Monday, April 29, 2019

Two Interesting Interviews Coming Up in May on the Blog

I am pleased to announce that in May we will have two brief but excellent interviews coming up on the blog. In early May, Dr. Warren Coats (retired from the IMF) provides some insight on his recent proposal regarding some changes he thinks the Federal Reserve should make. If adopted, his proposal would certainly be monetary system change like we watch for here. Dr. Coats also provided some interesting comments on how he views capital gains taxes. This article will introduce readers to what may be a new concept for many (Currency Boards). Dr. Coats has extensive experience with Currency Boards in his years at the IMF working to construct monetary systems.







Later in mid May, I will post a Q&A style interview with Jim Rickards about his new book "Aftermath" which is coming out in July 2019. In this interview Jim provides an overview of what he talks about in the new book. He also updates us on his prediction that we will see a new financial crisis leading to major monetary system change based on the latest trends he sees. Since that is the kind of change we watch for here, this is a welcome and timely update from Jim.




Friday, April 26, 2019

One Quarter into 2019 - Anything New to Report?

Readers here know that we have been reporting for some time that unless we see some kind of new major financial crisis, we don't expect to see any major monetary system reform in the near future. For this reason, we have somewhat moved into monitoring mode here and only try to produce a few articles a month when we see something that might be worthwhile for readers.


So, now that we are one quarter of the way into 2019, is there anything new to report?


Mostly no, but perhaps a few tidbits that might be of some interest based on a variety of input sources. Below are a few bullet point items.

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- the political environment (which can impact change) seems pretty status quo. The country remains very divided and there are no signs that is likely to change any time soon. So long as President Trump remains in office, we can expect that without some kind of major economic problem, he will most likely continue along the same path without any major changes to the monetary system. 

- Modern Monetary Theory has become a hot topic lately, but more in the political arena than in actual policy making circles thus far. Without a major shift in political power, it seems unlikely that MMT will gain much traction with actual policy makers. It does appear likely that MMT will become part of the political debate heading into the 2020 election cycle. We won't cover it much here unless it gains more political traction since we try to focus on what actually happens.

- Central banks continue to study and talk about the idea of introducing central bank digital currencies, but again we have not seen much change in that direction so far. (as noted in the recent update from Agustin Carstens from the BIS). The IMF and World Bank did announce a project to explore the potential of blockchain technology.

From time to time I do hear from a variety of experts who do discuss various ideas and proposals for monetary system change. I can report that there is lot of interesting discussion that does go on related to this. Some of the issues I have seen discussed include:

- what rules should the monetary system follow?
- what is the best anchor for a currency to provide long term price stability?
- has the Fed monetary policy since the 2008 crisis been the appropriate response?
- was the initial Fed emergency response appropriate, but then carried too far later on?
- is modern monetary theory (MMT) an upcoming force for monetary system change?
- is there any real threat to the role of the US dollar as the global reserve currency?
- are Russia and China working on building a system to bypass the US dollar and the SWIFT system?
- is there any will inside the Trump Administration to propose significant monetary system reform?

One of the main goals of this blog has been to try and document a variety of ideas and proposals related to some of the questions raised above. Readers can find that here on this permanent page of the blog.

Other note: In May 2019 there will be panel discussion held in Fort Worth,Texas which will address the question of whether a free society should have a central bank, and if so, what monetary policies should it follow to be most consistent with liberty? (see 8 am panel discussion on Monday May 20th). 

The participants in this panel discussion include Warren Coats, Scott Sumner, John B. Taylor, and Lawrence H. White (not me, the Lawrence White from George Mason University). The panel discussion is part of a multi day conference co sponsored by the SMU/Cox O'Neil Center for Global Markets and Freedom and the Texas Tech University Free Market Institute.

This is obviously a great panel and the topic looks interesting in terms of what we follow here. Eliminating the Federal Reserve or significant changes to the rules it must follow would constitute the kind of monetary system change we watch for.

So, if I can find a way to obtain the contents of the panel discussion (video or text of the papers presented), I will try to cover that here for readers. Meanwhile, in May we will have two interviews upcoming that should be of interest to readers. One with Warren Coats and one with Jim Rickards.

