (1983) “A Laissez-Faire Approach to Monetary Stability”, Journal of Money, Credit and Banking, Vol. 15. No. 3 (August), pp. 302-315.
Hall, R. and Reis, R. (2017) “Achieving Price Stability by Manipulating the Central Bank’s Payment on Reserves.” National Bureau of Economic Research and London School of Economics Centre for Economic Policy Research.
Haltom, R. and Sharp, R. (2014) “The First Time the Fed Bought GSE Debt”, Federal Reserve Bank of Richmond (April), EB14-04. [Retrieved from].
Harari, Y. N. (2018) Sapiens: A Brief History of Humankind. United Kingdom: Harper. [Retrieved from].
Hayek, F. A. (1943) “A Commodity Reserve Currency”, Economic Journal, Vol. 53, No. 210 (June-September), pp. 176-184.
Hetzel, R. L. and Leach, R. F. (2001) “The Treasury-Fed Accord: A New Narrative Account”, Federal Reserve Bank of Richmond, Economic Quarterly, Volume 87/1 (Winter 2001). [Retrieved from].
Hubbard, G. and Scott, H. (2015) “A Financial System Still Dangerously Vulnerable to a Panic”, The Wall Street Journal (March 1). [Retrieved from].
Jevons, W. S. (1876) Money and the Mechanism of Exchange. D. Appleton and Co., New York.
Judson, R. (2012) “Crisis and Calm: Demand for U.S. Currency at Home and Abroad from the Fall of the Berlin Wall to 2011”, Board of Governors of the Federal Reserve System, International Finance Discussion Papers, IFDP 1058. [Retrieved from].
Kahneman, D. (2011) Thinking Fast and Slow. Farrar, Straus and Giroux, New York.
Kenny, T. (2019) “Analyzing the 10-Year Treasuries and TIPS Yield Spread”, The Balance, Dotdash Publishing, New York, NY.
Kenny, T. (2020) “What Is the U.S. Federal Reserve Dot Plot?”, The Balance, Dotdash Publishing, New York, NY.
Kenny, T. (2020) “An Explanation of Fed Tapering and Its Impact on the Markets”, The Balance, Dotdash Publishing, New York, NY.
Keynes, J. M. (1931) Essays in Persuasion, Inflation And Deflation, “Social Consequence of Changes in the Value of Money” (1923) MacMillan, London.
Kuepper, J. and Scott, G. (2020) “Black Wednesday: George Soros' Bet Against Britain. How George Soros Broke the Bank of England”, The Balance, Dotdash Publishing, New York, NY (February 12). [Retrieved from].
Labonte, M. (2018) “Federal Reserve: Legislation in the 115th Congress”, Congressional Research Service, Library of Congress, Washington, D.C. [Retrieved from].
Lavoie, M. (2019) “A System with Zero Reserves and with Clearing Outside of the Central Bank: The Canadian Case”, Review of Political Economy, pp. 145-158 (June 18). [Retrieved from].
Levy, M.D. (2019) “The Fed and Financial Markets: Suggestions to Improve an Unhealthy Relationship”, Hoover Institution, Strategies For Monetary Policy: A Policy Conference (May 3). [Retrieved from].
Logan, L. (2019) “Observations on Implementing Monetary Policy in an Ample-Reserves Regime”, Remarks before the Money Marketeers of New York University, New York City (April 17). [Retrieved from].
Maxwell, J. C. (1867) “On Governors”, Proceedings of Royal Society, Vol. 16, No. 100. [Retrieved from].
McLaughlin, P., Reese, C., Sherouse, O. (2016) “Dodd-Frank and the Federal Reserve’s Regulations” (February 4), Mercatus Center at George Mason University, Arlington, VA. [Retrieved from].
Mester, L. J. (Moderator), Clarida, R., Rieder, R., Tenreyro, S. (2020, February 21). Hall of Mirrors: Feedback Between Monetary Policy and Financial Markets [Panel Discussion]. 2020 U.S. Monetary Policy Forum, Sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, NY.
Mill, J. S. (1848) Principles of Political Economy. (Book III). Longmans, Green and Co., London.
Miller, S. M. and Ndhlela, T. (2019) “Money Demand and Seignorage Maximization before the End of the Zimbabwean Dollar”, Mercatus Working Paper, (February), Mercatus Center at George Mason University, Arlington, VA. [Retrieved from].
Moody’s Investor Service (2020) “The Fed Can Be Patient About Raising Interest Rates” Moody’s (April 27). [Retrieved from].
Nelson, Bill (2019) “The Fed’s Balance Sheet Can and Should Get Much Smaller”, Remarks at Brookings Symposium on Repo Market Disruption (December 5). [Retrieved from].
Nunes, M. and Cole, B. M. (2013) Market Monetarism, A Roadmap to Economic Prosperity. [Retrieved from].
Office For National Statistics (2020) “Improvements to the Measurement of UK GDP: an Update on Progress”, London. [Retrieved from].
Parks, T. (2005), Medici Money. Atlas Books LLC, W. W. Norton & Company, New York.
