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The Monetary System: Analysis and New Approaches to Regulation

The Monetary System: Analysis and New Approaches to Regulation

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9781118867921
  • Published In: December 2014
  • Format: Hardback , 312 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only

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    A groundbreaking work that paves the way for a new, pro-active financial system

    With The Monetary System, innovative author pairing Jean-Francois Serval and Jean-Pascal Tranie devise a comprehensive economic modeling system that accounts for the unprecedented situation facing international and regional economies by developing a controversial new stance on the operation of money in society. Presenting a classification of financial instruments with a view toward their underlying legal structures, the book sheds new light on the present economic and financial problems of slow growth and rising debts, and proposes possible outcomes for the global economy.

    The authors have already gained international attention with their novel approach to currency, and now they turn their attention to the social function of money in all its myriad forms. The book provides a way forward in an era of increased life expectancy and other new social patterns and the social role of money provides a framework for understanding intergenerational redistribution—an urgently pressing task in our time.

    • New aggregate financial categories and economic modeling reveal a possible foundation for increased financial stability
    • Companion website includes key mathematical models, accounting standards, and PowerPoint slides
    • Comprehensive theoretical underpinning presents the contemporary model of money as a social contract
    • Insights into the current economic situation make sense of sovereign debt risk in markets around the world

    With questions and answers at the end of each chapter, The Monetary System will help you form a new conception of the role of money in society. Improved regulation and tax policies are needed to stabilize the global economy, and this book provides the framework for getting there.

  • List of Figures xi

    List of Tables xiii

    Acknowledgements xv

    Foreword And Introduction xvii

    Chapter 1 
    From Antiquity to Modern Times; Monetary Development Over 5000 Years. What History Explains and Comparison within New Contexts 1

    The Origin of Money; From Antiquity to Modern Times 1

    A Metallic System Allowing Intrinsic Measurement

    Stamping: Ingots to Coinage 2

    Grounding the Guarantees of Stamping: From an All-Metallic

    System to Paper Bills 3

    The Rise and Fall of Civilizations 5

    What Can We Learn from Ancient and More Modern History? 9

    Questions and Answers 11

    Chapter 2
    Modern Times – Liberation and Growth of the Money Supply. The Facts Presented in Monetary Units and Resulting Regulatory Needs 13

    Monetary Evolution Backed by Economic Growth 14

    Development of a Global Financial Market Economy 15

    Citizens Emerging in the Process of Financialization 20

    The Realities 20

    Causes Underlying Emerging Macroeconomic Realities 22

    Resulting Needs for Standardization, Regulation and Supervision 23

    Questions and Answers 25

    Chapter 3
    Past and 21st-Century Money Analysis 27

    Defining “Today’s Money” 27

    Money Defined by its Functionality 27

    The First Function: Price Setting –Money as a Measurement Standard ]Based Source of Information 29

    The Second Function: A Payment and Trading Instrument 36

    The Third Function: A Reserve 36

    Links between Monetary Functions 37

    The Intrinsic Definition of Money 38

    A Trifunctional Monetary Support System 38

    How To Ground Trust In Money: Audited Financial Statements For Government and Central Banks 43

    Seignorage and the Privilege of Issuing and Stamping Money 43

    Traditional Seignorage in General 43

    The Modern Seignorage Privilege 44

    Legal Tender and Seignorage 47

    Evolution of Money into a Segregated Intermediation Tool with Imprecise Frontiers 47

    Linguistic Definition of the Word “Money” 47

    Money Today 48

    The Demise of Traditional Conceptual Approaches 50

    The Operational Scope of Money and its Use 52

    The Extension of Money with Disintermediation 53

    Direct Financing and Hedging of Risk 53

    Replacement of Bank Loan Financing by Securitization and the Impact of Pro-cyclical Effects 54

    The Origin of Securitization 54

    The Securitization Concept and Its Implementation 56

    Securitization Financing via Trust-Derived “Shadow Capital” Originating from Retirement Accounts, Direct Savings and Trade Deficits 58