Wednesday, April 24, 2019

News Note: IMF & World Bank Announce Exploration of Blockchain Technology

While it appears that there is little mass movement towards central bank digitial currencies at this time, we do have some recent news articles related to an announcement by the IMF and The World Bank that they will explore blockchain technology in what Jim Rickards tells me is a "prototype" project that he has talked about in recent articles and interviews.



This appears to be an early stage project that will not focus on creating a monetary currency for now. Below are links to a couple of news articles on this project and some excerpts from each article.

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Cointelegraph.com 

"The International Monetary Fund (IMF) and the World Bank have jointly launched a private blockchain and a so-dubbed quasi-cryptocurrency, the Financial Times (FT) reports on April 12.

According to the newspaper, the asset called “Learning Coin” will be accessible only within the IMF and World Bank. The coin has no money value and thus is not a real cryptocurrency, the FT underlines."




Blockonomi.com

"A recent report by the Financial Times has revealed that the World Bank and the International Monetary Fund (IMF) have collaborated to launch a private blockchain network, which will enable “explorations and experimentations” into Distributed Ledger Technology (DLT).

In addition to that, both institutions have reportedly created a digital asset, dubbed the “Learning Coin,” based on their joint blockchain network.

The report claims that the Learning Coin was created as a tool to aid the institutions in their effort to better understand blockchain technology, including its function as an underlying technology for crypto assets."

                                                   Click here to read the full article in Blockonomi

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My added comments: Readers may ask if this news indicates that we should expect to see some kind of new global cryptocurrency from the IMF as a result of this project (an e-SDR for example). It's too early to know if anything like that might emerge from this project. This news makes it clear that the IMF does have interest in exploring blockchain technology and is obviously willing to commit time and resources to this project. For now, the project is not described as testing a new type of monetary currency, but rather testing blockchain technology in general as it may apply to a variety of potential uses.  

The quote below from the first article linked above makes it clear that there is still much debate ongoing as to whether or not blockchain technology will bring about significant change inside the system any time soon:

"Meanwhile, a World Bank official expressed a more skeptical point of view. According to Aanchal Anand, a Land Administration Specialist in the bank’s Global Land and Geospatial Unit, there is too much hype over blockchain, which causes unrealistic expectations."  (see more World Bank comments here).

On the other hand, IMF Director Christine Lagarde has spoken more encouragingly about the potential for both blockchain and distributed ledgers. In this recent CNCB intervew, she said this:

“I think the role of the disruptors and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever ... that is clearly shaking the system,” she said.

My take on the above is that it is consistent with what we have reported here that there continue to be a variety of ongoing studies related to blockchain technology inside the present system at central banks. Now we see this also includes the IMF. However, at this time, it does not appear that the majority of these institutions has moved beyond initial studies into making a decision to actually deploy either central bank digital currencies or any kind of new potential global reserve cryptocurrency.  This is consistent with what Agustin Carstens stated in his recent speech on this topic that we covered here. So, this remains an area to monitor over time to see what actually happens.

The IMF did devote an entire panel discussion to Money and Payments in the Digital Age at the recent IMF spring meetings. Readers interested in viewing that discussion can do so just below (follow the link to view on Youtube).







Monday, April 22, 2019

Agustin Carstens (BIS) Update on Central Bank Digital Currencies

We have followed the news on central banks looking at the idea of central bank digital currencies here for some time. This would be the kind of changes we watch for if a movement began at central banks to move in the direction of offering central bank digital currencies directly to the general public.


We have been reporting here for a good while that we do not see any indications that such a move is in progress at central banks at this time. In this new speech, Agustin Carstens of the BIS updates us on this. It appears there is not much change at this time. In this text of his speech are some good charts and graphs on the topic that readers may find of interest. Below are a few excerpts from the speech.


Also, for any readers that have been looking at our articles on Money Basics (here and here), this speech may be of interest. It provides a look at where things stand in terms of "The Future of Money and Payments" which is the title of the speech. (I added the underlines below for emphasis)

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. . . . .

