I believe that we, the people, should be able to establish a common sense about money.
1. What is money? How do you distinguish between money and goods and services you can buy with money? What is the difference between money and financial instruments marketed by institutions like banks or investment companies?
My answer: Money is legal tender. Non-negotiable. Protected by the authority of a sovereign government to keep its value and credibility.
So, gold is not money. U.S. dollar in Argentine is not legal tender.
Cash denominated in the nation’s currency unit is the original money in the form of paper bills or coins.
We can call this type of money as [Tangible Cash].
2. However, we have to take the reality in account. People believe that money they put in their account with any authorized financial institutions belongs to them. But the bankers’ thoughts are not the same. Also, money can be transferred from account to account instantly without any actual moving of tangible cash with no barrier of locational distance. Those funds in checking accounts or checkable savings accounts are working and considered by the account holders same as tangible cash. It’s also legal tender. We can call this as [Virtual Cash or Digital Cash].
Looking at any specific economy in current world, total money represented by tangible cash is much smaller than the amount represented by virtual cash.
This virtual cash is created by the banking system according to the theory of fractional reserve system. However, most of the banking system is controlled and owned by private interests. It is illegitimate and unconstitutional. That’s the problem. That theory is a fraud.
Legal tenders, tangible or virtual, must be controlled by the public and for the public.
We should change the accounting system for the banking sector. In terms of cash accounting, every participants in the economy must be treated under the same principle and rules. No fractional reserve! 100% reserve must be required. Each deposit banks should report to the central bank how much cash is short to make up this 100% reserve to back all the virtual cash which belongs to the depositors. This shortage could be filled either by raising capital from their share holders or borrowing from the central bank. It should be realized that only the central bank owned by the nation and serving for the people of the nation can create money – legal tenders. That’s the common sense!
3. Government bond as future money or potential cash: Outstanding national debt in the form of treasury bond represents the official promise of the government that at the maturity its face amount is guaranteed to be paid to the bond holder in cash. Originally it was issued by the government and sold to the investors at discounted price. So, current value of the total outstanding bond can be calculated by discounting the face value at the current rate of central bank fund. We can call this as [potential cash].
Central bank should be mandated to keep the stability of price not only of its currency but also of national bond.
To support this mandate, central bank should be authorized to be able to convert potential cash into tangible cash or virtual cash. Also central bank can convert its excessive cash into potential cash and hold it.
4. New mandates for the banks and all licensed financial institutions: First of all, they are supposed to cooperate with the authority to support the monetary system to keep it stable and trustworthy. Secondly, I’d like to suggest that as account managers for investors or depositors, these institutions are well positioned to collect income taxes from each account before they pay out the gains earned from that account. Just like the pay roll tax for most employee, investors and speculators are expected to pay fair portion of tax on monetary gains. Monetary gains can be defined as: any amount of money taken out from the account in excess of the amount put into that account.