Bold suggestions to reform US dollar

11 Oct

As an independent thinker I’ve been studying monetary system for years. So far I’ve published my ideas mostly inside Korean networks.

This is the conclusive essence of my ideas up to date and implemented in the case of US Dollar.

1. Transform the FED into National Bank of the US

Current Fed system is a cartel of private banks hard to find such an example anywhere in the world.

New National Bank of the US is to be an independent central bank accountable only to the general public. Its main functions are :

(a) to issue and control currencies(legal tenders) including electronic money,

(b) to keep the value of national currency and debt stable to support sustainable growth of the economy,

(c) lender of last resort.

2. Replace current paper bills with newly designed NBoUS bills

This is to restrain cash hoarding. Currency is supposed to be in circulation rather than hoarded in a private vault.

Recent Data from the Fed shows that about $1.61 trillion were in circulation.

The process goes like this:

(a) to prepare enough amount of new bills to replace all of the old bills and distribute this new bills to each and every depository financial institutions.

(b) to announce detail schedule for this replacement allowing at least 3 months of interim period that after then any old bills still in circulation to be nullified and strictly prohibited to be used as any type of payment and start to pay out with new bills simultaneously including ATMs.

(c) to set a maximum amount to claim new cash up to 1 million dollars and over that limit to be put into demand deposit while unlimited acceptance of old bills is guaranteed for deposit before the closing date for replacement.

(d) also to announce that the monetary authority has the discretion to do another replacement anytime after 3 years in the future.

3. Turn cash equivalent deposits into digital currency and get a new currency data integrated with tangible currency

Fed’s money stock data shows that total M1 as of December 2017 was $3.66 trillion. From there,  currency in circulation of $1.61 trillion subtracted, we get $2.05 trillion of cash equivalent deposits. These cash like deposits are money created by commercial banks by monetizing clients’ assets provided  as collateral into demand deposit. There is another type of deposit transferred from government as social security benefit or  from corporations as payroll.

A few years ago the BoE debate argued that as money was created together with debt, paying off debt is synonym of destroying money.

This notion I can’t agree at all. Banks should put the fund made available by payment of debt into circulation again as new investment or loan  rather than put into central bank account as excessive reserve balance. Looking at the Fed data, this excessive balance is $2.11 trillion which is enough to cover all the deposits on demand or checkable.

It seems to me thus that US banking system is already achieving 100% reserve if only we admit that money in the form of cash equivalent deposit belongs to each depositors not to the banks, and banks should keep this money in the form of cash in vault or reserve balance at the central bank.

The next steps required are:

(a) to diffuse the acknowledgement nationally that money kept in the cash like accounts at any legitimate financial institution is same as tangible cash, same legal tender, bearing no interest. Therefore it’s appropriate that to say cash or currency it means not only tangible one but also digital.

Also it must be acknowledged that money creation is to be managed solely by the central bank, and commercial banks are to be just intermediaries.

(b) to rename those accounts of checking or checkable savings to a simple cash account and there is no need for any deposit insurance for this.

(c) to integrate and upgrade the national payment system to secure same day settlements by applying advanced new technology like block chain.

– local payments between accounts within same institution to be settled locally

4. Realignment of national debt

Current Fed Data shows that government debt of $19.28 tn is subdivided as $16.23 tn of Federal treasury debt and $3.03 tn of state & local.

Outstanding federal treasury debt has occurred mostly by refinancing previous debts which we’ve already forgotten its original purposes or scale.

National debt, especially treasury securities(bill, note, bond) are the most trusted financial instruments because its payment in currency at the maturity is guaranteed by the U.S. government. Suggested tasks are:

(a) to treat national debt as future currency, so the price of these debt securities should be managed stable within long term inflation target.

To do so the new central bank needs to be mandated and allowed to participate in scheduled auction and secondary market to purchase and hold them with newly created currency, which effectively increase the money stock. The logic for this scheme is that central bank has to work for the public not for a few oligarchs.

(b) foreign investors holding national debt to be regarded as quasi citizen in terms of money. So they are expected to respect our order and authority.

And also if we hold other country’s national debt, vice versa.

