Montemori: The Dying Currency
With the advent and popularity of Bitcoin and cryptocurrency, more and more people are raising fundamental questions: What is money? And what type of money (centralized, decentralized, or other) is most beneficial for the individual and society at large?
Since 2009, there has been a +300% increase in the Google search term “what is money.” Meanwhile, there has been an even bigger increase in the search term “wealth gap.”
With that in mind, I'd like to propose an entirely new type of currency — one the world has really never seen before.
If implemented properly, I believe this currency could narrow the wealth gap while stimulating the broader economy.
That said, let me tell you that a real-life implementation of this currency is extremely unlikely. And there are many unforeseen problems with this currency, as it's something the modern world has never really seen before.
So, I'd simply like to offer this idea to you as a thought exercise rather than a proposal for implementation.
Okay, here we go. Hang on to your hats...
I call this new type of currency “Montemori,” from the Latin for “dying money.” Because that's exactly what it does over time.
In short, Montemori is a centralized currency that devalues nominally over time.
Read that sentence again, and let it sink in for a moment...
Montemori is a centralized currency that devalues nominally over time.
Here's exactly what I mean...
If someone gave you $1.00 in 1950, it would still be worth $1.00 nominally today. Of course, inflationary pressures would have driven down the purchasing power of that $1.00. But that dollar is still worth one dollar nominally today. If you took it to a bank for exchange, they'd give you a dollar back.
Montemori is different. The nominal value of this currency devalues over time. In other words, if you have $1.00 in your checking account, it will decrease nominally to $0.99 over a period of time.
A simple mathematical expression of Montemori might look something like this:
(Present Value) = (Past Value x 1) - (Devaluation Rate x Time)
Now, the devaluation rate for such a currency would have to be figured properly by a group of economists and market philosophers well above my pay grade. But I'm assuming that a proper devaluation rate would be quite low. Perhaps something like 1% per year. So you have $1,000 in your checking account, and in 12 months your bank statement shows $990.
But, okay, you get it. How does this help narrow the wealth gap and stimulate the economy?
Well, because Montemori devalues over time, it creates a “use it or lose it” type of situation. Individuals and corporations would be forced to spend or reinvest — or watch their money literally disappear.
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For the majority of Americans, a Montemori type of currency would have little to no effect on their current lifestyle. Only about 40% of the American population has more than $1,000 in their bank account at any given time. And only some 15% have more than $10,000 in cash stashed away.
Montemori would have the most effect on cash-heavy individuals and corporations. One percent of a billion dollars is 10 million bucks that would completely disappear if not spent.
But wait, doesn't inflationary pressure already do that?
Yes. However, inflationary pressure is not extremely obvious on a day-to-day basis. Of course, we see the price of products increase over time. But actually seeing money disappear before your eyes is a completely different story, especially to investors.
What about deflation? How is the money replaced?
Simple. The central bank just creates it and loans the new money out, thus stimulating the economy even further.
Does Montemori give central banks greater control over the monetary system?
Yes. The only way central banks can deflate their currency when needed now is to hold back inflation — stop printing money. Montemori would create a natural deflation, which central banks could then work with. They'd be able to create new money and deflate the value of that money at the same time.
Now, there are many other factors to consider, such as how Montemori would affect interest rates, bond yields, taxes, etc. And what about physical cash? How would you deal with capital flight?
But again, I'm not proposing we start using Montemori. This is simply an exercise in thought.
Tell me what you think of Montemori. Tweet me @lukemburgess.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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