"Throughout history, technological innovations have continually reshaped the monetary system, either by changing the nature of money or the workings of the payment system. These times are no different. The hype around bitcoin and its cousins has died down somewhat. But innovation continues. What seems new this time is the sheer volume of innovations and the fact that both components of the monetary system are targeted at the same time. Historically, changes to payment systems have been infrequent. Changes to the nature of money have been even rarer. But now, attempts to create new forms of money or to engineer new ways to pay appear almost weekly.

This afternoon, I will share some thoughts on how technological innovation may affect the monetary system. I am particularly interested in the implications for central bank money and what socalled central bank digital currencies (CBDCs) would mean – not just for the system, but for all of us as citizens."

. . . . .

The monetary system: how did we get here?

"Let’s look back at how the monetary system evolved, taking money first. Throughout history, a wide range of items served as money, including stones, shells and cigarettes. In Ireland, coins – first imported by the Vikings – have been used for more than 1,000 years. In its 76 years, the Central Bank of Ireland has presided over three different currencies: the pre-decimal Irish pound with its 240 pennies to the pound, the decimal Irish pound, and the euro.

At its simplest, in economic terms, money is what money does. And what money does – in whatever form it takes – is to serve as a unit of account, a means of payment, and a store of value. A common measure of economic value, or a unit of account, makes our lives easier. Imagine how difficult it would be to compare the price of a pint of stout and a glass of whiskey without money. Go into a pub near here and the barkeeper might tell you a Guinness costs 6 euros and a Jameson Gold costs 12 euros. One is clearly dearer than the other. But what if the barter system were still in place? A Guinness might cost 25 apples and a whiskey 30 oranges. The relative value becomes unclear. Today, the common measure is usually “the currency”. If there are multiple units of accounts, one tends to prevail over time. As you may recall, shops in Ireland initially listed prices in both euros and Irish pounds. Still, two decades later, not many outside this building remember the official conversion rate of IEP 0.787564 to the euro."

The second attribute of money is to serve as a means of payment. I could pay for my pint with cash, with a credit or debit card and, increasingly, even with my mobile phone. But, as I mentioned earlier, there is an important distinction between the types of money being transferred. Cash is public money, issued by the central bank. The others represent private money. That is, liabilities of either a commercial bank, the phone company, or a big tech firm.

Last but not least, money must be a reliable store of value. This is a lesson I learned the hard way as a child. When I was eight years old, inflation was high in Mexico. I remember my father giving me a wad of cash for the school bus. At the end of the day, when I tried to take the bus home, the fare had gone up. I ended up walking all the way home. Such experiences taught me the dangers of monetary instability and its inverse, the value of price stability."

. . . . 

A future monetary system with CBDCs?

. . . . .

"Banks play an important role as provider of financial services to citizens and businesses. Imagine that the Central Bank of Ireland and the ECB were to offer deposit accounts to everyone and then issue debit cards and mobile phone apps for you to make payments with. In such a scenario, the central bank would be taking on the customer-facing business lines. Presumably, the central bank would need to recruit new staff to handle this line of business and to handle customer enquiries. Now, I can tell you that central bank staff are very good, and they would be capable of taking on customer-facing tasks. But that is not the main issue. 

Safety could be an important reason to deposit money in the central bank. In times of uncertainty, more customers would prefer to have deposit accounts at central banks, and fewer at commercial banks. A shift of funds from commercial banks to the central bank could be gradual at first. But the trickle could turn into a flood

If bank deposits shift to the central bank, lending would need to shift as well. So, in addition to the deposit business, the central bank would be taking on the lending business. The central bank would need to meet business owners, interview them about why they need a loan, and decide on how much each should receive. 

We can ask ourselves whether this is the kind of financial system that we would like to have as the ultimate set-up . . . ."

. . . . .

"There are historical instances of one-tier systems where the central bank did everything. In the socialist economies before the fall of the Berlin Wall, the central bank was also the commercial bank. But I do not think we can hold up that system as something that will serve customers better."

. . . . .

