Money does not bring income on the financial results of Apple affects the extremely low yield of 244 billion dollars accumulated in the accounts (the company simply does not know where to invest it). Money can bring a lot of other problems (as the global financial crisis of the past decade has perfectly demonstrated).
The good news is that money is gradually getting better. Thanks to the development of information technologies, their new types are emerging – in particular, cryptocurrency. Meanwhile, the financial crisis has stimulated the search for a more reliable “oil” that can lubricate the engine of the global economy. Lawrence Goodman, president of the Center for Financial Stability in New York, says
“Computer achievements in combination with a unique monetary and financial policy have created excellent conditions for the development of cryptocurrencies and other new forms of finance.”
There are two kinds of money. Government money includes bills and coins, plus reserves held by the central bank (the Federal Reserve, the Bank of Japan, etc.).
In contrast, private money includes all capital generated by banks and other financial institutions in the process of issuing loans and credits. This hybrid public-private system works quite reliably until the next financial crisis.
Then people suddenly lose faith in private money, and the authorities have to intervene (as the Fed did, launching many programs to support the banking sector, which suddenly stopped issuing loans). Some experts want to put an end to this unstable symbiosis by switching to private money, others are in favor of the government.
In the chart above, cash only occupies a small corner on the Venn diagram. They are located at the intersection of the Ovals “Widely Available” and “Released by the Central Bank”, and are included in the oval “Tokens-based” along with Bitcoin. “Token-based” means that if you lose your token (a bill or a password in the case of a bitcoin), then you lose money.
A child can drop bills into a shredder, or you accidentally throw a hard drive with a password from a bitcoin wallet, as did James Howells, an IT specialist from Wales. At some point, the value of his bitcoins exceeded $ 100 million, but the city council did not allow Howells to conduct searches at a local landfill.
Bank deposits are located in another part of the money flower. They are widely available and have a digital form, but are not based on tokens and – this is the main difference – the central bank does not issue them.
The bulk of the money in the US and other developed countries is created in private. When a bank approves a loan and transfers it to the company’s account, new money is created that can be spent immediately. At the same time, banks may issue more loans than are available on deposits.
More and more private money is being created entirely outside the banking system with the help of tools such as money market mutual funds. They invest in short-term corporate obligations in the interests of clients who want to get more return from their free funds than banks offer.
Another important source of private money is repo lending. Treasury holders receive short-term loans secured by bonds, agreeing to repurchase them after a fixed time has passed for a slightly higher price.
Private money should receive a significant impetus from the “death” of cash, which has long been predicted. The fact is that cash is the only form of government money available to ordinary people.
In Sweden, where the share of cash payments is only 13%, the central bank is concerned that the disappearance of paper money will allow private banks to control “accessibility, technological improvements, and pricing of existing payment methods.”
This is the head of the bank Stefan Ingves writes in the June edition of the magazine “Finance and Development”, published by the International Monetary Fund. In particular, Ingves notes
“Today, cash takes up its natural place as the only legal tender. But what kind of asset will take this place in a cashless society? ”
Is a world based solely on private money possible? Some cryptocurrency enthusiasts are convinced of this. They cite the Austrian economist Friedrich Hayek, who in 1984 declared
The opposite approach is to strengthen the role of public money. One controversial idea is to allow ordinary people to directly deposit money into the central bank (as long as it is available only to commercial banks).
James McAndrews, former research director at the Federal Reserve Bank of New York, is suing his former employer for the right to organize the so-called Narrow Bank. He will accept deposits from large investors, transfer money to the Fed and pay investors a percentage that commercial banks receive for keeping their deposits at the Fed (with a small amount retained as remuneration).
On our money flower, the McAndrews concept enters the left gray quadrangle of digital money issued by the central bank, not based on tokens and more available than the reserves of the regulator itself.
One of the problems associated with providing ordinary citizens with access to Fed deposits is that if the idea takes root, then commercial banks will lose deposits.
It will hit credit institutions particularly hard during the financial crisis, investors will look for the safest haven for their capital (national bank). This can lead to a world in which all money is issued by the state.
Some countries are already experimenting with the concept of “reserves for all.” It is also called the “digital currency of the central bank” (CSB). For example, Venezuela released Petro’s cryptocurrency tied to the cost of a barrel of oil. Dubai, Iran, Singapore, and Uruguay are experimenting with digital currencies. China, the United Kingdom, and other countries are exploring the idea. Ecuador, Germany, Japan, and Switzerland have rejected it.
Enhancing the role of public money seems to be a fairly left-wing idea. Joseph Stiglitz, a liberal economist, and a Nobel Prize winner, says it will allow the government to control the ups and downs of the business cycle and even directly lend to certain sectors of the economy.
But some libertarians and conservatives support the concept for very different reasons. John Cochrane, a conservative economist at the Hoover Institute, said public money would put an end to periodic financial crises, during which depositors massively withdraw funds from accounts in commercial banks.
He imagines a digital currency emitted by the government on which interest will accrue. This would solve the problem formulated by conservative economist Milton Friedman, who said that people do not keep enough money because they do not generate any income (unlike other assets). In his book Through the Great Gap, published in 2014, Cochrane writes
The money of one person is always the obligation of another. The statement is true even in the case of dollar bills, they are no longer backed by gold or silver and are obligations of the US government. Private money in your account – it is the obligation of the bank. If obligations are unreliable, you cannot buy anything from them.
Perry Merling, an economist at the School of Global Studies. Frederick Purdy of Boston University believes that the key to improving money is “the ability and willingness of the issuer to fulfill their obligations.”
All these divergences of opinion and valuation show that people are serious about money and their future. Previously, economists considered money as a formal representation of the transactions to be made, so that, for example, a farmer did not have to pay wheat for a plane ticket or asparagus for a haircut.
Then came the financial crisis, caused by a sharp loss of trust in assets that seemed reliable enough to replace the money. In 2016, an economist at Yale University Gary Gorton wrote
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