Unlocking the Secrets of Money

Unlocking the secrets of money - a call to engage in objective conversations about the essence of money for public awareness and education.

Zukunfts-Impuls
Luca Ferrarese
Email: feluca@ethz.ch
LinkedIn: https://www.linkedin.com/in/lucaferrarese/

In a world where nearly 1.7 billion people are unbanked (1), the cost of living keeps rising (2), financial crises persist (3), banks receive bailouts (4), and global debt escalates (5), one crucial question often goes unexplored: What are the fundamental flaws in our monetary system?

In our daily lives, money plays arguably a crucial role. Yet, paradoxically, we often shy away from open discussions about this essential tool, treating it as if it were a forbidden topic. It is time we cast aside the silence and embark on a candid exploration of money because, without a doubt, it's one of the most powerful technologies that we use. By making the concept of money and its underlying systems transparent and accessible, we will empower individuals to reclaim control and influence over this vital aspect of society.

Although everyone uses money, there are critical aspects many may not be aware of:

No prior “work” is needed to generate money.
We live in a global debt-based monetary system since 1971.
Money is created through the issuance of credit out of thin air.
Only physical bank notes are produced by the central bank.
The majority of money in our accounts is created by private banks.
Most central banks target an annual 2% devaluation of our money and define this target as price stability.
Banks don't need deposits from savers to lend, they are creators of deposit money.
Central banks can’t precisely control the quantity of money in circulation.
All our digital money in our bank accounts is not backed by physical cash.

"It's a great business to be in, Central Banking, where you print money and people believe it… touch wood.”
- Adrian Orr, Governor Reserve Bank of New Zealand (11).

The baseline state of a competitive market without monopolies is deflationary: Human ingenuity drives technological innovation, enhancing efficiency. This, combined with consumers seeking "more for less" and entrepreneurs striving to make profits while staying competitive, results in deflationary pressures on prices across all sectors. Ultimately, prices should fall to the marginal cost of production (12-15).

This reality challenges the entrenched belief in the necessity of 2% inflation for economic health, questioning the rationale behind a system that erodes purchasing power like a hidden tax. We find ourselves at a crossroads, confronting a dichotomy between the deflationary potential of rapid technological innovations and the collective conviction that inflation is a necessary component for a functioning economy. This situation calls for a critical examination of how we can reconcile the conflicting forces at play: the deflationary effects of technological progress and the perceived necessity of inflation to keep our debt-based monetary system alive.

While people are familiar with the practical applications of money, their understanding of the current monetary system and the financial institutions that create and manage our money is very limited (16). This impulse tackles this lack of knowledge by encouraging an objective debate about the nature of money with three interconnected primary aims:

Educating the public.
Identifying potential flaws in our internationally adopted monetary system.
Assessing if there are viable alternatives to our current internationally adopted monetary system.

A) Educating the public

This endeavour requires a multifaceted approach, utilizing various methods and platforms to engage a wide audience. Most importantly, the educational content reaching the public should draw knowledge from diverse fields including history, economics, sociology, ethics, information technology, cryptography and computer science. Here are some concrete and practical suggestions:

Curriculum integration in schools: Develop “Money Literacy Programs” tailored to various education levels. These programs should encompass the origins and evolution of money, its role and functions, historical monetary failures, the evolution to our present monetary system, its management and control, as well as the pros and cons of our modern form of money.
Public workshops, seminars and online learning platforms: Extracurricular approach designed to bring “Money Literacy Programs” to a broader audience outside schools by catering to diverse learning preferences and schedules.
“What is money?” - media campaigns: Spread awareness about the current monetary system. These campaigns can include short informative videos, interviews with experts and infographics that break down concepts into digestible content and advertise “Money Literacy Programs”.

B) Identifying potential flaws in our monetary system

Given money's crucial role, identifying potential flaws in the internationally adopted monetary system is vital to avoid an unsustainable path. The task is complex, given the significant influence wielded by central banks, financial institutions, and other entities involved in money's creation and management. These bodies often possess strong lobbying capabilities and a tendency to downplay identified shortcomings. To effectively counteract these challenges, developing an unbiased, structured, interdisciplinary and objective methodology from the outset is crucial. Ultimately, the power of decision lies with individuals. Through "Money Literacy Programs," individuals will acquire the knowledge needed to make informed decisions about their level of trust in our current international monetary system. These informed personal decisions will be pivotal because the functionality of money is inherently based on trust. Without individual trust in the current form of money and the institutions that create and manage it, the monetary system cannot function.

C) Assessing if there are viable alternatives

The emergence of Bitcoin in 2009 introduced a new type of money: decentralized, digital and independent of central authority. Since then, the world of cryptocurrencies has grown exponentially, accompanied by the response of central banks with their own concept of digital money - Central Bank Digital Currencies (CBDCs). We find ourselves amidst a monetary transition phase, where physical money is being replaced more and more by digital money and centralized versus decentralized money types are starting to compete with each other. As a result, it becomes increasingly vital for individuals to comprehend the essence of money. The analysis of the newly emerged types of money should be an integral component of "Money Literacy Programs”.

References

1. https://www.worldbank.org/en/publication/globalfindex
2. https://www.ilo.org/digitalguides/en-gb/story/globalwagereport2022-23#key-findings
3. https://www.bpb.de/kurz-knapp/zahlen-und-fakten/globalisierung/52625/groessere-finanzkrisen-seit-1970/
4. https://projects.propublica.org/bailout/list
5. https://www.usdebtclock.org/world-debt-clock.html
6. https://vollgeld.page/geldsystem
7. https://monetative.de/faq-funktionsweise-des-heutigen-geldsystems/
8. Bank of England Quarterly Bulletin, 2014
9. Deutsche Bundesbank Monatsbericht, April 2017
10. Richard A. Werner, International Review of Financial Analysis, 2014
11. https://www.ledgerinsights.com/why-nz-central-bank-quip-about-people-trusting-printed-money-is-dangerous/
12. Jeff Booth: The Price of Tomorrow, 2020
13. https://medium.com/@JeffBooth/why-we-need-to-embrace-deflation-9a4b94d7d690
14. https://www.cato.org/policy-report/may/june-1999/plea-mild-deflation#
15. Philipp Bagus, Revista Procesos de Mercado, 2006
16. Cambridge University Press, 2020

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