kidmercury

Last time, we talked about the remix revolution, and how it is being applied to everything -- even currencies, as the creation of a composite currency can help hedge against exchange rate risk, a growing concern for many businesses as forex volatility reaches new heights.

In this post, we'll talk about how a composite currency changes everything, and what business looks like in such a world.

1. Why We Need Composite Currencies

To recap, we need new currencies because the ones we have are not stable in value. This stems largely from the fact that all currencies are fiat currencies, not commodity money (see our previous post on this subject).

So why not return to commodity money? Why not return to the gold standard?

Certainly many will argue that. In my opinion their arguments are worth considering. However, I think that commodity prices can be manipulated; GATA, for instance, has been arguing gold has been manipulated for almost a decade. There is also the issue of costliness and practicality; creating a silver standard is something tried via the Liberty Dollar, and while that it is still alive and growing, they have had FBI raids as well as high operating costs.

For these reasons, I think a composite currency managed by a fund would work best. You could think of it as a central bank, which is essentially a fund that manages the value of the currency it prints.

2. Accounting Standards With Composite Currencies

As we saw in the hyperinflationary episode in Argentina in 2001, companies were forced to keep their accounting books in multiple currencies, as the instability of the Argentine peso made valuations impossible. As such, I expect the fund that introduces the currency to also dictate accounting/valuation standards.

To make this concept more intuitive, imagine if Facebook created its own currency. If you are a developer of Facebook apps, or if you are a business that wants to sell stuff on Facebook, you need to register with Facebook. Facebook will keep track of all your accounting records related to your Facebook business; you can think of it as a second set of books, priced in Facebook's currency, and according to the standards set by Facebook.

3. After Accounting, Comes Finance

Once an organization that manages the value of the currency dictates accounting standards, it will be very easy for that organization to facilitate public trading of shares of the companies in its ecosystem -- i.e. a stock exchange. Sticking with our Facebook example, Facebook could create an exchange that lets people buy and sell stocks of businesses on Facebook. All of this would be done in Facebook's currency.

Out of Darkness Comes Light

At this point, long time KidMercuryBlog readers might be saying to themselves, "Hey Kid Mercury, isn't this message you've delivered really a blueprint for a centrally planned economy?" Yes, indeed, it is. Out of darkness comes light, is my preferred explanation; we simply need to make central banking a free market game.

I know this is too radical for most folks. To which I say: as always, necessity is the mother of invention. The current necessity is in fixing accounting standards, financial markets, and most importantly, monetary policy (from which everything else stems). One thing, though, is certain: refusal to speak about the problem ensures it gets worse -- until it gets so bad you realize that the Truth is your only option. Then, of course, the problem disappears, and the solution is revealed.