THE MULTI MONEY ECONOMY, AN ORIGINAL PATH OF ECONOMIC DEVELOPPEMENT

Abstract

The purpose of this economic article is to present the rational developed economic policy based on the social advantages to have several monetary policies instead of a single currency on a territory. The purpose of this theory is to offer of tools for underdeveloped countries to stabilize the non-competing part of their economy in the process of globalization.

Multi-currency and extraterritoriality of money

Introduction

The multi-currency economy is economy which run with several currencies of various nature. This kind of currency has existed in the past during the transition between the barter economy and the money economy. In the middle age, currencies took various form gold, copper, pepper. Everything which can be considered as a reserve of value could become a currency.

In this page, we will be compared various style of currencies: soft currency and hard currency, a convertible currency and a non convertible currency, a currency bases on interested rate and a currency bases convertible with goods.

First, let's consider an economy which has two monetary instruments: A hard currency (scarce) and a soft currency (abundant) which is only partially convertible with the hard currency. In this case, the claim for convertibility of the soft currency with the hard currency will be submitted to restriction. This restriction can have the shape of a waiting list.

Coexistence of a soft currency with a hard currency

Presentation of a dual currency economy

A dual currency economy will induce a change in the economic habits. A wage earner who works in private companies, would be remunerated in two currencies according to the distribution of income of the company in the soft currency and the hard currency. A separated interest rate policy will be handled by monetary authorities according to the national economic situation. If the national economy is slow compared to the international economy, the interest rate of the soft currency will be lower than the interested rate of the hard currency. So, the soft currency will be for the government a flexible instrument to manage the social situation of the country.

The major problem to handle would be convertibility. Convertibility might be submitted to restriction. In this case, the convertibility will be only to access goods only available in hard currency. It can also be handled a waiting list of swap orders. In this case, the value of the swap orders will increase as soon as the swap order got closer.

Companies accounting in economy with two currencies

Companies will seek to sell their product against the strongest currency because the strongest currency offer better investment opportunities. The strongest currency is more appealing to the employees and it offer the possibility to buy the largest range of products. However, in a stagnant economical context, the economical actors ready to pay in hard currency is insufficient on the market whereas those ready to pay against a soft currency is superabundant. The selling out of the production of the companies will be done easily with the soft currency. It will establish the distinction between two types of companies: companies which produces competing products on the international market and the others. The exporting companies will have a normal provision of hard currency whereas other companies can obtain hard currencies only if they sell their products to these exporting companies.

Companies which use exclusively the soft currency will be those which sell exclusively to the local market. Consumers will keep their hard currency for financial placements in order to profit from the best investment opportunities so consumer will rather like to spend their soft currency. So, in a similar product is on the market in both currencies, the transaction in soft currency will have the preference of the buyer (even at higher price) because buyer would prefer to save their hard currency than the soft currency.

However, some producer might need to buy some equipments in hard currency to produce a good and other in soft currency. But, due to lack of hard currency available in the market, It is probable that in order to reduce the prices as much as possible. Certain salesman fixes a minimal price in hard currency and tries to sell with profit against the soft currency. The sale offer proposed against two currencies: weak and strong.

The establishing of an interventionist economic policy

It might seem that such system is likely to strongly complicate business and the life of the consumers. In the era of data-processing payment, this system is much simpler to put in practice than it seems (especially with the use of electronic money). This complexity brought a true degree of freedom to the local economy and preserving it from the global economy. The market local asphyxiated by the shortage of the currency will be able to finance new industrial projects. This market should however bring together consumer who consume new technologies very little. Monetary division will allow to develop the underdeveloped part of the country and to adapt specific monetary policies to this part. Thus, it will be possible to apply an economic policy to the specific social problems of the country. For example, if an insufficiency of consumption is the cause of social trouble, a specific fiscal policy could be adopted to these area without impacting other part of the economy. The best policy that I know, is the one applied in South Korea and in Japan between 1970 and 1985. The state controls the growth and uses market statistics assessment of the ministry of the economy in order to direct investment to the most promising sectors of the economy. So, many investments were directed to high technology which are considered by investors to be too risky or provide solution which are far away than present need of the domestic market.

The coexistence of a managed economy with a free market economy

The preceding example is not compatible with the free market economical model if the market is managed by a single currency but in the cause of a bi-monetary economy, it is possible to have a managed economy and a free market economy.

Parallel to the development of a company in a planned economy, the exporting companies work with a hard currency. Monetary separation will guarantee that the development policy of the government has little negative incidence on their development. They are not subjected to taxes and the monetary manipulation which can touch the soft currencies. The economic development which left formerly inactive countries who are involved in the economic development will make unjustified a strong part of the subsidies which are provided to include liquidity in underdeveloped part of the economy. The part of the country which functions with a hard currency, will be able in the medium term to profit from a reduction of tax which reduces the competitively of these companies on the international markets.

The linking of a currency to consumer goods

The best example of a soft currency is a currency linked to a consumer good with a permanent demand. Let's take the example of a currency backed to an abundant customer good: the real estate. The currency could take the form of share of houses. The physical nature of this currency will protect the currency from inflation. So, the monetary authority will produce a construction company who constructed houses and pay workers in fraction of the real estate produces. The workers of these new industries will be remunerated with part of the housing block which will become a currency. And such shares could be easily exchanged with all service whom the member are ready to save their economy in properties.

The main inconvenient of such currency is its absence of convertibility and the limited number of goods available to be exchanged against this currency. Another inconvenient is that using housing as a currency will reduced the scarcity of the building compare to other products and if houses become too abundant, it will loss its possibility to be exchange easily in another goods.

A range of currency link to products

A more sophisticated monetary system is to link several products with different level of scarcity to a currency and create a range of currencies. For example, let suppose that:

	rice
	wheat
	salt
	share of house
	iron
	gold

are used as currency with a scarcity in this order:

ScarcityRice < ScarcityWheat < ScarcitySalt < ScarcityHouse < ScarcityIron < ScarcityGold

As a currency can be exchanged easily with good and services of lowest scarcity, more you grows up in this scale more you can exchange against the proposed currencies.

The scarcity of good can change. For example, the fact of using salt as a currency might stimulate the salt production which see his scarcity becoming lower than the scarcity of wheat and rice. In this case, the product and service available against salt will decrease and it would become preferable to save in a wheat linked currency.

It might also happen that a bad crop increase the scarcity of rice which begin more scarce than house. In this case, the exchange possibility of people who has save in a rice currency will begin increase.

In monetary system based on a ranged of link currency, the saver should diversify his saving in a choice of various currency to face the change of scarcity of those currencies.

This monetary system has the advantage of the robustness has it will not be vulnerable to change of scarcities of the goods use as a currency. If some goods become too abundant to stay a currency, they will be removed of the range of currencies and it will guarantee the soundness of the economic system.

Conclusion

This web site has demonstrate that the coexistence of several monetary policies on the same territory is a valuable tools to manage the social risk of the globalization.

Author: Hector Archytas