"We know from historical experience – especially in emerging market economies, but also advanced economies – that, during times of financial stress, money moves away from banks that are perceived as risky towards banks that are perceived as safer. So, money flows from privately owned banks to publicly owned ones, from domestically owned banks to foreign owned ones, and generally from weakly capitalised banks to strongly capitalised ones. In such scenarios, imagine that depositors also have the choice of putting their money in a digital currency of the central bank or in the central bank deposit account directly. It is not far-fetched to imagine that a premium would open up, where one euro of deposits in the commercial bank buys less than one euro’s worth of central bank digital currency."

. . . . .

Where do central banks stand?


"The Committee on Payments and Markets Infrastructures (CPMI) at the BIS last year surveyed central banks to take stock of current work and thinking on CBDCs. More than 60 central banks participated, representing countries covering 80% of the world population. Graph 2 summarises the results. Seventy per cent of central banks are working on CBDCs of some kind. Most are looking at both retail and wholesale varieties.

But only about half of these have moved on to the next stage of actively testing the idea (as Graph 3 shows). These central banks are examining the benefits, risks and challenges of potential issuance from a conceptual perspective. Only a couple have moved on to experimenting with the different possible technologies, in “proofs of concept” or even pilot projects.

If we go one step further and ask central banks whether they plan to issue a CBDC, the picture is quite telling. As you see in Graph 4, very few central banks think it is likely that they will issue a CBDC in the short to medium term, be it retail or wholesale. Having looked into the matter, central banks have decided not to jump in.

Obviously, this is consistent with what I argued earlier, namely that: (a) the introduction of CBDCs would have a major impact on the financial system; (b) there is not yet a noticeable and widespread fall in the demand for cash; and (c) central banks do not feel compelled to face a major change in the way they conduct monetary policy. Also, research and experimentation have so far failed to put forward a convincing case. In sum, central banks are not seeing today the value of venturing into uncharted territory."


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My added comments: The speech above supports what we have reported here for some time. While I see articles all the time talking about major changes coming from central banks and/or the IMF leading to a new digital currencies and the elimination of cash, the reality as stated in the speech above is that there is no indication at this time that changes like that are on the near term horizon. All kinds of ideas are studied, but central banks are very slow about " venturing into uncharted territory" as Mr. Carstens puts it in his speech.

Added note: With the news that Herman Cain will not be nominated to the Fed, we will keep an eye on this situation. Seeing some indications in the news about who might be a new nominee, but will wait to see what unfolds.

Thursday, April 11, 2019

In Money We Trust - A Documentary on Money Basics

An excellent documentary on money and monetary system basics has been released for global distribution by PBS. The title of the documentary is "In Money We Trust?". Readers may think of it as a followup to our earlier article on Money Basics.


The video features a diverse group of experts who walk us through the history of our money in an easy to understand format. Below I have pasted in the introduction text for the video and a direct link to watch it. Following that are some added comments.

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In Money We Trust ?


"In Money We Trust? asks & answers the question, “what is money” and explains how money provides a shared measure of value that facilitates trade and cooperation between strangers. Throughout history, trustworthy money has fueled human achievement from the emergence of philosophy to the high-tech revolution. Featured guests: Alan Greenspan, Paul Volcker, Adam Fergusson, Steve Forbes." (note: Dr. Judy Shelton who we have featured here on this blog is also featured in this documentary)


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My added comments: 

So why is this important?

If you will take an hour to watch the video linked above, I think it will become obvious why this information is important for all of us to understand. Money has a long history and has been used to do much good and to do much bad. The power to control money and the monetary system people use has been sought after for centuries and still is today. 

Please note as you watch this video how that what happens to money can lead to all kinds of human suffering when poor choices are made. The role of the devaluation of the German currency contributing to the rise of the Nazi regime is a particularly stark example from history mentioned in this documentary (starts just after the 18 minute mark).

When things are normal and the value of money is reasonably stable, the potential for very bad things to happen is reduced. History shows us clearly that when the monetary system fails and the the money used by the general public is substantially devalued, the potential for major social unrest and even major wars increases. Obviously, it's important to understand what causes people to lose trust in the money they use and what solutions might best restore order.

When things go bad financially, the first thing that happens is that people look for someone or something to blame for the crisis. This documentary points that out very well as we have done here many times. 

