Bernard Lietaer is one of the architects of the euro.
The WIR seems quite a good model, almost an ideal currency for things that could be looked at in other parts of the world?
I have an even better model to recommend than the WIR. My interest in the WIR is due the fact that it is the only case where we have quality data over 80 years. There’s no other system that has provided as much data, over as long a period. This is particularly important to evaluate long-term macro-economic impact.
The Commercial Credit Circuit (C3) – a convertible version of the WIR – is the one I would recommend as more interesting than the WIR, because it is a B2B complementary currency that is convertible into conventional money. This makes it possible for governments to accept it in payment of taxes.
Most government public procurements need to be open to all businesses. If the Swiss government wants to buy cars, say, they have to be able to buy them from everybody. And only 20% of Swiss businesses are members of the WIR system. A convertible WIR currency would solve that problem, and enable governments to participate directly in the complementary currency system. That is why I recommend the C3 model, as an improvement on the WIR.
Right, someone at the Federal Reserve in America mentioned that exchanges like Ripple are now a crucial area for private currencies,
Yes, but Ripple requires that someone makes a market in the currencies involved. ie. convertibility between the two currencies is a pre-condition. In other words, they are connecting market makers, they are not creating convertibility where none exists.
Would those market makers, should it be kept private or do you foresee that the state could play a role in that?
Ripple is a private payment system, and I don’t see why it couldn’t remain so…
Last time, we touched on the Bank of England document. Even economic textbooks used in universities talk about the multiplier model as opposed to endogenous money. With your experience working within central banks and with a lot of central bankers, are central bankers themselves and people in treasuries aware of endogenous money? To what level do they understand this versus using the textbook models?
Economists who work at central banks have been trained in believing the same monetary mythology as most economists. But the information about endogeneous money has been available: it has actually been available for more than a century! 5. It all depends on the degree of curiosity of each person.
It was a courageous gesture for a central bank like the Bank of England to go on record about the reality of money creation by private banks. The only other case I know about such an ideological reversal of views happened in Brazil, where after initially rejecting the idea of complementary currencies, an investigation by the central bank concluded that complementary currencies can solve social problems, that conventional money doesn’t do very well. And that they don’t pose any threat to the management of the official currency.
But there’s been so many papers, I remember Tobin and various others talking about endogenous money. It just seems quite strange what they’ve been teaching in economics textbooks, during my economics degree the multiplier model was taught straight from the textbook. It seems quite bizarre, really.
Well, yes. That’s been going on for a long time…
We got much deeper academic thinking in the monetary domain in the ’30s than today. There was clearly more debate about money during the Great Depression than has been the case today…
The Chicago Plan, and so on.
The Chicago Plan was fully developed at that time. It would involve making it illegal for banks to create money. Their role would be reduced to the role of money brokers, and governments would issue the currency (as many people still believe).
Out of interest, what are your thoughts on fractional reserve banking? Or in a sense what we have now is not even fractional reserve, it’s zero reserve. What are your thoughts on the Chicago Plan versus what we have now?
One can classify monetary problems in three categories: banking crashes, sovereign debt crises, and monetary instabilities. The Chicago Plan would solve the first two of of these systemic problems: it would solve the problem of banks getting overleveraged, and it would also solve the government indebtedness problem. However, it would not solve the currency instability problem. We would still have currency crashes like we would have had, say, in Russia. Under that plan, they may even be more frequent than today. Basically, the Chicago Plan somehow assumes that governments are more reliable than the private sector in managing the currency, and I’m not convinced that assumption is valid.
The recent Zimbabwe case is an extreme example of governmental abuse of a currency. Government took over the central bank and ordered it to print money until the currency became valueless.
Touching on that topic, do you have sympathies with the gold standard, or any other commodity standard that would obviously restrict the amount of money that can be created?
One of my recommendations — the Terra currency — is a 100% commodity backed currency. In that system, a basked of a dozen commodities would play the same role as what gold used to do. Gold is actually one of the commodities in that basket. See the point?
Let me emphasize that the Terra would be part of what I recommend as a monetary ecosystem, i.e. just one of the currencies in such an ecosystem. Terra is a global business-to-business currency that would make it profitable for multinational businesses to think long term.