Business Finance
Privatizing the U.S. Money Supply

Question Description

Would it be possible to privatize the money supply in the United States completely?  In doing so, what would be the primary obstacle to overcome in implementing such a policy? 

Final Answer

 I shared my view that the reason for the crisis was that there was a shortage of low risk and liquid securities at a nominal yield of zero. In my view, the nominal yield on those securities needed to be negative in order to clear the markets for them.

The political scientist explained that if interest rates were negative, people will simply stuff "money" under the mattress. I explained, yes, that is exactly the problem. Our entire financial system is based upon currency that is low risk and perfectly liquid and has a zero nominal yield. If currency were privatized, then that would not be a problem.

The young physicist explained that private currency had already been tried and failed. He apparently had read something about private currencies in the Civil War. Along with that historical proof, he explained that privatized currency was unworkable because there would be no national standard of value. He asked, "What would a dollar mean?"

Clearly, my communications skills require some work. But I just can never see the problem. Why is it that everyone else seems to see tangible, zero nominal yield, hand-to-hand currency as essential to monetary order? In my view, privatizing hand-to-hand currency is simple.

Ather A (8)
UC Berkeley

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