A couple days ago I posted a blog about a twittersation with my buddy Jim about the Gold Standard. One of the great things about blog debates is that it gives you time to really think about your response and fully absorb the feedback from the other person. Had Jim and I tweetbated (I’m just making up twitterisms here…) about this, we probably would have not realized that we are pretty much on the same page. Well, I don’t know if Jim realizes it, but I realize it…
Jim can correct me if I’m wrong, but he is NOT arguing *for* a gold standard (or any commodity standard for that matter). Rather he is arguing for a standard other the debt security. The argument for a debt backed currency is pretty simple. If you can borrow more money, you should have a stronger currency (because people have more faith in your ability to pay that money back), right? Not quite, and this is where Jim and I agree.
It can be argued that economic cycles have been smoothed out by the current system we have in place. However, one can also just as easily argue that a higher level of public education and access to information at a faster pace are the real causes of smoother economic cycles. I digress.
What could be a better system? Certainly a commodity system is antiquated and a debt system has its fair share of issues. With the technology that is available today, a hybrid system is certainly feasible. A large database could be created to compile the commodity quantities for the most relevant commodities (gold should be on the list amongst many other raw goods). The value of those materials is set on a mostly free market, making the valuation of this portion of the economy pretty simple. The import/export ration would certainly play a role in determining the value of an exchange rate and the over all value of a currency. Then you have your money circulation. How much money your national and local banks are circulating must play a pivotal role in determining the over all value of a currency along with the exchange rate with another nation. This would cover the debt model we have now and then some.
With the technology available today, this type of system would make it much easier to spot potential banking and other economic issues that may surface in the future across multiple countries. I’ll even argue that this database should be a semi-open system, allowing virtually anyone to have access to the data to build models against it. This open system would provide considerable leaps forward in the development of economic and business systems, particularly for third world countries. It could also provide governments with the ability to spot opportunities in their economies and with their trading partners so that they can provide incentives in budding industries.
I’m just brainstorming at this point, and these ideas are very raw inside my head… But now they are down on paper, err, cyber paper?