    Guarantees on Receivables: A Securitization Multiplier 59

    Extending the Field of Debts and Guarantees 60

    Deviations from Effective Risk Control: The CDS Case 61

    Towards the Full Liberation of Money from Any Referential 62

    Guarantees and the Extension of Monetary Instruments Liberated from Unified Backing and Issuance Constraints 64

    Monetary Effects of Guarantees 65

    Shadow or Parallel Banking Systems 65

    Before Accounting for Any Transaction –The Sampling Topic. The Mix Up between Numbers and Formulae 70

    Questions and Answers 72

    Chapter 4
    The Contemporary Basis for Money Expression: Accounting Ledgers 77

    Book Balances are Either Money or Potential Money 77

    A Single Worldwide Language; Accounting and Financial Statements 78

    The Consistency-Based Principle of Bookkeeping 78

    The “Double-Posting” Principle 79

    Consequences of the Basic Accounting Principles 80

    Concepts and Rules to Report Exchanges and Determine the Image of Financial Statements 81

    The Image Presented by Financial Statements Influences the Analysis of Economic Data and Transactional Exchanges 88

    Direct Systematic Impact of Accounting Standards 91

    Double-Entry Consequence 91

    Value Consequence 91

    Where Misleading Standards Generate Distorted Images 91

    Valuation Incertitude in Accounting Standards 91

    The Appraisal Spark Plug that Drives a Continued “Fair Value” Crisis 92

    Monetary Aspects of Financial Statements 93

    The Necessary Approach in Accounting: A Hierarchy of Dangerousness 95

    Degrees of Contagion (“Interconnection”) 96

    The Fair Value Conceptual Mistake Contributes to Instability and Distrust 97

    A Need for Mathematical Approaches 98

    Questions and Answers 99

    Chapter 5
    The Regulation and Observation Limits Already Accepted, Compared with the Realities of Modern Exchanges 103

    Monetary Regulation and Follow-up 103

    A Retrospective Analysis of Classic Money in Operation 103

    Governmental and Central Bank Monetary Operations 104

    Inception, Monopolies and Measurement Aggregates as Classical Mechanisms for Issuing Money 104

    Traditional Monetary Aggregates 105

    Monetary Aggregates in Central Banks 106

    Accepted Concepts that Complement Traditional Monetary Analysis – Limits and Evolution 107

    From the Known Money Multiplier through the Banking System to a New Perspective 107

    Traditional Regulatory Measures to Ensure Banks’ Stability Limits 109

    Money Issuance through Central Bank Interventions 109

    The Investment Multiplier 110

    Following Up on Regulating Money Issuance in a Changed Economic Environment. Monetary Supervision: An Ancient Question 111

    The Present-Day Non-utility of Classical Aggregates 112

    New Forms of Monetary Exchange 114

    The Driving Role of Monetary Velocity 118

    Are Central Banks Prerequisite Institutions that Should Remain Independent from Sovereign Authority? 120

    New Policies to Stabilize the Banking System 125

    The Insufficiencies of the Current System for Satisfying Information Needs 125

    Questions and Answers 126

    Chapter 6
    Redefining the Monetary System and Measurements of Monetary Flow – Towards M5 and M6 129

    At the Core of the Issue: The Definition of Currency 132

    The New Environment: Broadening the Definition of Currency 133

    New Monetary Aggregates Define Extended Concepts of Money 135

    Defining New Classes of Monetary Aggregates: M5 and M6 135

    M5/M6 and their Derivatives M5 ′/M6′ : Determining Definitions and Uses 137

    Segregation and Derived Aggregates: M5′ and M6′ 140

     

    The Utility of M5 and M6 Aggregates 142

    From a Practical Point of View, What are the Data Limitations for Determining the Values of New Monetary Aggregates? 142

    What Information Will These New Aggregates Yield? 142

    A New Aggregated Conceptual Approach Allowing Operational Transactions and Financial Ones to be Reconciled 143

    The Resulting Breakthrough 143

    Defining New Money – The Difference Between Shadow Banking Money, Virtual Money and the New Aggregates 145

    Legal Segregation between Different Types of Money, Depending on Underlying Guarantees and Transferability 145

