The point about the Hong Kong banks is interesting, however. It would be good to back up their reportedly more prudent approach with some empirical data specific to Hong Kong, since both HSBC and Standard Chartered have worldwide operations, which might mask the Hong Kong situation.

that the monetary equilibrium camp still believe in money shortages is remarkable, and just goes to show that bad ideas never die, just get recycled.

No, it’s much more than that. Say there weren’t legal tender laws.

You sell some IBM stock and get ownership of an account, say accounted for in gold grams. And some small coins.

What about the sales tax on “buying” the coins?

Next you buy something and pay with a gold coin. The IRS is going to want the “income tax” on the change in value of the gold coin from when
you obtained it to when you spent it.

I am not sure this is as easy as some think. You cannot just wave a magic wand.

Also while branch banking was a contributing factor to US bank runs during the Great Depression Benjamin Anderson gives the primary reason there were bank runs.

One bank declared a banking holiday only allowing depositors to withdraw 5% per day of their deposit balance. Depositors naturally always withdrew 5% every chance they had because of the restriction even those who had no reason to withdraw anything. Within two weeks the banks would find that 50% of their deposits had been withdrawn. But once a state declared a bank holiday, neighboring states also declared bank holidays to prevent runs on their state banks. Bank closings snowballed each imposing the same 5% rule without realizing the result.

Anderson reports that a banker retired to Florida came out of retirement to explain what had been done in earlier situations with the banks (nothing could be withdrawn but checks could be written to pay bills. Banks did not go under and confidence was restored) but it was too late. The damage had already been done by awful state government policy.

This probably covers the costs of issue, and they get marketing thrown in.

The UK Treasury’s threat last year to grab this income

http://news.scotsman.com/latestnews/Scotland39s—banknotes-.3739567.jp

has apparently not (yet) been carried through.

There is a wider point here, and that is that as Hong Kong demonstrates, there is no need for Central banks at all. Although HK does have a Monetary Authority overseeing conventional private bank operations, one of the beneficial effects has been that HK banks (eg HSBC) have tended to be more prudent in the absence of a lender of last resort.

In my view there is no need for ANY credit intermediary (and especially not the State), and I advocate credit clearing of credit issued “Peer to Peer” – subject to a mutual guarantee backed by provisions made by sellers and buyers into a “Pool” held by a custodian.

The logic of the direct instantaneous connections of the Internet is for disintermediation, and credit intermediaries are no more necessary than are (say) record companies in the face of online music file sharing

The consequences of this disintermediation are interesting.

http://www.policyinnovations.org/ideas/innovations/data/000085

http://www.slideshare.net/ChrisJCook/money-30