Electronic banking in association with ATMs and EFTPOS is now the most efficient method of recording financial transactions. We need to establish a sound money system using this technology. We need a legal framework that will support a sound money system, regardless of money technology that prevails. The solution is not in a particular technology, but a legal framework that will constrain any money technology.

We cannot avoid some government involvement. The problem with most money systems is that they allow theft, by banks or by the government. A gold standard does not automatically eliminate theft, as banks still have the potential to cheat. Those who do will have to be identified and prosecuted for theft. One of the few legitimate roles of the civil government is to punish theft. The only role of civil government with respect to money is to prosecute and punish theft. Some government role is inevitable, but it should be limited to the prosecution of crimes of theft.

The civil government should ensure that laws against theft and fraud apply to the electronic banking system. The civil government should commit to prosecuting all money crimes as theft. Apart from this, the civil government should have nothing to do with banking. If the civil government prosecutes theft consistently, then a sound money system will emerge out of the market. What I have tried to do on these pages is show how this could be done. I believe that if the simple rules that I have outlined here were implemented in legislation, and if anyone that broke these laws was prosecuted for theft, then the banks would establish a sound money system.

The civil government is not responsible for establishing a currency. If the civil government prosecutes theft consistently, private banks can establish and maintain the currency. The role of the civil government is limited to prosecuting and punishing theft through the dilution of currency.

I am giving an example of how a sound money system might start, but how it started is not really important. The important issue is how it would work now in a modern world, where most financial transactions are done electronically. We already have a transaction recording system. The modern electronic banking system provides a process for recording transactions. I believe that the main issue is to ensure that the legal framework that supports this system does not allow theft.

The Value of Money

There is a mistaken view that the government determines the value of a currency. This is not true. Even if the government establishes a currency as "legal tender" this generally only refers to notes and coins, whereas most transactions are electronic. Making a currency legal tender does not determine the value of that currency. The value of the unit of account is not determined by the central bank or the government. A currency does not have a value in itself. The value of the currency is determined by the people who use it.

Money in the bank does not have value; it is just a number of digits in a computer. Digits on a bank file have no value. People only want them, because they can use them to buy what they need. The value of the money in a bank account is determined by what can be bought with it. People have to look at goods and services offered for sale in the market to see what the currency is worth.

The value of a currency is decided by people using it to buy and sell goods and services. Traders who offer goods for sale in the market place are stating the value they place on the currency. They decide its value on the basis of what they expect to be able to buy with the money they get. Purchasers state the value that they place on the currency when they make purchases at prices expressed in that currency. People know what the dollar is worth because they see what it will buy in the market. However, prices can change over time, so the best indication of the value of a currency is the last few sales in the market denominated in that currency.

People are capable of looking at a range of goods and services and assigning a value to them. They can express the values relative to other goods and services, or they can express the value in terms of a currency, provided they can see a range of goods of goods available for purchase at prices expressed in that currency. A key attribute and character of God is to evaluate people and actions. His valuations are perfect. People are created in the image of God, so they can also make evaluations. However, because we are finite, we sometimes make incorrect valuations. The fall was a massive bad valuation of the worth of the serpent's words, so even before the fall, humans had the capacity to make incorrect valuations. One way of looking at freedom is to see it as the ability to make bad valuations.

The value of a currency is determined by people, as they denominate the valuations they have made in terms of the currency. However, it does not have one fixed value. Different people make different valuations of the currency depending on their situation; their valuations are subjective. Traders place a value on the currency when they offer goods for sale at prices expressed in it. Purchasers buy goods and services that they consider will be of value to them. The intersection of all the valuations made by people in the market determines the value of the currency.

It follows from this that value is not stored in a bank. Value is stored in the goods available to for purchase. If there is a surplus available, then the value stored increases as prices fall. If there is a scarcity of goods, the value stored decreases as prices increase. A bank cannot store value; gold cannot store value. The store of value is maintained by producers who keep on producing goods that people want. If they stop producing, then the value stored fritters away, regardless of the number of digits on the computer databases of the bank or gold coins under the mattress. The store of value is independent of the unit of account.

Fiat Money

Paper money is often called "fiat money". The word fiat means "decreed". Money is given this name, because governments decree that their currency will be the only one used. However, referring to "fiat money" is misleading, because governments cannot give value to a currency.

The state cannot give money value. Money is given value by individuals giving goods and service to another person in society in exchange for money with the expectation that they can use the money to something of equivalent value (to them) from someone else in that society. The state does not give the money value. The signature of the Head of the Central Bank on a banknote does not give me confidence to accept it. The only reason I accept it is that I know that I will be able to exchange it for something else. The people of a society give value to their currency by exchanging goods and services for it.

The state cannot give value to a currency. A currency that was only accepted by the civil government would be virtually worthless. Individuals and businesses give the state's money value by exchanging goods and services for it.

Proof of this principle is that good quality counterfeit money can circulate for a long time without being discovered. Even though it is counterfeit, it has value because retailers are willing to exchange it in exchange for goods. Likewise, Australian 20c and 10c coins circulate in New Zealand, despite have no legal status here. People accept them at face value, because they are accepted by retailers and can be used in parking meters in New Zealand. Their value does not come from the Australian government, but from people the people who use them.

American dollars are accepted in many places in the world where the American government has no legal authority. Dollars have value, because people know they can be used to buy goods and services. People give a currency value, not the state.

While the state cannot give value to a currency, it can destroy a currency's value. Kings and governments have a long history of debasing coins and printing bank notes for their own benefit. This inflation reduces the value of the currency for everyone. People express their concern about this declining value of their currency by raising prices to compensate.

State money is always a fraud. When Governments put their name on a currency, as if they created its value, they are perpetuating a lie. The people of a society give value to money by using it. Their name should be on it, because if they stop using it, it will have no value.

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