we need a currency whose value can not be easily manipulated. Neither gold nor fiat currency as managed by the World's central banks meet that requirement.What monetary system, then, can meet that requirement?
Here I outline the most elegant possible solution to that challenge.
The Numero: A Monetary Unit Based Upon the Cardinal Numbers
A Numero, pronounced with emphasis on the second syllable, is a unit of currency designated by a unique whole number. If you "own" the Number 1, you have a unit of currency. To own the Number 1, you must have an account with the monetary authority or a bank acting as the agent of the monetary authority, which registers your ownership of the Number 1.
Additional units of currency are created by the use of additional cardinal, or counting, numbers up to a published total based on a country's existing stock of money (or in economist speak, M2), which for the United States is currently around $10 trillion. Thus, the ownership of every single number, i.e., each distinct Numero, would be recorded, the information held in a geographically distributed, nuclear-attack-hardened, and highly redundant electronic archive.
Although a bank statement would normally show only the total of Numeros owned by an account holder, the identity and ownership of each Numero, whether in hand or loaned, would be on record. Thus, the total quantity of money would always be public knowledge, and any attempt to inject units of currency with identity numbers that exceeded the authorized total of Numeros in circulation, or which duplicated the unique identifying numbers of existing units of currency, would be recognized as counterfeit and rejected by the bank system.
Because a number is not a physical thing, there will be no physical Numeros or cash. All payments will be made by means of a cash or credit card, requiring highly reliable verification of the user's ID, for example, by means of a retinal scan or some other form of bio-identification.
Converting From an Existing Currency to the Numero
Converting funds from US dollars or Renmimbi or Euros to Numeros is a conceptually simple process. Each unit of the old currency will be converted to Numeros at the current rate of exchange with, for the sake of argument, the US dollar.
Thus, for Americans, the transition will involve only a change in name of the unit of currency, while bank balances and amounts borrowed or loaned remain quantitatively the same. For those holding currency other than the US dollar, the transition will involve a change in the quantity of currency units, owned, loaned or borrowed. Holders of the British pound, for instance, would find the quantity of Numeros they owned approximately 1.58 times (at the current exchange rate) the number of pounds owned previously.
As more than one country adopted the Numero, we would have the beginnings of a global currency that facilitates trade by eliminating the need for currency markets, foreign exchange bureaux, or currency hedging operations.
Money Created by Fractional Reserve Banking
With the Numero, money is neither created (except under very specific conditions) nor destroyed. So what about the money created by fractional reserve banking, which goes out of existence when a loan is repaid?
There are several possibilities. One is that loan repayments would be made to the Central Bank via the lending bank. The Central Bank would then lend this money back to the commercial banks at a rate of interest that keeps all the money in circulation. For example, if there is a tendency for private sector debt deleverage, something of which the Central Bank would be immediately aware, interest rates would fall. Conversely, if loan capital was in short supply, the central bank rate would rise.
In addition to loans from the Central Bank, commercial banks would be free to borrow at interest from depositors to support their lending operations, but such loans would be restricted to the amount borrowed from depositors, not some indefinite multiple, as under the existing system of fractional reserve banking.
Alternatively, money presently in existence as a result of fractional reserve banking operations, could at the time of repayment, be distributed by the Central Bank among all citizens in proportion to the quantity of Numeros they already own. The implications of this are interesting but it would require a diversion of too great length to include it in this brief outline.
What About the Pennies?
If you buy an item for a dollar ninety-nine, how do you make change?
Just as you do now, using pennies or cents, each of which will itself be a unique cardinal number preceded by a symbol indicating it to be a cent not a Numero.
Those with goods to sell will carry a float of pennies, which will be bought and sold by the Central Bank at the rate of 100 to the Numero.
As with the quantity of Numeros, the quantity of pennies will be publicly known and fixed, and the identity of the owner of each penny registered.
The Numero and International Trade
The Numero would bring to international trade the stabilizing function that gold once served.
A country running a trade deficit would experience a decline in the amount of currency in circulation, which would drive down prices and wages (see discussion of adjusting wages while maintaining full employment here), thereby increasing its international trade competitiveness, which in turn would lower its trade deficit. Conversely, a country running a trade surplus would experience an increase in currency in circulation which would drive up prices and wages, thereby reducing its international trade competitiveness and hence its trade surplus.
Changing the Money Supply
If for some reason it were deemed necessary to change the money supply, this could be accomplished by the simple expedient of incrementing or decrementing the number of Numeros registered to each individual in proportion to the number of Numeros already owned.
But there is no obvious reason why the quantity of money need change over time, provided there is flexibility in prices and wages to accommodate changes in the availability of goods, services and labor. In time, with a fixed quantity of money, the World would grow used to the idea that allowing bankers to create money without limit according to their own perceived advantage or the political advantage of their political masters is always unnecessary and usually harmful to the public wellbeing.
The Impact of the Numero on the Incidence of Financial Fraud and Other Crimes
Because the legitimate ownership of every Numero will be known to the financial authorities, financial fraud, counterfeiting, tax evasion, the vending of illegal drugs, trading in slaves, money laundering, illegal political campaign contributions, bribery and the financing of terrorism will become virtually impossible without prompt detection and apprehension of the criminals concerned.