If the people do not understand what is happening and why during a time of major crisis, they may be led to place blame in the wrong direction by various politically motivated voices. This poor choice (placing blame in the wrong direction) then may lead to major unnecessary (but very real) human suffering if the wrong solutions are adopted to "solve the crisis".

The goal here is to try and emphasize that these issues are important to all of us and can directly impact our daily lives. History shows us that nothing stays stable forever in regards to money and monetary systems. The view here is that the better we understand these issues, the better off we will be when the next inevitable major crisis does arrive. The younger you are, the more likely you are to see the next one. But it's important for all of us to understand as much we can.



Here is the 2 minute "In Money We Trust" video trailer





Added note: Following this article later this month will be one featuring a recent update on where things stand with central bank digital currencies. Are they a form of future money? Not yet apparently based on this latest update.

Additional added note: For those who might want to do a deeper dive into some monetary history, this paper may be worth your time to read. One of the authors of this paper is an economist that I get input from now and then.

Added note 5-21-2019: John Stossel features and reviews this same documentary here on Reason





Monday, April 1, 2019

The Dallas Federal Reserve Explains Money - A Good Read for Millennials

This blog was created to watch for any signs of major monetary system change. But one problem in this regard is that many people have no idea what we mean when we use the term monetary system or how major monetary system change might impact their own daily lives.


One good first step for anyone wanting to learn more about these issues is to learn some basic concepts about both money and what a monetary system is. I live in the Dallas, Texas area and we have one branch of the Federal Reserve Bank system located here in Dallas. Visitors can take free tours of the Dallas Fed and it also does produce educational materials on these basic issues. 


Below I have pasted in some excerpts from this article produced by the Dallas Fed simply titled "Money".  I selected these excerpts because they relate to various issues I see discussed all the time in doing research for blog articles here. It should be noted that the Federal Reserve is not without its skeptics and critics and some of the statements pasted in below would be challenged by those critics for sure. But overall, this paper is a good place to start learning about the basic concepts that lead to the debates we see about both money and how a monetary system should function. I encourage readers (especially younger readers who may not have had much formal exposure to these concepts in school) to read the full paper


I asked Dr. Judy Shelton to preview the information presented in this article and she offered this comment about it:


"I hope this kind of information reaches many young people and causes them to reflect on the importance of trustworthy money."  -- Dr. Judy Shelton

Dr. Shelton is the US Executive Director for the European Bank for Reconstruction and Development and also a Senior Fellow at the Atlas Network.

Further below, I will list some of the issues and debates that I see arise from the basic concepts presented in this paper. (note: I added some underlines below for emphasis)

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Introduction Paragraph to "Money"


"Money is so important that when no official money exists, people often create it. For example, during World War II, prisoners in prisoner-of-war camps used cigarettes as money. All other goods were priced in terms of cigarettes, and prisoners willingly accepted them as payment for any other good. While cigarettes have value to smokers, once they become money, they gain value in terms of everything they can be exchanged for, whether a person smokes or not. People will always find something to serve as money, even with no government to enforce its legitimacy.

What Is Money? Money is anything that is widely accepted as a form of payment for goods and services or repayment of debts."     . . . .


Defining Money by Its Uses

"How can we know when something has become money? One way to identify money is by its uses. Money functions as (1) a medium of exchange, (2) a unit of account and (3) a store of value. When people accept money as payment for goods and services, it is not because of the intrinsic value of the money; it is because they believe it will allow them to purchase the goods and services they desire, now and in the future."  . . . .

The Characteristics of Money


"Cash payments account for almost 50 percent of all transactions in the U.S., so the role of currency in the country’s payment system is very important. Just imagine if you were designing the nation’s currency from scratch. You already know that currency must function as a medium of exchange, a unit of account and a store of value. But what features does your money need? Six characteristics have been identified: Money must be durable, portable, divisible, scarce, uniform and acceptable.

There are more than 107 billion cash transactions in the U.S. per year." . . . 

Types of Money


"We know that one of the uses of money is as a store of value. But how does money get its value? Three different types of money are recognized based on their sources of value: commodity money, representative money and fiat money."

Commodity Money


"A commodity is an item that has value in and of itself. This can include anything from cows and wheat to silver and gold.  . . . . 

