Gold standard The
gold standard linked currency values to gold reserves. Under this monetary system, paper money was
convertible to fixed amounts of gold, anchoring currency values. The classical gold standard functioned internationally from the 1870s to
World War I, with a modified version under the
Bretton Woods system. '''Proponents' arguments''' include that currencies backed by gold had more stability than
fiat money. They argue required gold reserves limited financing expenditures through money creation.
Austrian school economists have advocated returning to gold-backed currencies to prevent inflation. '''Critics' arguments''' center on monetary policy constraints during economic downturns. Mainstream economists note the gold standard may have prolonged the
Great Depression by preventing money supply expansion to fight deflation. Countries that abandoned the gold standard earlier in the Great Depression recovered more quickly.
Full reserve banking Full reserve banking proposals would require banks to hold 100% reserves for customer deposits, eliminating
fractional-reserve banking currently used worldwide. In a full reserve system, banks would operate as intermediaries not creators of credit.
Theoretical foundation: The
Chicago plan, designed by
University of Chicago economists, spurred academic attention. The plan would separate monetary and credit functions, transferring money creation to government control. '''Proponents' arguments''' include the elimination of
bank runs, as banks would have reserves to meet all withdrawals. They argue it would reduce systemic risk and provide governments greater control over the money supply. '''Critics' arguments''' focus on potential economic disruption and reduced credit access. They suggest full reserve banking could drive borrowers to the
shadow banking system. Mainstream economists express concern about reduced capital allocation efficiency, as well as transition costs and potential unintended consequences.
Sovereign money Sovereign money systems propose transferring
money creation from
commercial banks to government institutions like
central banks. Under the current system, commercial banks create money through loans; sovereign money would make money creation a government monopoly.
Theoretical basis: Proponents argue money creation should be a public function rather than a private one. They propose that government created money could be spent into circulation for public purposes instead of private bank profit.
Policy examples: Switzerland held the
2018 Swiss sovereign-money initiative, which did not pass. Iceland considered a similar proposal following the
2008–2011 Icelandic financial crisis. These real-world applications provide insight into political and implementation challenges.
Economic analysis: Supporters argue sovereign money could provide better control over they money supply and reduce debt burden. Critics claim asset bubbles may still be possible. The Swiss National Bank opposed the initiative claiming lack of expertise and resources.
Social credit Social credit theory, developed by
C. H. Douglas starting in the 1920s, proposes that governments issue money directly to citizens as a social dividend. This would supplement wages and fill the deficit of purchasing power to a "just" price of goods and services.
Maurice Reckitt said the community would issue its own credit, enabling goods to be sold below cost. The
Social Credit Party of Canada gained power in Alberta in 1935, governing for decades. Mainstream economists did not accept social credit, claiming it was inflationary. Related proposals advocate for the government issuing interest-free money for infrastructure. Proponents seek to prevent inflation by withdrawing the credit from circulation as the loan is repaid. Historical examples of government-issued interest-free money include
American Revolution continentals and
American Civil War greenbacks.
Alternative currency systems Demurrage currency Demurrage currency is designed to lose value over time, encouraging circulation not hoarding. Economist
Silvio Gesell sought to boost velocity, requiring periodic stamps to keep the money valid. Historical examples include the
Wära in Germany. It had led to modest economic prosperity before it was forbidden by the finance ministry. Despite their success, most demurrage currencies were banned by central banks for violating national monopolies on currency. Contemporary versions include
complementary currency and negative interest rate proposals.
Local currencies Local currencies and
local exchange trading system (LETS) create
community-based alternatives to national currencies. These systems aim to improve the economy in local communities and can include features like demurrage. Examples include
Ithaca Hours in New York and
time banks.
Free banking Free banking proposals would allow private bank issued currencies, eliminating central bank restrictions on money creation. Proponents argue competition creates pressure for stable currencies, while critics raise coordination problems. == Contemporary catalysts for reform ==