5. Source deduction of income tax on financial gains

Every institutions providing financial services to their customers are well positioned to collect income tax before paying out the gains.

Financial gains can be defined as money taken out from an account in excess of money put into that account.

So any interest or dividend paid into that account is tax deferred until actual withdraw of it.

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금리정책의 대 전환, 지금이다

18 Sep
최근 수년간 우리나라를 포함한 선진 금융권에선 장단기 금리스프레드가 많이 좁혀져서 여지껏 보지 못했던 새로운 현상으로 자리잡았습니다. 이를 두고 일각에선 심각한 불황의 전조라며 우려와 경고를 하지만 나는 오히려 이제야 금융이 제자리로 찾아드는 길목에 왔음을 감지하며 불황이 아니라 안정적 성장의 길로 안내하는 신금융제도로 정착시킬 절호의 시운을 살려야 하겠다는 사명감이 앞섭니다. 한국은행 금융통계>금리>시장금리 부분을 유심히 살펴보면, 초단기 하룻밤 콜금리는 기준금리에 가깝고, 5년-10년물 국채는 물가안정목표인 2%를 약간 상회하는 수준이고 20년 이상의 장기국채의 시장금리(수익율)은 오히려 10년물보다 낮게 형성되고 있음을 알 수 있습니다. 이것은 10년 뒤보다 20년 뒤의 경제사정이 더 나쁠 것이란 전망에서 도출된 결과가 아니라 단지 국채시장에서 10년물이 가장 인기가 높아서라고 해석하는 것이 맞을 것이라 생각합니다.(10년물과 20년물의 금리역전 현상은 2017년 추석연휴 때 부터 계속됩니다.) 한편, 통계자료에 나타난 최고금리는 ’97년 12월 30일의 콜금리 27.15%로, IMF태풍 때였습니다. 당시는 장단기 금리역전 현상이 극에 달하여 콜금리가 20%를 상회한 것이 ’97년 12월부터 이듬해 4월까지 지속되다가 IMF의 요구에 무조건 항복한 다음에야 풀렸던 쓰라린 기억이 되살아 납니다. ‘단기자금시장에서의 힘겨루기’ 그 모습을 좀 더 다각도로 짚어봅시다. 어음할인으로 은행이 보유한 어음을 재탕하는 표지어음의 금리가 원본금리 보다 높아지는 상황을 살펴보면:
  • 1억원 납품대금으로 받은 3개월 어음을 은행에서 2.5%이율로 할인하여 9,938만원에 매입합니다.
  • 은행은 이 진성어음을 기초로 1억 표지어음(만기는 진성어음보다 짧아야하므로 하루 전날을 만기로 한 것)을 발행, 큰 손에게 2.6% 수익율로 팔아 9,936만원을 입급받습니다.  약 3개월 뒤,
  • 표지어음 만기일에 은행은 1억원을 큰 손에게 지급한 후에 지준 부족액을 채우기 위해 1억원을 1.5%로 콜하여 하룻밤 이자로 4천원을 부담합니다.