Through history, the commodity that most commonly has become money is a precious metal. Metals have all the characteristics of money. Metals are generally durable, lasting a very long time in circulation. When minted into coins, precious metals become relatively portable. They are divisible by weight or denomination. They are scarce, requiring time and energy to find and extract. Precious metals are uniform because their value in trade can be confirmed using rules regarding purity. Last, by being easily recognizable, precious metals are acceptable to most people."  . . . 

"As a society’s demand for money increases, the constraints of using a commodity often become burdensome. To simplify transactions, people stop using the actual commodity as money, and instead paper becomes the commodity’s substitute. The new paper money is called representative money."

Representative Money


"Representative money does not have value on its own. Its only value lies in the value of the commodity it represents. It is actually a promise. When a government begins printing representative money, it is promising that the money is backed by, and often can be exchanged for, a specific amount of the represented commodity. The strength of the representative money is based on both the value of the commodity and the credibility of the promise to redeem it for the commodity."

"Early forms of representative money were often receipts for gold and silver deposited with local metal smiths. In time, people began to accept the receipts as payment, rather than returning to claim the commodity. When this happened, the receipts began to function as money. By accepting the receipt, a person trusted in the ability to return to the smith and obtain the amount of metal specified on the receipt."   . . . .

"Eventually governments officially converted commodity money to representative money in the form of paper currency. This was essentially a promise that the printed note could be redeemed for a certain amount of gold or silver coin—called specie."

Fiat Money


"Fiat money is money by decree. When it is no longer feasible or desirable to back money with a commodity, governments can declare an item to be money. This decree means that the money is an acceptable payment for goods and services and enforceable for repayment of debts. Fiat currency has no value in and of itself, as commodity money does, nor does it represent a promise to exchange for a commodity, as with representative currency. Its value comes exclusively from the willingness of people to accept it as payment. This willingness is driven mainly by the belief that when a person wants to spend that money, it will still have value— that is, the next person will accept it as well."  . . . .

"Fiat currency has many advantages over commodity and representative money. Fiat currency is not constrained by the arbitrary amount of a commodity. Although this does pose a risk, namely that the money supply can expand without limit, it has an advantage: The money supply can grow and shrink to meet demand." . . . .

"The disadvantages of fiat currency are largely associated with its management. If a regulating body makes too much available, inflation—the general rise of prices in the economy—can occur. If not enough money is available, growth in the economy can be constrained. Balancing between not enough money in circulation and too much money in circulation has proven difficult for some countries. When the growth of the money supply gets out of hand, it can lead to an economic collapse and the abandonment of the money. If people cannot count on money to retain its purchasing power, they will refuse to accept it whenever possible. While the government can enforce the use of fiat money for the repayment of debt, enforcing its acceptance for other transactions is often more difficult."

Federal Reserve Notes and the World


"The stability of U.S. currency, coupled with the size of the U.S. economy, has made Federal Reserve Notes desirable money, not just domestically but worldwide. At times throughout history, countries have held the notes as reserves and occasionally circulated them in place of their own currency. This demand is driven by the perceived safety of the dollar—the belief that it will hold its value and will remain acceptable for transactions for many years to come. "

. . . .

"If the Fed makes money too cheap, meaning interest rates that are too low, more money will flow into circulation through lending activities, and this generally causes prices of goods and services purchased with that borrowed money to rise. When prices rise, we experience inflation—a general rise in prices over time. Low and predictable inflation, around 2 percent, is actually beneficial to the economy, but too much inflation, caused by an overabundance of money, will cause the purchasing power to go down and can damage economic stability.

During the Great Depression and through World War II, many countries abandoned the practice of using their gold reserves to back the currency they circulated—known as the gold standard. After the war ended, a push to reestablish gold on an international scale led to the hosting of a conference in the village of Bretton Woods, N.H. At the conference, it was agreed that countries would commit to a system of fixed exchange rates. The United States agreed to maintain the price of gold at $35 per ounce and to exchange dollars for gold. The dollar became the de facto world currency as many international transactions were quoted in dollars. As long as countries believed that the United States was both willing and capable of redeeming the notes for gold at any time, the notes were considered to be equivalent to the gold they represented. In 1971, President Richard Nixon suspended the convertibility of notes to gold and ended the gold standard. However, the end of the Bretton Woods agreement was not the end of the circulation of U.S. currency abroad. 

