[OPE-L:1874] Re: [MIKE WILLIAMS] electronic money

Duncan K Foley (dkf2@columbia.edu)
Mon, 22 Apr 1996 10:53:50 -0700

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On Mon, 22 Apr 1996, riccardo bellofiore wrote:

> At 7:09 22-04-1996 -0700, Duncan K Foley wrote:
> >1) All forms of modern money are debts of various nation-states. These
> >states also have assets (in the case of the U.S., for example, immense
> >land and natural resource holdings, as well as a large, if somewhat
> >indeterminate power to tax future income) and it is presumably these
> >assets that lend "credit" to the State's liabilities, including money.
> >
> They "lend 'credit'" or "are the collateral"? Moreover, should not
> (outside)money be seen as mainly represented of loans by the Central Bank
> to the State?

The Central Bank must either be regarded as part of the nation-state, in
which case the "outside money" (i.e. central bank reserves) must be
regarded as a loan from the banks to the nation-state, or if you
disaggregate the Central Bank as a separate bookkeeping entity, it
borrows money from the banks in the form of reserve deposits, and lends
it to the state in the form of purchases of state debt. The power of the
nation state lies in its "credit", that is, its ability to borrow from
the banks and the public in the form of reserves and currency. This
credit, as I said, ultimately rests on its future taxing power and other

> >2) As Paul Cockshott pointed out, the elaboration of various further
> >forms, such as credit cards or electronic balances, whatever their
> >technical base, are economically no different from other elaborations of
> >credit. They all depend on a chain of convertibility back to the monetary
> >liabilities of the nation-state.
> Yes. However, convertibility gives stability to the unit of account. I am
> not sure it has anything to do with money as such. In principle, it is
> possible to have monetary systems without convertibility.

Be careful here to specify which type of convertibility we are talking
about. Electronic money that was not convertible into bank deposits (or
ultimately into the reserve deposits of the Fed or currency) would not
function as money. It is true that there is no guaranteed rate of
convertibility of the debts of the nation-state into gold any more, but
that is a different matter. The subsidiary forms of money still form a
hierarchical pyramid with the debt of the state at the apex.


> riccardo
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> Riccardo Bellofiore e-mail: bellofio@cisi.unito.it
> Department of Economics Tel: (39) -35- 277505 (direct)
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