Telematic currency and market strategy (mtemuk.pdf). - Centre d ...

Thanks to the possibility of emitting bank notes, the bases were set to avoid the shortage of precious metals,
which even if new mines were discovered in the XIX century, were still insufficient. The XIX century is
already fully industrialized: this produces a high increase of the needs of buying power at a rythm which
precious metals cannot follow.
7. The non-convertible bank note.
Banks, thanks to bank notes, can issue higher amounts than the hard cash deposits. This
is common practice, and, as we have already said, it causes no problems, as long as a
reasonable ratio is held between metallic money and bank notes. Better still, this practice
is absolutely necessary for the market, since through these mechanisms the necessary
monetary instruments are produced when metallic money is insufficient.
The money system based on the parallel circulation of metallic money and bank notes is
currently called «gold standard». This system is a peculiarity of all the XIX century.
In the end, also the «gold standard» became unsuitable for the needs of a market as developed as that of the
XX century. With the new evolution of the money system, monetary instruments become completely
abstract, completely foreign to any real and intrinsic value.
During the XIX century, central banks of several states monopolized the emission of bank notes, which then
became legal. But every time a State had political or economic problems -production crises, wars,
revolutions...) and had more expenses, this State had to produce more and more bank notes, until the
inevitable trust crisis arrived. Everybody wished to convert his notes in metal, and the only solution for the
state was to declare a compulsory use of the notes, which meant it was impossible to convert them into
precious metals. Only when the situation became normal again could convertibility be re-established.
We must point out that an important forerunner of the inconvertible bank notes is to be found in the Law
system (1716-1720), and in the «assignats» of the French Revolution.
During World War I the enormous war expense almost completely emptied the chests of the participating
states. Most of the gold from these states «emigrated» to the U.S.A. Banknotes were produced in great
quantities and, of course, convertibility was suppressed.
Since then, the money systems of the «civilized world» were distinguished by the inconvertibility of bank
notes. After the war, some countries tried to reintroduce a partial convertibility, but the 1929 crisis definitely
put an end to it.
Therefore, the system born in World War I is based on the abandonment of metallic money, as
far as utilitarian relations are concerned. In international relations, the role of gold is held, but
only until 1971, when president Nixon untied dollar from gold, and unilaterally denounced the
treaty of Bretton Woods of 1944.
The superiority of the inconvertible bank note, which we will simply call paper money, is the
peculiarity of the new monetary stage. This paper money, which is still in use in our days, holds no
relationship with gold nor with any metal nor real merchandise. It does not represent any quantity of gold,
and it cannot be converted into it.
Which is then the nature of paper money? which is its basis? Paper money is simply based on the social
agreement which has made it the necessary instrument of the mercantile exchanges and on the trust given it,
as an instrument which fulfils its function adequately. Therefore its nature is radically auxiliary-abstract. Its
value is that of an instrument helping us in accountancy and exchange of real goods; it has an auxiliary and
abstract value, and not an intrinsic and real value: this can only be a peculiarity of real goods.The money
system has finally gone back to its fundamental primitive nature.
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