If you hear a call for “monetary reform,” we’re talking big news and a major overhaul. Monetary reform refers to changing our current system of how “money” is supplied to the economy.
We say “money” because some monetary reformers argue that the U.S. dollar isn’t worth anything.
Why? Because it isn’t backed by anything.
In ye olden days, the USD was “on the gold standard”—ever heard of it? That tied paper bills to actual gold. You could walk into a bank and redeem your cash for gold. This made people feel better about using little bits of paper to trade for things. Today, however, we’re off the gold standard, and the U.S. dollar isn’t backed by anything tangible.
Another major way that the monetary system could change is by changing (or getting rid of) the central bank, which was made to support the economy when, um...stuff hit the fan (crisis time). Some economists argue that things would be better off without a central bank. For instance, some economists argue that, if the banks weren’t bailed out during the 2008 financial crisis, it would be better, since now that bad behavior is incentivized. Now, banks have no reason not to be irresponsible with consumer money, because they know the central bank will step in to save them.
Less familiar (to Americans, anyway) proposals for monetary reform include government-issued credit, free (no interest), and government-issued social credit, which would theoretically disperse economic and political power to individuals.
Welcome to the Pandora’s Box of monetary reform.
Related or Semi-related Video
Finance: What is the Federal Open Market...15 Views
finance a la shmoop what is the Federal Open Market Committee... FOMC! come say it
with me FOMC yeah that's the noise of meatball makes when it hits the floor it [Meatball lands on the floor]
also happens to be the acronym for the Federal Open Market Committee and part
of its purpose in life is to manage financial outcomes through monetary
policy all right well the Federal Reserve pulls three levers of monetary [3 Levers appear]
policy discount rates open market operations and bank reserve requirements
those are the big three the big three monetary policies used to try and [Monetary policies appear]
control the economy well the font is responsible for the open market
operations part of that equation it tries to fight the twin evils of [Person pulls open market lever]
unemployment and inflation and among other things if unemployment is high
well in general the FOMC will seek to increase the supply of money by holding
back on sales of government paper like t-bills bonds notes and all that good
stuff leaving more cash sloshing around in the [Dollar bills appear]
marketplace and hopefully encouraging the cost of renting money or interest
rates to decline like encouraging people to borrow because rates are cheap well
when people can borrow more cheaply yes they're incentivized to spend more at [Person picks up stack of cash]
the mall on earrings and rings for other places well it works in the opposite
direction as well with the FOMC fearing inflation while they'll issue
lots of government paper sucking out the excess cash that was previously in the [Money supply meter declines]
marketplace and likely causing interest rates to rise right so cash will be less
available and people want more to rent their precious dollars as interest got
it okay well the key issue remains that the FOMC is making money more expensive
when it does that when an issues paper sucking cash out of the system it's hard
concept for most people including me to understand here
well the FOMC called eight secret very dan Brown like meetings a year to look [Months of year appear on calendar]
through reams of data and decide what policy should be note that they're
applying monetary policy here to do their bidding not fiscal policy the gist
is that the committee is the one sitting atop monetary policy in the US and it's
the committee who makes the decisions on the big three dials they can turn one [Committee standing by 3 dials]
two and three they can sift through data on the economy jobs inflation bang
fear surveys etc and then make decisions about what to do or you know what not to
do I remember that Soup Nazi from Seinfeld no bonds for you [Nazi holding a bond]
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