A Formalisation of Hayek's Concurrent Currencies with Insights on Stateless Somalia and the Flight of Bank Deposits
31 Pages Posted: 3 Nov 2011
Date Written: October 3, 2011
Hayek (1984,1990) suggested an alternative to the current fiat money regime, which entails concurrent banks who issue their own money and operators concerned of purchasing power who select the less inflated money. Friedman (1984) opposed that network effects dominate purchasing power considerations, so no changes in the monetary system would occur, while Hayek (1990) stressed that it is the coercion exerted by the State which actually holds operators from switching money. The case of Somalia (Luther 2011) seems to prove that people will keep using the same money even without any State coercion.
I have formalised the proposal of Hayek in a Markowitz (1952) fashion by describing the concurrent moneys in terms of their inflation and volatility; gold, a commodity-money with zero inflation and high volatility, has a pivotal role in this scheme. The model offers insights on the possibility, even necessity, of a multi-currency economy; this helps to reconsider the case of Somalia according to Hayek. My Hayek-based scheme is useful also to reinterpret the current flight of bank deposits from Greece and Italy by a monetary perspective instead of the usual financial one. The systhesis of Hayek's and Markowitz's approaches, as well as further investigations on monetary segmentation of the economy, can be matter for future researches.
Keywords: money supply, Hayek, concurrent currencies, portfolio composition, monetary theory
JEL Classification: B25, B31, D41, E41, E42, E51, G11, N27
Suggested Citation: Suggested Citation