  • 결국 은행은 큰 손이 좋아하는 표지어음 거래를 통하여 3개월 사이에 2만 4천원의 손해를 각오합니다. 손실을 커버하기 위하여 더 큰 위험성이 내재된 파생금융상품을 개발하고, 투기적인 직접투자도 감행합니다.
  • 표지어음의 만기가 원본어음보다 짧은데도 금리가 더 높아서 생긴 결과입니다. 금융기관은 단기로 조달, 장기로 운영하여 금리차익을 꾀하는 것이 기본이라고 교과서에 가르치면서 현금을 대량 보유한 큰 손이 경제에 충격을 주기 위한 작전으로 자금의 경색을 일으켜 은행을 궁지로 몰아놓고 더 큰 이익을 노리는 장면인 것입니다.
그런데, 금융시장에 단기자금을 공급하는 원천은 어디일까요? 현금을 대량 숨겨두고 은행과 금융시장 전체를 상대로 돈놀이를 하는 큰 손과 통화당국이 아니고서는 시중의 자금사정을 쥐었다 폈다 할 능력이 되질 못합니다. 역사상의 여러 굼융위기와 경기불황은 큰 손과 금융당국이 야합하여 국민과 국가경제에 위해를 가한 것이라고 저는 해석합니다. 따라서, 단기자금시장에서 장단기 금리가 역전되는 현상이 생긴다면 통화당국이 적극 개입하여 정상화시켜야 합니다. 이 당연한 책무를 훼방하고 비하하는 세뇌된 언론과 학계에 더 이상 맹목적 추종은 삼가야겠습니다. 바람직한 금리 커브의 모델은 물가관리 목표인 2%를 1년물 국공채의 표면금리로 고정하고, 10년물을 2.5%로 1년에 0.5%포인트씩 가산하여 적용하며, 10년을 초과하는 장기 국채에 대해서는 거의 차이가 없게 (예:20년물:2.6%, 30년물:2.7%) 발행하고 또 유통시장에 적극개입하여 국채가격의 안정을 관리했으면 좋겠습니다. 한편, 1년 미만의 단기금리는 1년물 2.00%에서 하루에 0.002%포인트씩 낮추어 하루짜리는 0.73%포인트 낮은 1.27%로, 3개월물은 1.45%로 단기금리 가이드라인을 설정하여 관리할 수 있다고 생각합니다. 또한, 당일상환 급전에 대해서는 한국은행이 신용이나 담보가 확실한 범위내에서는 무이자 혹은 초저리로 공급하는 것도 가능하겠습니다. 지난 달 발표한 [사람 나고 돈 낫지]와 [베네쥬엘라 화폐개혁에 대하여]에서도 강조한 바와 같이 돈은 주권국가가 그 국민의 안녕과 행복을 지키고 증진시키기 위하여 보유한 당연한 권위의 하나인 “통화주권” 으로, 영토주권을 지키기 위한 국방의 의무 못지않게 중요한 온 국민의 공통관심사가 되어야 할 것이라 믿습니다. 국방의 영역에서 방위산업이 온갖 부정부패의 온상이 되면 곤란하듯이 통화관리가 소수의 금융권력에 휘둘려 대다수 국민의 꿈과 희망을 물거품으로 날려버리는 일이 다시는 일어나지 않도록 정신차리고 지켜보아야겠습니다. 금리는 100세 인생, 수백년 장수기업, 년천국가를 꿈꾸는 모든 사람들에게 뱃길을 안내하는 등대와 같은 것입니다. 등대가 그 자리를 수시로 이동해선 아니되듯이 금리도 이제는 2% 인프레 관리목표에 맞추어진 수준으로 안정되어 10년, 20년 혹은 30년 뒤를 예측하고 계획하여 준비하는 것이 모두에의 의미있는 일이 되길 바랍니다.