Perrault, R., Shoham, Y., Brynjolfsson, E., Clark, J., Etchemendy, J., Grosz, B., Lyons, T., Manyika, J., Mishra, S. and Niebles, J.C. (2019) “The AI Index 2019 Annual Report”, AI Index Steering Committee, Human-Centered AI Institute, Stanford University, Stanford, CA (December). [Retrieved from].
Ramkumar, A. (2019) “Stocks Slip After Fed Decision, Erasing Earlier Gains”, The Wall Street Journal (March 20). [Retrieved from].
Rasche, R.H. (2005) “Federal Reserve Bank of St. Louis Review, Reflections on Monetary Policy, 25 Years After October 1979, Proceedings of a Special Conference of the Federal Reserve Bank of St. Louis”, March/April, Volume 87, Number 2, Part 2. [Retrieved from].
Rennison, J. and Noonan, L. (2019) “Week of Repo Turmoil Puts Wall Street Traders in a Spin”, Financial Times (September 20). [Retrieved from].
Ricardo, D. (1817) On the Principles of Political Economy and Taxation, London.
Roth, Jr., W.V. (1996) “Final Report of the Advisory Commission to Study the Consumer Price Index” (“Boskin Report”), Committee on Finance, Marketed States Senate, U.S. Government Printing Office, Washington D.C. [Retrieved from].
Ryskamp, J. (2007) The Eminent Domain Revolt. Algora Publishing, New York.
Schuler, K. (1994-2004) Currency Boards and Dollarization, "Currency Boards for Developing Countries: A Handbook" (1994), International Center for Economic Growth, Yorktown, New York. Reproduced by permission. All other material copyright 1997-2004 or as dated by Kurt Schuler. [Retrieved from].
Selgin, G. (2017) Money Free and Unfree. Cato Institute, Washington D.C. [Retrieved from].
Selgin, G. (2018) FLOORED! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession and Why the Fed – or Congress – Ought to End It. Cato Institute, Washington D.C. [Retrieved from].
Selgin, G. (2019) “Stop the Presses! or, How the Fed Can Avoid Reserve Shortages without Bulking‐Up, Part 1”, CATO at Liberty, Cato Institute, Washington D.C. (November 12). [Retrieved from].
Selgin, G. (2019) “Stop the Presses! or, How the Fed Can Avoid Reserve Shortages without Bulking‐Up, Part 2”, CATO at Liberty, Cato Institute, Washington D.C. (November 14).
Selgin, G. (2020) The Menace of Fiscal QE. Cato Institute, Washington D.C.
Selgin, G. and White, L.H. (1999) “A Fiscal Theory of Government’s Role in Money”. Economic Inquiry, Vol. 37, No. 1 (January), pp. 154 – 165. The Institute of Economic Affairs. [Retrieved from].
Shiller, R. J. (1998) “Indexed Markets of Account: Theory and Assessment of Historical Experience”, Presented at the 1997 International Conference of the Central Bank of Chile, “Indización, Inflación y Política Monetaria”, Santiago, August 11–12, 1997.
Skousen, M. ([1977] 2010) Economics of a Pure Gold Standard, Fourth Edition, The Foundation for Economic Education, Inc., Irving-on Hudson, NY.
Soros, G. (2003) The Alchemy of Finance, John Wiley and Sons, Inc., Hoboken, New Jersey.
Stark, T. (2010) “Realistic Evaluation of Real-Time Forecasts in the Survey of Professional Forecasters”, Federal Reserve Bank of Philadelphia. [Retrieved from].
Sumner, S. B. (1991) “The Development of Aggregate Economic Targeting”, Cato Journal, Vol. 10, No. 3 (Winter). [Retrieved from].
Sumner, S.B. (2009) “The Real Problem was Nominal”, Cato Unbound (September 14). [Retrieved from].
Sumner, S.B. (2011) “Re-Targeting the Fed”, National Affairs No. 9. [Retrieved from].
Sumner, S.B. (2012) “The Case for Nominal GDP Targeting”, Mercatus Research, Mercatus Center. [Retrieved from].
Sumner, S.B. (2013) “A Market-Driven Nominal GDP Targeting Regime”, Mercatus Research, Mercatus Center. [Retrieved from].
Sumner, S.B. (2014) “Nominal GDP Targeting: A Simple Rule to Improve Fed Performance”, Cato Journal, 34(2), [Retrieved from].
Thornton, D.L. (2015) “Requiem for QE”, Cato Institute, Policy Analysis No.783. [Retrieved from].
U.S. Department of the Treasury (2008) Treasury Announces Supplementary Financing Program, September 17. [Retrieved from].
White, L. H. (2007) “What Type of Inflation Target?” Cato Journal, 27(2), 285, Cato Institute. [Retrieved from].
Wigglesworth, R., Rennison, J. and Armstrong, R. (2020) “America’s two-track economy: the small business credit crunch”, Financial Times (December 14). [Retrieved from].
Yeager, L. B. (2010) “Privatizing Money” Cato Journal, Vol. 30, No. 3 (Fall 2010), Cato Institute. [Retrieved from].
Yeager, L. B. (2014) “The Continuing Search for a Monetary Constitution”, Renewing the Search for a Monetary Constitution, Cato Institute Press. [Retrieved from].