Billions of dollars in Federal Reserve Notes are used outside the United States in a number of ways. Some countries circulate the money as their only form of currency. Some countries try to preserve the value of their currency by pegging it—that is, setting the exchange value of their domestic currency—to the dollar, and many more circulate Federal Reserve Notes unofficially. Countries’ specific reasons for using Federal Reserve Notes may vary, but the dollar’s use is generally associated with its effectiveness as a medium of exchange, unit of account and store of value."

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My added comments: The information presented above is intended to spur the reader to read the full paper presented by the Dallas Fed and to try and highlight some of the basic concepts that prompt intense debate. The more the reader understands these basic concepts, the better the reader can evaluate the various points of view you will find about both money and how a monetary system should function. 

It should be pointed out that some of the conclusions presented in this paper are hotly contested and debated by critics. Here is one example from one of the excerpted quotes above:

"Low and predictable inflation, around 2 percent, is actually beneficial to the economy"

There is much debate on whether or not targeting a 2% loss in the purchasing power of the money people use every day to pay for goods and services is "beneficial to the economy". 

Also, this paper from the Dallas Fed takes the view that the Federal Reserve has done a good job overall of meeting its objectives to 1) control inflation and 2) encourage full employment. Critics of the Fed disagree strongly with that view as you will quickly find if you do any research on these issues at all. Before you can evaluate these various points of view to agree or disagree, a basic understanding of the concepts and issues is needed and that is the goal of this article. 

Over the years in doing research for this blog, I can list some topics of debate I see out there that readers should further explore (this blog provides you a lot of material to help with that here and here). Here are just a few examples:

1) Should the US have abandoned the gold standard?

2) Should the US return to the gold standard?

3) Has the Fed really protected the purchasing power of the US dollar during its existence since 1913?

4) Is a gold standard practical for use in a modern economy?

5) Does Fed monetary policy protect large banks over the interests of the average person?

6) Has Fed policy done a good job of meeting it's mandate to provide a stable value to our money and also promote employment?

7) Can we really just not worry about government debt and create all the money we need without sparking a loss of confidence in our money?

This list can go on and on, but hopefully you can see that these basic money issues and concepts are very important to all of us which is why this blog was created. The view we take here is that the more people understand these issues, the better off we will be.

One final comment:

If you read through the excerpts above, you can see an interesting history of how our money has evolved into the monetary system we have today. This is one of the strengths of this paper by the Dallas Fed in my view. 

Please note how that one thing about money and monetary systems has remained constant over time. People must trust that the monetary system will protect the purchasing power of whatever is being used for money over time. You see this theme repeated over and over again in this paper by the Dallas Fed no matter whether it is talking about "commodity money", "representative money", or "fiat money".

The huge financial crisis which rocked the world in 2008-2009 shook the public trust in our present system to the core. This is what has led to much of the discussion and debate we have featured on this blog since that time. People like Jim Rickards have predicted that due to poor monetary policy decisions and due to the continued ramping up of debt in our financial system, a day will come when the present system cannot be sustained. This prediction includes a view that the US dollar will then lose its global status as the world's reserve currency and also endure a sharp and rapid loss of purchasing power. This is why these issues are so important in our view here. As the Dallas Fed has stated repeatedly above, people must have trust and confidence in their money. Without that trust, the system cannot be sustained over time. What if the public loses trust in our money before we can see and respond to the loss of confidence?

If and when the day arrives that too much public trust is lost, it will become vitally important for people to understand these basic concepts and also the various proposals on how to fix a broken system and restore public trust

I especially hope to encourage younger readers to explore these basic concepts and learn as much as possible. Understanding both some of these basic concepts about money and the history of how our money and monetary system has evolved over the last 100 years is huge help in that process and is not widely taught in our formal education system.
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Added note: Follow up to this article with some more basics on money will post here on 4-11-19. That one will feature a video that may be of interest to readers new to these topics.

Followup article is now published here.