What if I were in the shoes of Venezuelan monetary authority in crisis

29 Aug

About recent monetary reform of Venezuela
– What should I had to do, If I had been the person in charge of that reform?

We have very little idea of what’s going on in Venezuela about the currency reform which came into reality as of August 20, 2018.
The problems of hyper-inflation in Venezuela might have been caused by the monetary authority who was tempted to reduce the burden of public debt, but terribly mistaken because it pushed up the interest rate beyond the ceiling.
My suggestions here are to supplement those policies already announced and they are all from within my own imaginations, guess’, insights and inspirations to bring an end to the endless cycle of high inflation. It might be too late for Venezuela. However, other nations like Turkey, Russia, Iran under pressure of sanctions and other attacks by the vulture funds might be able to find some hints. My idea goes like this:
1. Bolivar Soverano (BsS) is sovereign money.
– Only Central Bank of Venezuela (BOV) can make or destroy national legal tender in the form of either tangible paper bills or intangible digital cash in the bank accounts.
– All tangible BsF(old money) should be brought to the banks to be replaced with BsS by the end of October 2018.
– Every depository bank should investigate all the balance amount at each deposit account which is payable on demand as of  August 20, 2018 and report the total balance amount to BOV. This sum of balances of deposit on demand is digital cash which makes up total national currency together with tangible cash.
– Let’s recognize and declare that both this new digital money and tangible BsS which is replacing all the BsF are now the fixed new currency of Venezuela. Total volume of national currency could be extended or reduced only by national monetary council, its sole mandate is to serve the nation and its people in fair, just and transparent way.
2. Relation between tangible and digital money.
– Both are legal tenders, 100% interchangeable. It’s like water in 2 tanks connected, if water level of one tank goes up the other one must go down.
– Every financial institution which accepts tangible BsS as deposit on demand should have a reserve account at the BOV.
– Initial balances at these reserve accounts shall be created by this decree according to the reports from each bank as of August 20, 2018.
– Each bank shall be supplied with enough boxes of BsS (which is not yet money uttered).
– Any legal person who was holding BsF or balance at the account of deposit on demand as of Aug. 20, 2018 shall be free to claim it into new tangible BsS or make a deposit on and after Aug. 21, 2018 and no BsF shall flow out into circulation from any financial institution from then.
– It shall be strictly prohibited to use BsF as payment of any purpose after the end of October 2018.
– Each depository bank shall be ready to payout 100% of its total sum of balances at the accounts of deposit on demand either as cash in its vault or as balance at its reserve account by the time to open its door for another business day. (Banks may feel free to utilise all the money they handle to make maximum profits from every type of deals and trades during business hours. But, before the opening of doors for the next business day they must meet the 100% reserve requirements.)
– At the maturity of term deposit or any other savings/investments accounts, its balance does not turn into digital cash account. It shall remain as general obligation of the bank.
– Therefore, it is recommendable that each bank shall contact its clients whose accounts are soon coming to maturity to confirm of if they want to reinvest or not and figure out if they need any special help from the BOV. If so, they should report it and arrange a new facility to deal with that situation.
3. Inflation and national debt management
– New inflation target shall be set to 2% which will double the size of debt or will halve the value of currency unit in every 35 years.
– BOV funds provided to governments and banks shall charge 2% interest per annum.
– Any cash deposit into the BOV shall bear 1.8% interest per annum unless it is held in reserve account.
– Any bank which managed to meet the 100% reserve requirement last 2 consecutive business days without using inter bank overnight fund shall be allowed to utilise its balance at the reserve account up to 50% of it as overnight call fund.
– Any bank which fails to meet the reserve requirement shall be charged 0.1% of the shortage as penalty and if it repeats to fail 3 consecutive business days it shall expect special penalty of business closure or cancelation of its license.
– National Debts denominated in BsS (which include converted from Bs and BsF) in the form of treasury security shall be the most secure instruments for long term fixed income investment. Therefore, government shall manage the total volume of it to grow around 5% annually and the average duration to not be shortened at the end of each year.
– The BOV shall be mandated to keep the price of treasury securities stable in the bond market. The coupon rates of treasury securities shall be same as the target inflation rate 2%.
– The BOV shall be allowed and mandated to participate actively in the bond market by buying, holding and selling or bidding at the scheduled auctions.
– The BOV shall be allowed to hold treasury securities up to 25 % of total outstanding volume and to bid up to 35 % of scheduled auctions. The fund for these activities shall be considered as the advantage of seigniorage, and shall be regarded as the most effective way of currency control.
4. Forex market and foreign asset/debt management
– Business activities related to foreign exchanges by domestic institutions or branches of foreign banks shall be supported under the regulations of relative laws.
– Officers who work on this subject shall be recommended to learn from the case of South Korea which successfully overcome the 1997 IMFCrisis and achieved financial stability.
5. Petro
– Total issued volume of Petro shall be the total barrels of Venezuelan oil to be produced during next 10 years.
– All the issued Petro shall be entrusted to the BOV for secure management. The BOV shall put all the revenue from selling the Petro into government account and manage the outstanding number of Petro (which is government debt) by canceling it according to the number of barrels of oil delivered.
Closing Words
How precious is the freedom of thinking and writing!
I hope that my readers will think one step further, even upside down from the common sense or public opinion about money.
I wish all the best to Venezuelan authority and people to see the positive results from their special efforts to deal with the crisis.

Written and posted by Young Kim on Aug. 28, 2018 in British Columbia, Canada

New common sence about money

30 Dec

New common sence about money.

New common sence about money

30 Dec

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.

 

 

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11 Nov

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