If the value of money were determined by the terms of trade instead of by speculation, then currency values would be determined by the ratio of imports to exports. The value of imports in each region is largely determined by the population, but this may not be related to the value of exports from a region. When a common currency is used to determine how resources in each region are priced, the result is that one region subsidises another.
Take, for example, Australia, where less than 10 per cent of the population living in outback regions produces over 70 percent of foreign exchange earnings through exports of agricultural and mining products. Urban regions generate about 90 per cent of the imports, yet are responsible for less than 30 per cent of the exports. Clearly, the outback regions are subsidising the urban regions in the realm of foreign exchange.
If both regions had their own currency, the outback dollar would be worth more than the urban dollar. The result would be that identical resources in the two regions would have different prices and so would be used differently.
Jane Jacobs in her book The Wealth of Cities, fully documents this problem around the world and through history. Efforts by the European Community to establish a common currency are misdirected. Instead, central banks should be experimenting with regional currencies which can insulate communities from money speculation. Only in this way can central bankers maintain their relevance as they lose more and more of their influence to monetary speculators. However, the breakdown of an existing social system is often required before a breakthrough to a new social order is achieved.
If governments and their central bankers do not initiate further deregulation of the financial system, then change could be initiated by community activists. Barter cards and Local Exchange Trading Systems (LETS) are now spreading throughout the world. The development of digital cash will facilitate these initiatives which will create a fall-back position in the event of a monetary melt-down.
The lesson for politicians is to facilitate local initiatives as a role model and spur for the monetary bureaucrats to initiate greater deregulation and experimentation. Ironically, this would protect their jobs over the longer term.
Shann Turnbull, MAI Services Pty. Ltd, PO Box 266, Woollahra, NSW, Australia 2025 (tel 612 328 7466; fax 612 327 1497; e-mail: <Shann@peg.apc.org>).
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