[OPE-L:7544] [OPE-L:1084] No Commodity Money, No Money?

Michael J Williams (michael@mwilliam.in2home.co.uk)
Fri, 27 Aug 1999 23:57:05 +0100

I wonder what comrades think about this, in the light of our sometime
discussions of the role of commodity money in a Marxist accoutn of modern
capitalist money.

E-threat to central banks
Successors to Gates will put Greenspan's heirs out of business, warns King

Charlotte Denny
Friday August 27, 1999
The Guardian

The brave new world of e-commerce ushered in by Microsoft chief Bill Gates
is threatening to overturn the traditional power central bankers have
wielded over the economy, warns the deputy governor of the Bank of England,
Mervyn King.

Central banks face extinction as people turn to new ways of settling
accounts over the internet and traditional forms of money - cash, cheques
and credit cards - decline in importance, Mr King will tell a gathering of
the world's top bankers in Jackson Hole, Wyoming, today.

Policymakers will lose their ability to control the speed of the economy by
manipulating the cost of borrowing which will render them impotent in their
fight against inflation.

"The successors to Bill Gates would have put the successors to Alan
Greenspan out of business," Mr King will say. "Central banks may [now] be at
the peak of their power. There may well be fewer central banks in the future
and extinction cannot be ruled out."

Already new forms of internet-only money are being created by private
companies so that consumers can pay for goods and services purchased online.
Consumers will soon be able to download these currencies on to smartcards
which can be used for purchases in the real economy. Mr King speculates that
companies will soon settle accounts directly online without using real-time
final settlement systems such as Target - the European payments settlement
system.

"There is no conceptual obstacle to two individuals in a transaction
settling by a transfer from one electronic account to another," Mr King
says. "There is no reason why final settlements could not be carried out by
the private sector without the need for clearing through the central bank
... Without such a role in settlements, central banks in their present form
would no longer exist; nor would money."

Once companies avoid settling accounts through the banking system, the
ability of the central banks to control the speed of the economy through
increasing or decreasing the short-term cost of borrowing declines.

At present, commercial banks control most of the money supply. Banks must
deposit a certain proportion of their reserves with the central bank and
when policymakers want to slow the speed of the economy they raise the
charges on loans to meet these reserve targets. This has a knock-on effect
on interest rates throughout the rest of the economy - when the Bank of
England puts up base rates, mortgage lenders and banks respond by raising
their charges to borrowers. This in turn slows spending as consumers have to
find more money to pay their mortgages each month and companies find it
harder to raise cash for expansion and investment.

But, if e-currencies supplant traditional forms of money, central bankers
will no longer be able to control its creation or cost.

While central banks could have a role as regulators of the new electronic
settlement systems, Mr King believes that, because the internet is global
and settlement facilities would be international, the job would not require
as many reserve banks as there are today. "Societies have managed without
central banks in the past. They may do so again in the future."

Copyright Guardian Media Group plc. 1999