    Shadow Banking is Different from Virtual Money 146

    Questions and Answers 146

    Chapter 7
    The Monetary System 149

    International Exchanges – Interactions and Monetary Zone Coherence 149

    General Framework 150

    Description of the Current Operational System: Distinction between National and International Systems 151

    The Current International System 152

    The International Set-up 152

    The International Monetary Fund 153

    The Bank for International Settlements 157

    The World Bank Group 158

    The World Trade Organization 159

    International Coordination 160

    G5 to G20 160

    The G20’s Reasons to Exist 160

    The Coordination of Goals Assigned to the G20 161

    Troika 161

    Micro- and Macro-prudential Surveillance Agencies’ Framework 162

    Coordination Issues Inside the Eurozone as Opposed to International 167

    The European Stability Mechanism and the European Central Bank 167

    The Banking Union 169

    The Fiscal Policy Coordination Issue Compared with the USA 173

    The Growing Issues of the Size of the Monetary Zones –Research for Optimum 175

    The Monetary Interaction of Systems 178

    General Interaction: Scale Economies Resulting from Monetary Integration and Political Obstacles 178

    International Microeconomic Regulation Coordination Specifics 178

    Transnational Realities about Financial Instruments’ Markets and Systemic Risk Measurement 180

    Handling the Social Obstacles of Monetary Unification 181

    The Answer to Heterogeneity 181

    Europe and the USA 182

    The US Answer to Inequalities 182

    The EU Answer to Inequalities 182

    The General Monetary Policy on Both Sides: Reinforce Equity, Regulate Transparency –A Dead End 184

    The Disputed Strategy: Addressing Macroeconomic Imbalances 186

    Allocated Roles and Goals in the International Monetary Set-up 188

    Today’s International Situation and Issues 189

    Questions and Answers 190

    Chapter 8
    What is the Conceptual Essence of Contractual Money, Constraints and Implications? 193

    The Intrinsic New Conceptual Views on Money 193

    Resilient Open Questions in a New Environment 196

    Stability and Guarantees 198

    Money as a Measurement Instrument: The Need for Stability 198

    Money Guarantees and Trust 200

    One Key Consequence of the New Set-up: The Final Trap 202

    The Emergence of a New Seignorage 204

    Spreading the Seignorage Rights between Chartered Financial Institutions Accepted to Trade Instruments and the Central Banks’ Right to Drive Values 204

    Social Roles of Money: Transferable, Reserve or Bubble? How to Determine Sociological Thresholds from Different Dimensions 205

    Modelling the Monetary Windbag Analysis 207

    A Tentative Formula: STD (Serval-Tranie-Douady) 208

    Debt versus Equity Instruments: The Need for Big Data 211

    Questions and Answers 211

    Chapter 9
    The New Nature of Money in Electronic Times 215

    New Horizons Concerning Exchanges, Time and Guarantees 216

    Time: A Different Dimension 221

    Social Time and Anticipation 222

    Speed Efficiency, Risks and Market Switches 223

    Transparency Effect and Risk of Centralization: The CCP Example 223

    Money Accumulations and Interactions 224

    From Excessive Accumulation Derives Non-level Playing Fields 224

    Determining the Appropriate Amounts of Accumulation 226

    The Paradox of Availability of Money Masses as a Policy Tool for their Holders 227

    The Implosion Risk of the Money Trap 227

    Questions and Answers 228

    Conclusion 231

    Glossary 241

    References 247

    Selected Articles 253

    List of Monetary Central Institutions and Others (International and National) with Websites 257

    Index 265

  • JEAN-FRANÇOIS SERVAL is President of Serval & Associés, a European accounting practice, and founder and head of United States operations of Constantin Associates, a multinational accounting firm. He is a member of the European League for Economic Co-operation and the International Fiscal Association.

    JEAN-PASCAL TRANIÉ is President of Aloe Private Equity. He has held senior executive positions at Veolia Énergie and was head of Vivendi's Media and Multimedia divisions, before becoming CEO of the Viventures Partners venture capital arm.

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