The recent global financial crisis raised still-lingering questions on how to balance actions based on short-term decision making against the uncertainty of impending long-term change in the economic environment. The Monetary System outlines the conceptual basis required to build a new and more stable financial system, paving the way for a fiscal policy model that places emphasis on rotation rather than on inventories of financial instruments that would result in improved tax policies. In this important text, Jean-Francois Serval and Jean-Pascal Tranie explore the historical context of money and reveal how transactions work in today's global economic environment. The Monetary System is a compelling work that answers a number of key questions about our current financial situation: What underpinning of democratic society facilitated a transition to the economic realities of today? What were the major drivers that characterised the current economic impasse? How can one forecast future trends? What can be done to "fix" the present economic system? Based on exhaustive research, the book offers an overview to the present economic situation throughout the world that is defined by slow growth, rising debts, and low inflation. The authors envision a healthy economic future and put forward a new model for the global economy. The Monetary System is a comprehensive resource that gives banking professionals, as well as others interested in the topic, keen insight into our current economic situation and offers an understanding of the factors that can help shape a sound financial future.
List of Figures xi List of Tables xiii Acknowledgements xv Foreword And Introduction xvii Chapter 1 From Antiquity to Modern Times; Monetary Development Over 5000 Years. What History Explains and Comparison within New Contexts 1 The Origin of Money; From Antiquity to Modern Times 1 A Metallic System Allowing Intrinsic Measurement Stamping: Ingots to Coinage 2 Grounding the Guarantees of Stamping: From an All-Metallic System to Paper Bills 3 The Rise and Fall of Civilizations 5 What Can We Learn from Ancient and More Modern History? 9 Questions and Answers 11 Chapter 2 Modern Times -- Liberation and Growth of the Money Supply. The Facts Presented in Monetary Units and Resulting Regulatory Needs 13 Monetary Evolution Backed by Economic Growth 14 Development of a Global Financial Market Economy 15 Citizens Emerging in the Process of Financialization 20 The Realities 20 Causes Underlying Emerging Macroeconomic Realities 22 Resulting Needs for Standardization, Regulation and Supervision 23 Questions and Answers 25 Chapter 3 Past and 21st-Century Money Analysis 27 Defining "Today's Money" 27 Money Defined by its Functionality 27 The First Function: Price Setting --Money as a Measurement Standard ]Based Source of Information 29 The Second Function: A Payment and Trading Instrument 36 The Third Function: A Reserve 36 Links between Monetary Functions 37 The Intrinsic Definition of Money 38 A Trifunctional Monetary Support System 38 How To Ground Trust In Money: Audited Financial Statements For Government and Central Banks 43 Seignorage and the Privilege of Issuing and Stamping Money 43 Traditional Seignorage in General 43 The Modern Seignorage Privilege 44 Legal Tender and Seignorage 47 Evolution of Money into a Segregated Intermediation Tool with Imprecise Frontiers 47 Linguistic Definition of the Word "Money" 47 Money Today 48 The Demise of Traditional Conceptual Approaches 50 The Operational Scope of Money and its Use 52 The Extension of Money with Disintermediation 53 Direct Financing and Hedging of Risk 53 Replacement of Bank Loan Financing by Securitization and the Impact of Pro-cyclical Effects 54 The Origin of Securitization 54 The Securitization Concept and Its Implementation 56 Securitization Financing via Trust-Derived "Shadow Capital" Originating from Retirement Accounts, Direct Savings and Trade Deficits 58 Guarantees on Receivables: A Securitization Multiplier 59 Extending the Field of Debts and Guarantees 60 Deviations from Effective Risk Control: The CDS Case 61 Towards the Full Liberation of Money from Any Referential 62 Guarantees and the Extension of Monetary Instruments Liberated from Unified Backing and Issuance Constraints 64 Monetary Effects of Guarantees 65 Shadow or Parallel Banking Systems 65 Before Accounting for Any Transaction --The Sampling Topic. The Mix Up between Numbers and Formulae 70 Questions and Answers 72 Chapter 4 The Contemporary Basis for Money Expression: Accounting Ledgers 77 Book Balances are Either Money or Potential Money 77 A Single Worldwide Language; Accounting and Financial Statements 78 The Consistency-Based Principle of Bookkeeping 78 The "Double-Posting" Principle 79 Consequences of the Basic Accounting Principles 80 Concepts and Rules to Report Exchanges and Determine the Image of Financial Statements 81 The Image Presented by Financial Statements Influences the Analysis of Economic Data and Transactional Exchanges 88 Direct Systematic Impact of Accounting Standards 91 Double-Entry Consequence 91 Value Consequence 91 Where Misleading Standards Generate Distorted Images 91 Valuation Incertitude in Accounting Standards 91 The Appraisal Spark Plug that Drives a Continued "Fair Value" Crisis 92 Monetary Aspects of Financial Statements 93 The Necessary Approach in Accounting: A Hierarchy of Dangerousness 95 Degrees of Contagion ("Interconnection") 96 The Fair Value Conceptual Mistake Contributes to Instability and Distrust 97 A Need for Mathematical Approaches 98 Questions and Answers 99 Chapter 5 The Regulation and Observation Limits Already Accepted, Compared with the Realities