What *SHOULD* back a currency?

Travis J.I. Corcoran (Travis-Corcoran@deshaw.com)
Tue, 15 Apr 1997 17:13:05 -0400

There's been much interesting discussion recently about the choice of
commodities that back a currency (I personally am of both the
semi-contradictory schools that (a) thinks that a currency should be
backed by a broad basket of goods so that it's value is likely to
track that of the cost of the basket of goods a normal person wants to
purchase with their currency; and (b) the concept of "backing" a
currency is somewhat bogus because the important thing is that the
currency be accepted for trade, not that it be redeamable for a chunk
of metal).

My question: what sort of backing would people like to see in an ideal

While the idea of non-national currency is interesting, I would want
to be convinced that there was a good chance that my wealth held in
such a currency would be useful (i.e. accepted by others), and would
also want to make sure that it could not be manipulated or inflated
away by the powers that be (one of the big reasons that I like the
idea of non-national currencies in the first place). So, I'm not
about to buy { digicash | cybercash | IBM } denominated currency any
time soon (which is not to say that I wouldn't buy US denominated
digital cash).

While day-dreaming economies for a science-fiction story a while back,
I thought of shares of stock being used as a general currency, with
individuals choosing to diversify their wealth into multiple
securities. Of course, in such are scenario third parties (mutual
funds) would be willing to undertake the diversification task for

Shares have the problem that they are not divisible enough for most
purposes. Mutual funds or other synthetic devices win again, because
it's possible to exchange 1/10th of a share, because there is a
repository for the fractional shares. However, MFs lose because of
management fees, and because the majority of them underperform the S&P

So, what remains? I personally like the idea of Spiders (as I
understand it, synthetic S&P shares).

Any arguments for a better basis for non-national currency?


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