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Central Banks are soooo Last Century, Jake.

A transitional alternative is for national Treasuries to create x billion euro's worth of tax anticipation credits, and to issue them directly to public or private entities wishing to create productive assets.

Service-providers-formerly-known-as-banks manage the process and an accountable monetary authority oversees it.

A service charge covers service/platform costs, and there is a guarantee charge paid into a default pool for the use of a Treasury guarantee, from which the service provider gets a performance-based share.

No ECB Euro's are created: the Euro is used as an abstract unit of measure or value standard.

The only question then is what should be the basis of the tax being anticipated. I favour a levy on land rental values, and another on carbon use.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 05:58:59 PM EST
[ Parent ]
A transitional alternative is for national Treasuries to create x billion euro's worth of tax anticipation credits, and to issue them directly to public or private entities wishing to create productive assets.

...

The only question then is what should be the basis of the tax being anticipated. I favour a levy on land rental values, and another on carbon use.

And the politicians with the insight and political capital to carry this out exist in which fictional universe?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 06:11:22 PM EST
[ Parent ]
Migeru:
And the politicians with the insight and political capital to carry this out exist in which fictional universe?

:-)

A parallel one to the surreal one in which we live.....

There's no way it would happen, of course, because turkeys don't vote for Christmas.

But when people say there is no alternative it's always fun to point out that there are several......


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:29:20 PM EST
[ Parent ]
We live in a real universe, by definition.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 04:27:34 AM EST
[ Parent ]
How does this financing model differ from issuing a collateralised debt obligation?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 06:12:33 PM EST
[ Parent ]
It's backed by the full faith and credit of the government?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 06:13:57 PM EST
[ Parent ]
It's redeemable/retirable at the option of the issuer - which makes it a credit instrument analogous to a redeemable share.

So it's not a debt instrument, and it's not collateralised either.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:33:12 PM EST
[ Parent ]
Central Banks are soooo Last Century, Jake.

Central banks in what capacity?

As lenders of last resort? That is still needed, in fact this should be now subsumed into a market-maker of last resort function.

As credit regulator/supervisor authorities?

As central clearinghouses for payment and settlement?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 06:19:15 PM EST
[ Parent ]
All capacities.

Migeru:

As lenders of last resort? That is still needed,

In Hong Kong it is not the Central Bank which fulfils that function because there isn't one.

Migeru:

As credit regulator/supervisor authorities?

A Monetary Authority - as in HK - would set the parameters/standards for credit creation.

Migeru:

As central clearinghouses for payment and settlement?

There is no need for a central counterparty aka single point of failure.

A mutual guarantee with a default pool managed by a service provider would do fine. eg P & I clubs in the insurance industry.

Settlements/netting of open bilateral credits requires only suitable software and algorithms. brent forward contracts settle this way on expiry by generating 'chains' and book-outs.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:23:39 PM EST
[ Parent ]
Hong Kong is a city-state. City-state economies can often get away with things that full-sized economies can't, because they can outsource the infrastructure to nearby full-sized economies.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 07:50:07 PM EST
[ Parent ]
I don't think Hong Kong were doing that with the Chinese.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:52:37 PM EST
[ Parent ]
the US dollar. HK has a full currency board, ie their currency is effectively the US Dollar. And they used the UK legal system. Pure piggybacking & Deus ex machina. So this is not a relevant exemple.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 01:06:43 AM EST
[ Parent ]
My point is that Central Banks are unnecessary and HK demonstrates that point empirically.

How does the fact that HK chooses to peg to the dollar or use the UK legal system change that?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 03:21:20 AM EST
[ Parent ]
Have there been any banking crises in Hong Kong, and how were they resolved?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 04:23:48 AM EST
[ Parent ]
There were no HK bank failures between 1935 and 1964 and in 1965 they used a government-backed takeover, which has been SOP for the Bank of England for a long time.

Hong Kong Calms Depositors After Bank East Asia Run (Update2) - Bloomberg.com

Hong Kong hasn't had a bank failure since the Hong Kong Monetary Authority was founded in 1993, though it has a long history of financial crises associated with its lenders. There was a brief run on Standard Chartered Plc and Citigroup Inc.'s local unit after the failure of BCCI Group in 1991, while the failure of a small Hong Kong bank in the 1980s triggered runs on rivals and led to efforts to strengthen regulation.

A banking crisis in 1965 prompted a government-backed takeover of Hang Seng Bank Ltd. by the Hongkong and Shanghai Banking Corp. for HK$51 million ($6.6 million). HSBC Holdings Plc now owns 62 percent of Hang Seng, which has a market value of $36.5 billion.