of Modern Exchanges 103 Monetary Regulation and Follow-up 103 A Retrospective Analysis of Classic Money in Operation 103 Governmental and Central Bank Monetary Operations 104 Inception, Monopolies and Measurement Aggregates as Classical Mechanisms for Issuing Money 104 Traditional Monetary Aggregates 105 Monetary Aggregates in Central Banks 106 Accepted Concepts that Complement Traditional Monetary Analysis -- Limits and Evolution 107 From the Known Money Multiplier through the Banking System to a New Perspective 107 Traditional Regulatory Measures to Ensure Banks' Stability Limits 109 Money Issuance through Central Bank Interventions 109 The Investment Multiplier 110 Following Up on Regulating Money Issuance in a Changed Economic Environment. Monetary Supervision: An Ancient Question 111 The Present-Day Non-utility of Classical Aggregates 112 New Forms of Monetary Exchange 114 The Driving Role of Monetary Velocity 118 Are Central Banks Prerequisite Institutions that Should Remain Independent from Sovereign Authority? 120 New Policies to Stabilize the Banking System 125 The Insufficiencies of the Current System for Satisfying Information Needs 125 Questions and Answers 126 Chapter 6 Redefining the Monetary System and Measurements of Monetary Flow -- Towards M5 and M6 129 At the Core of the Issue: The Definition of Currency 132 The New Environment: Broadening the Definition of Currency 133 New Monetary Aggregates Define Extended Concepts of Money 135 Defining New Classes of Monetary Aggregates: M5 and M6 135 M5/M6 and their Derivatives M5 '/M6' : Determining Definitions and Uses 137 Segregation and Derived Aggregates: M5' and M6' 140 The Utility of M5 and M6 Aggregates 142 From a Practical Point of View, What are the Data Limitations for Determining the Values of New Monetary Aggregates? 142 What Information Will These New Aggregates Yield? 142 A New Aggregated Conceptual Approach Allowing Operational Transactions and Financial Ones to be Reconciled 143 The Resulting Breakthrough 143 Defining New Money -- The Difference Between Shadow Banking Money, Virtual Money and the New Aggregates 145 Legal Segregation between Different Types of Money, Depending on Underlying Guarantees and Transferability 145 Shadow Banking is Different from Virtual Money 146 Questions and Answers 146 Chapter 7 The Monetary System 149 International Exchanges -- Interactions and Monetary Zone Coherence 149 General Framework 150 Description of the Current Operational System: Distinction between National and International Systems 151 The Current International System 152 The International Set-up 152 The International Monetary Fund 153 The Bank for International Settlements 157 The World Bank Group 158 The World Trade Organization 159 International Coordination 160 G5 to G20 160 The G20's Reasons to Exist 160 The Coordination of Goals Assigned to the G20 161 Troika 161 Micro- and Macro-prudential Surveillance Agencies' Framework 162 Coordination Issues Inside the Eurozone as Opposed to International 167 The European Stability Mechanism and the European Central Bank 167 The Banking Union 169 The Fiscal Policy Coordination Issue Compared with the USA 173 The Growing Issues of the Size of the Monetary Zones --Research for Optimum 175 The Monetary Interaction of Systems 178 General Interaction: Scale Economies Resulting from Monetary Integration and Political Obstacles 178 International Microeconomic Regulation Coordination Specifics 178 Transnational Realities about Financial Instruments' Markets and Systemic Risk Measurement 180 Handling the Social Obstacles of Monetary Unification 181 The Answer to Heterogeneity 181 Europe and the USA 182 The US Answer to Inequalities 182 The EU Answer to Inequalities 182 The General Monetary Policy on Both Sides: Reinforce Equity, Regulate Transparency --A Dead End 184 The Disputed Strategy: Addressing Macroeconomic Imbalances 186 Allocated Roles and Goals in the International Monetary Set-up 188 Today's International Situation and Issues 189 Questions and Answers 190 Chapter 8 What is the Conceptual Essence of Contractual Money, Constraints and Implications? 193 The Intrinsic New Conceptual Views on Money 193 Resilient Open Questions in a New Environment 196 Stability and Guarantees 198 Money as a Measurement Instrument: The Need for Stability 198 Money Guarantees and Trust 200 One Key Consequence of the New Set-up: The Final Trap 202 The Emergence of a New Seignorage 204 Spreading the Seignorage Rights between Chartered Financial Institutions Accepted to Trade Instruments and the Central Banks' Right to Drive Values 204 Social Roles of Money: Transferable, Reserve or Bubble? How to Determine Sociological Thresholds from Different Dimensions 205 Modelling the Monetary Windbag Analysis 207 A Tentative Formula: STD (Serval-Tranie-Douady) 208 Debt versus Equity Instruments: The Need for Big Data 211 Questions and Answers 211 Chapter 9 The New Nature of Money in Electronic Times 215 New Horizons Concerning Exchanges, Time and Guarantees 216 Time: A Different Dimension 221 Social Time and Anticipation 222 Speed Efficiency, Risks and Market Switches 223 Transparency Effect and Risk of Centralization: The CCP Example 223 Money Accumulations and Interactions 224 From Excessive Accumulation Derives Non-level Playing Fields 224 Determining the Appropriate Amounts of Accumulation 226 The Paradox of Availability of Money Masses as a Policy Tool for their Holders 227 The Implosion Risk of the Money Trap 227 Questions and Answers 228 Conclusion 231 Glossary 241 References 247 Selected Articles 253 List of Monetary Central Institutions and Others (International and National) with Websites 257 Index 265
