Digital money forum
Digital money forum
"Money is like muck", said Francis Bacon, not the artist whose pictures fetch a million, but the Lord Chancellor who, they say, was also William Shakespeare – "not good except it be spread".
The argument for e-money is that it will spread this necessary medium of exchange more evenly and therefore more fairly throughout the whole economy. A single currency will have the opposite effect; it will then be seen to be unfair which will give rise to friction and disunity among the member states of the European Union. That, of course, is the precise opposite of what the original architects of the European Community intended.
The founding fathers of the Community – Monnet, Schumann, Spinelli and the rest – adopted the cry of the free traders of Victorian times, like Cobden and Bright. "If the goods cross frontiers, the armies won't."
If there is free trade between the French, Germans and Italians and the other warring tribes of the Continent, they will not wish to kill each other.
May I say I am chairman of the Cobden Club, its history goes back to the days of the Anti-Corn Law campaign in the last century. It was revived after the Second World War when protectionism was rampant across the globe and the purpose of the club was to rehearse the arguments of Cobden and Bright.
Free trade, we say, must be seen to be also fair trade. There is always a danger it will strengthen the strong and weaken the weak. If a whole nation is weakened, it will react against the policy: it will find some means of resisting another nation's gaining strength at its expense and perceived to be its economic enemy.
I give you one example on the home ground. England and Ireland were once in a free trade area, but the free trade between them was not seen to be fair by the Irish. That was more than a century ago, and the legacy is with us still; a minority of Irishmen, consumed with hatred, refuse to decommission their weapons.
Free traders have always agreed that for their policy of bringing down barriers, if it is to succeed, there must be one form of protection. That form is floating exchange rates. Quite obviously, they cease to exist once you have a single currency.
There should be no dirty floating – that is, intervention by the government or the central bank. A clean floating ensures that a country whose economy has become weaker for some reason will have the value of its currency in the foreign exchange market float downwards. Its imports become more expensive,and its exports more competitive until the economy regains its strength when the downward floating comes to an end.
So with the country more economically powerful than its neighbours – its trading partners – its currency will float upwards. This will raise the price of the exports in the weaker countries, while its goods and services supplied by the weaker country become cheaper.
Floating exchange rates thus protect the weak and curb the strong in so far as they are making the weak countries even weaker.
Floating exchange rates require no bureaucracy, no committee decisions, no bankers' ramp, nothing except that great law, the law of supply and demand that politicians and civil servants hate so much, and are so keen to defeat, but never in several hundred years of history have they succeeded in doing so,except temporarily and disastrously.
I must leave it to you to decide whether in your opinion the electronic gadgetry and e-commerce generally will facilitate floating exchange rates between individual countries. The experts in the field believe that they can undoubtedly do so.
So let us therefore assume they are right. We can then have free trade working fairly. Floating exchange rates will exist to protect the weak getting weaker or the strong becoming stronger.
Then why should we not extend the principle? All the larger countries in the European Union have regions that are depressed and poorer than the rest. There are parts of eastern Germany where unemployment stands at 30 per cent. We have Cornwall where the average wage is less than any proposed minimum rates; there is also Merseyside and the North-East.
Do you remember Eddie George getting into trouble a few months ago when he went up to the North of England? Told that interest rates were too high to enable local businesses to expand, he was unwise enough to tell them the honest truth. There was, he said, too much demand in the rest of England, especially in London and the South-East, and high interest rates were therefore necessary to damp it down.
Liverpool has a population larger than many nation states, which have their own currencies, their own interest rates and control their own economies. Most of them are also considerably more prosperous than Liverpool. The average GDP per head in Norway is way above that on Merseyside. Norway is also a prosperous country, with, it seems, no serious social problems.
Then there is Iceland with a population of no more than one-third of a million. It has no natural resources except its fish, but a proud, independent and resilient people. They even run their own airline, and if you want to fly to New York from London, it is the cheapest way of getting there. In at least a dozen ways they have made themselves extremely competitive.
Now if they joined up to the European Union and accepted a single currency,they would soon become as impoverished as the people living in the Western Isles, dependent on subsidies from London and Brussels.
Throughout the winter months, they live in perpetual darkness and even in March they see little of the sun; and intellectual elite would call the country a cultural desert. What a life! Would they not quit their barren island?
The secret of their success lies in their money, and the fact that they have control over their own currency. It has given them a degree of prosperity denied to a majority living not just in Cornwall and Liverpool, but to millions of British people in other parts of our country that for one reason or another are disadvantaged economically.
Now I am not suggesting that Liverpool or Cornwall should have its own airline, buying jumbo jets to fly to New York at even cheaper rates than Iceland.
My point is quite simple. E-money, digital money or whatever we call it is,we are told, going to make it extremely easy for people in one currency area to trade with people in another.
That being so, let a local government unit – the Cornwall County Council or the Liverpool City Council – have the power to issue its own currency. There need be no compulsion, no talk of what is legal tender. But we would be giving local people – a few million, perhaps – the power to buy and sell in their own currency.
Obviously, that local money would be more useable in that area than outside,and the further you tried to take the money, the less it would be wanted. If Liverpool's money were called, shall we say, "merseys", a mersey would have little value when offered to a shopkeeper in Tokyo – it would be as much a nuisance as an Icelander's krona.
That does not matter. Indeed, that is all to the good, for the people of Liverpool, the great and immense advantage of local currencies is that they stay within their own area. They tend not to leave and be spent elsewhere. How does Liverpool gain if merseys are taken away to be spent in shops of Tokyo – or even London, or even Manchester?
Poor areas like Merseyside are poor because not enough money is spent there. Local currencies will mean more money spent in those areas which adopt their own monetary policy.
Of course, it would not mean Liverpool having a single currency and only merseys in circulation. The merseys would be an alternative and because they would be less valuable outside Merseyside than sterling, their purchasing power would be greater in and around Liverpool. This would make merseys more popular with Liverpudlians who wanted to buy as much as they could in and around their city. That increased purchasing power would stimulate local trade.
To come back to Francis Bacon, local currencies would spread money around more fairly. They regenerate an area. They can make free trade also fair trade.
From that follows not just a higher average standard of living for everyone,it also goes a long way towards reducing discontent and a sense of injustice,which anyone can detect in a region that is depressed.
E-money makes all that possible. A single currency, though, will destroy that possibility.
Sir Richard Body
