Topic: [2014-05-29] Financial Times – Kenneth Rogoff: “Time to Phase Out Paper Money” (Read 2909 times)

Federal Reserve Notes are money. By definition of the sovereign = fiat. You own little, if you hold a Federal Reserve Note in your hands, maximum another Federal Reserve Note. That they are not backed by anything else nowadays is another detail.

IOUs like an e-check aka "digital Dollar" are not money or cash. A check is a liability of a bank, either on paper or in bytes redeemable for Federal Reserve Notes. You can't send these notes over an electronic communication network, but the IOUs and then have to walk physically to a branch to get the notes in order to hold cash in your hand. The banks still have to clear these "digital Dollar" payments for cash. For the user it looks like "digital Dollars", but it's just an imitation.


It has something to do with that.

Monetary base:
The monetary base is defined as the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve).
http://www.federalreserve.gov/faqs/money_12845.htm

The federal reserve lends money to the banks:
To minimize the risk that the Federal Reserve will incur losses from lending, borrowers must pledge collateral, such as loans and securities.
http://www.federalreserve.gov/faqs/money_12845.htm

The Federal Reserve can simply create Federal Reserve Notes against collateral. Since the collateral is in the accounts at the Federal Reserve, it is part of the monetary base (pls see above). The Federal Reserve will lend aka create only as much Federal Reserve Notes as there is collateral provided.

Since the Federal Reserve can buy treasuries or mortgages from privates with created Federal Reserve Notes, known as QE, it increases the monetary base by the same amount as the Federal Reserve Notes in circulation.

His proposals have as goal to control how people spend their money to avoid tax evasion and illegal deals. But if bitcoin becomes mainstream, the Government will have to control even more, because taxes evasion will be much worst.

The reality here is that governments will never accept an anonymous centralized digital currency a la Liberty Reserve, e-gold etc. and the world's poor will not accept a non anonymous digital currency such as bank accounts debit cards etc. So unless our economist has the magic formula to eliminate poverty worldwide, cash is not going to be replaced by any centralized digital form of money.

Bitcoin however does have the potential to eliminate cash as far as the poor are concerned; however I doubt most governments would go this route since it could mean the end of their fiat currency. My take is that Bitcoin will grow and exist side by side with fiat currencies. The latter will include cash. If Bitcoin eliminates or drastically diminishes another form of money gold, not fiat, is the most likely candidate to be impacted.

Right. Well, as long as we're in agreement, then that's ok 

No treasury bonds are not the monetary base either.  They also by definition are IOUs as well.

He possibly means Treasury Bonds. Which would be correct.

Paper federal reserve notes are just as much as IOUs as digital dollars.  The monetary base has nothing to do with how much cash is printed.

And my rebuttal to this guy is that we need to phase out these banksters who've been manipulating anything they can get their hands on for the longest time. Then, they collude w/ their bribe taking politicians that put the taxpayer on the hook for all their wrongs. It's like the taxpayer is at the casino bailing out all the losers and condoning idiocy or downright deviance. Heads they win, tails we lose. Enter Bitcoin motherf*ckers.

Digital Dollars are only IOUs on Federal Reserve Notes ($money_zero_maturity > $monetary_base), not cash. In contrast, BTC is digital cash.

Having Dollars in a bank account is basically like having bitcoins in a MtGox account. In both cases it's only IOUs.

 

I agree with this. I don't think we'll have to force a phasing out of paper fiat money but hopefully bitcoin will phase it out on its own. I would love to see governments try desperately to try keep their money in circulation whilst more and more people were ditching it.

These suggestions come from an Orwellian totalitarian place.

People can use whatever money they choose. If the State wants to stop producing physical money, the free market will supply the demand.

But he is not thinking in abolishing fiat money, just converting it all to banking/electronic money, but FIAT, not bitcoin.

I think that paper money will still retain a use but its circulation may be decreasing in time
Our society to a large extent relies on the backbones of the network to be functioning all the time
Visa Mastercard Bitcoin etc.
Without access to the network cash is king.
So some classic mechanisms act as a contingency measure to ensure the system remains functional
That said I agree with him that paper money will become less prominent

The problem of this ex-IMF seems to be that governments, in his view, don't have enough taxation power over anonymous paper money.  

A digital currency known as the dollar already is the norm.  Physical currency makes up only a small portion of the US money supply.

Question: how does black market activity like illegal drugs, prostitution or people trafficking operate in that scenario? I don't advocate either of those things for a healthy society (with the exception of some drugs for moderated leisure uses, plus all medical uses), but they will happen regardless of what I'd ideally like for everyone else.

And a better question: how will this sort of move be perceived by the politically connected druglords and pimp kings out there? Anyone who knows a little more than the superficial media/popular culture presentation of this sort of world knows that there is good evidence that people with very significant political/institutional influence allow these black market trades to operate, and profit from the arrangement personally.

Finally an economist who actually talks some sense, but I think anybody with any will know that paper money will be phased out at eventually. A digital currency, whether Bitcoin or something else, will inevitably become the norm sooner or later.

Kenneth Rogoff, the professor of Economics at Harvard, writing in Financial Times, poses the question “Is it time to consider the phasing out of paper money?” Kenneth Rogoff is the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard. Any opinion expressed by Rogoff has to be taken extremely seriously as from 2001-2003, he served as Chief Economist and Director of Research at the International Monetary Fund. Rogoff’s treatise Foundations of International Macroeconomics (joint with Maurice Obstfeld) is the standard graduate text in the field worldwide, and his monthly syndicated column on global economic issues is published regularly in over 50 countries.

http://www.cryptocoinsnews.com/news/financial-times-kenneth-rogoff-time-phase-paper-money/2014/05/29