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 04:45:47 AM EST
[ Parent ]
HK has the Fed as its central bank, it demonstrates nothing of the sort.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 07:39:56 AM EST
[ Parent ]
The US Fed doesn't act as lender of last resort (and this includes setting tha base interest rates) nor does it provide deposit insurance or carry out bank supervision or regulation, nor sets reserve requirements. So, how is the US Fed HK's central bank in any meaningful way?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 08:11:33 AM EST
[ Parent ]
HK banks (the big 4) can only emit currency if backed one-for-one by the same amount of dollars.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 09:04:16 AM EST
[ Parent ]
http://www.info.gov.hk/hkma/eng/currency/link_ex/index.htm


The Linked Exchange Rate System was established in 1983. It is in essence a Currency Board system, which requires both the stock and the flow of the Monetary Base to be fully backed by foreign reserves. Any change in the size of the Monetary Base has to be fully matched by a corresponding change in the foreign reserves. In Hong Kong, the Monetary Base comprises the following components:

Certificates of Indebtedness (as backing for banknotes) and government-issued notes and coins;

the sum of balances of banks' clearing accounts (Aggregate Balance) maintained with the HKMA for the purpose of clearing and settling transactions between the banks themselves, and also between the banks and the HKMA; and

the outstanding amount of Exchange Fund Bills and Notes.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 09:06:09 AM EST
[ Parent ]
This sounds like what I once proposed Hungary's central bank should have been doing to prevent the possibility of a currency crisis, namely, accumulating foreign reserves in an amount matching the country's aggregate foreign-currency liabilities. This would act as an automatic negative feedback mechanism in case a carry trade got started.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:20:40 AM EST
[ Parent ]
So the Hong-Kong currency board functions as a potential lender of last resort and a deposit insurer since it must hold enough foreign reserves to cover in full the aggregate liabilities of the private banks.

It also functions as a clearinghouse for interbank payment and settlement.

The role of the Fed is totally incidental here. They might as well have mandated that the HKMA must have enough gold reserves (or barrels of oil) to back all the banks' liabilities.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:24:25 AM EST
[ Parent ]
The role of the Fed is also not unique since the mandate is on "foreign reserves" not "dollar reserves". This means potentially the mandate could be fulfilled by matching KH's monetary mass not only in quantity but in kind - Euro liabilities matched by Euro reserves, dollar by dollar, etc. What makes the USD special is that the internal HK liabilities are matched by USD reserves, but this need not be so.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:36:01 AM EST
[ Parent ]
So how does the fact that HK choose to operate a currency board mean that they have a Central Bank?

They don't have a Central Bank and never have had.

My point, as you well know, is that neither Central Banks nor private banks are necessary intermediaries. Conventional, yes: necessary or even desirable, demonstrably not.

Banking as service provision is a different question.

The financial system cannot be fixed without systemic fiscal reform of a kind which is politically impossible.

Introduction of a complementary financial system is the only solution, and IMHO this will be in place within two to five years.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 09:25:49 AM EST
[ Parent ]
Jerome a Paris:
banks' clearing accounts (Aggregate Balance) maintained with the HKMA for the purpose of clearing and settling transactions between the banks themselves, and also between the banks and the HKMA
plus the fact that the HKMA maintains foreign reserves in an amount sufficient to back all the monetary mass of Hong Kong means that it fulfills all the functions of a central bank even if it isn't called a central bank.

Can we please step away from the nominalist debate for a bit and just look at the functions of the institutions?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:31:44 AM EST
[ Parent ]
HKMA Infrastructure


Central Moneymarkets Unit

The Hong Kong Monetary Authority (HKMA) established the Central Moneymarkets Unit (CMU) in 1990 to provide computerised clearing and settlement facilities for Exchange Fund Bills and Notes. In December 1993, the HKMA extended the service to other Hong Kong dollar debt securities. It offers an efficient, safe and convenient clearing and custodian system for Hong Kong dollar debt instruments. Since December 1994, the CMU has been linked with other regional and international systems.  This helps to promote Hong Kong dollar debt securities to overseas investors who can make use of these links to participate in the Hong Kong dollar debt market.

The CMU service was further extended to non-Hong Kong dollar debt securities in January 1996.  In December 1996, a seamless interface between the CMU and the Hong Kong dollar Real Time Gross Settlement (RTGS) interbank payment system was established. This enables the CMU system to provide real-time and end-of-day Delivery versus Payment (DvP) services to its members.  

The CMU was further linked to the US dollar, euro and Renminbi RTGS systems in December 2000, April 2003 and March 2006 respectively to provide real time DvP capability for debt securities denominated in those currencies and also intraday and overnight repo facilities for the US dollar and euro payment systems in Hong Kong.

The key point is that according to the definitive Hong Kong Payment Systems document there is no central counterparty whether named a Central Bank or not.

The Central Moneymarkets Unit (CMU) is a membership entity; acts as a custodian; provides no guarantee; and takes no credit risk. (see pages 122 onwards).

As you know, a custodian is a key element of the P2P finance architecture I advocate.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 01:07:11 PM EST
[ Parent ]
To understand why this is not a central bank, could you give a definition of central bank structure (with picture if possible) so that the difference becomes clear?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Jun 8th, 2010 at 05:49:59 AM EST
[ Parent ]
ChrisCook:

The only question then is what should be the basis of the tax being anticipated. I favour a levy on land rental values, and another on carbon use.

Why does there have to be a certain tax? Can you not just issue notes saying "this can be used instead of paying x euro in tax to country y"?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Jun 8th, 2010 at 02:48:09 PM EST
[ Parent ]
Chris is mising in his preferred fiscal realignment - moving the tax way away from income and profit, and into rent.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed Jun 9th, 2010 at 08:10:00 AM EST
[ Parent ]
Hey, aren't you the one who keeps saying that economics is mostly a collection of just-so stories to justify the preferred policies of economists? ;-P

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 9th, 2010 at 01:43:57 PM EST
[ Parent ]
Chris is misingmixing in

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed Jun 9th, 2010 at 02:36:38 PM EST
[ Parent ]

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