The Money will be Electronic or Not 5
He referred a few days ago the creation of the Electronic Money Institutions in the Finance Act recently passed in Spain. In this case, the legislature, contrary to usual, come to reality, since in Spain there is not yet an enterprise worthy of being included under this rubric. Of course it is because the new technologies sector suffers a break for years, after the initial push has led to this legal.
Despite the decline of the new form of economy, it is clear that one day we will need to order most of our payments through internet. And the money will have to be electronic. Well, actually there is no difference between money electronically and represented a record in a ledger. The important thing of all is the possibility that private money issue, ending the monopoly of central banks. This is referred to the Act, electronic money institutions may issue currency. I guess the regulations will have to determine the conditions of such issue: whether it should be convertible to the public currency or not, establishing a fixed exchange rate or floating on the public currency, credit ratings, possibly through the central bank backing …
But why should they leave the private central banks that issued money? Because the new economy is global. From Spain, a consumer can buy from a supplier in South Africa and for that both use the currency that suits them best, that is, to minimize transaction costs and exchange risk. If an issuer is able to offer a currency widely accepted in the network, that currency has a good chance of prevailing in the world. I anticipate that public coins may still be used in principle in the geographical area, but in the virtual world competition will be fierce. And if the EU wants to secure its future, must arrange for the euro prevails in the network.
Law also establishes that these entities will be subject to supervision by the Bank of Spain. Obviously, for three reasons:
* On the one hand, it is necessary to assure users that these entities have the solvency and honesty to safeguard their money.
* Furthermore, the central bank intends to continue controlling the money supply and therefore inflation and economic growth.
* Finally, it is necessary to monitor these entities internationally to prevent money laundering of criminal origin.
The theme of the issuance of currency by private entities is extremely interesting, though not new at all. Formerly there were many issuers of currency. Coexisted in Spain the Spanish Bank of San Fernando, the Banco de Isabel II, the Bank of Barcelona and the Banco de Cádiz, all private equity and private entities still exist allowance in other countries such as Royal Bank of Scotland or Clydesdale Bank of Scotland.
Understanding the peculiarities of the coexistence of exchange is much easier for citizens in developing countries, forced to constantly monitor the value of your money, than for more developed countries.
We can get an idea if we consider that money is a loan that we do to the issuer. The sender writes on paper it is worth 100 units, when only cost him five printing units. So suddenly has generated revenue by 95 units (this is known as seigniorage) and in return do not pay us any interest. Well, this seigniorage should central banks to share private issuers (just the incentive they have to issue currency return on these loans). However, users will only accept money from the issuer if they consider that the latter is able to exchange it for another currency at any time. In this, the public banks will always have an advantage, because countries can unilaterally increase their income via taxes, something that private entities can not do. Predictably, the constant exchange rates reflect the credit risk of issuers.
In contrast, private issuers can earn coins have value to public if they control the currency issue. If this is in line with increases in real economic activity and level of solvency, may increase its value in relation to public money, because countries generally use the currency issue to influence economic growth. However, it is expected to share the broadcast with private companies may lead to high competition for holding their value and also a limitation to use the issue as an instrument of economic policy. The privatization of the currency issue is a significant reduction of interventionism.
One aspect worth is taken into account the characteristics of a currency must meet to be considered electronic money. In principle, it may seem to be exchanged for physical currency. But this is not necessarily so. Currently there are coins of underdeveloped countries are hardly convertible currencies of other countries and they are still coins. Furthermore, if electronic money is necessary, will never lack for money exchange it because it does not physically exist.
This makes me think of the loyalty programs, especially multicompañía. If a company issues units of value in our favor that we can use to buy goods and services from other companies, what differentiates this from an electronic money? It may be the case netels or frequent flier miles from airlines. It is possible that they end up assimilating electronic money and even be subject to tax as income on money.
On the other hand, not necessarily one who has been “coined” directly in electronic form, because money can be issued also in the case of credit institutions, taking advantage of the multiplier of the money Read the rest of this entry →