Might Supplementary Tethered Currencies Reduce Financial System Risks?

Abstract

The research question is to investigate if supplementary tethered currencies might reduce financial system risks and provide a superior fallback position to Bitcoin in a crisis? To investigate the question, a hypothetical $Z supplementary cost carrying currency is considered whose value is tethered to the retail value of kilo-watt-hours generated from benign renewable energy resources from host bioregions. Cost carrying money was proposed by Gesell (1916) and supported by Fisher (1933), Keynes (1936), Suhr (1989), Buiter (2009) and Menner (2011). Private issues of self-financing self-liquidating cost carrying money described as “Stamp Scrip”, competed successfully with official gold backed currencies during the Great Depression in Europe and the US. The rapid growth and spread of private cost carrying currencies in Germany since 2003 tethered to the Euro provides evidence of its viability and acceptance. Options are identified for the issue of $Z like currencies to underwrite the stability of the financial system and/or to sustain and stimulate economies with either idiosyncratic or systemic failures. $Z represents money that is Tethered, Tagged and Terminating.

Keywords: Cost carrying money, Instabilities, Market failure, Systemic risks, Tethered currencies

JEL Classification: E02, E21, E22, E50, E60, D63, F30, F40, F60, G00