Mutually balanced monetary theory
Summary
- A summary
This white paper defines the financial system based on the current “government bonds + central bank currency” as a system that includes structural imbalances, and the theory of a symmetrical monetary structure that incorporates “government currency” and “central bank bonds” as an alternative (equilibrium It proposes the theory of money).
The purpose of this system is to curb the risk of bankruptcy in the financial system, the rigidity of financial constraints, and the extreme inflation of inflation and deflation, and to ensure the soundness (stable sustainability) of the national financial structure.
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- Problem definition: Structure of the current financial system
The current financial system consists of the following two pillars.
Government debt (government bonds)
Central bank currency (monetary basis as central bank debt)
This structure has the following characteristics.
2.1 Asymmetry
Government: Relying on financing through the issuance of government bonds
Central bank: indirect adjustment subject through monetary policy
2.2 Concentration of constraints
Financial constraints focus on the government bond market
Financial adjustment functions are concentrated in central banks
2.3 Imbalance as a result
Political dependence on fiscal sustainability
Overload of monetary policy
Rapid adjustment in times of crisis (liquidity crisis and credit contraction)
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- Definition of healthy finance
Healthy finance in this white paper refers to the following.
An institutional structure that is unlikely to cause systemic problems (fiscal collapse, extreme inflation, credit collapse)
Specifically, it includes the following.
Avoiding the unsustainable state of national finances
Relaxation of economic constraints due to dependence on tax revenue
Control of the risk of hyperinflation
Prevention of the extreme of credit contraction
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- Proposal: Mutually balanced monetary system
This system introduces the following two new elements.
4.1 Government Currency (Government Currency)
It is a currency issued directly by the government and is responsible for the primary financial supply to the real economy.
Function:
Direct mediation of fiscal expenditure
The foundation of the economic adjustment function
4.2 Central Bank Bonds
It is a debt securities issued by the central bank and functions as a liquidity absorption and interest rate stabilization.
Function:
Absorption of excess fluidity
Stabilization of the interest rate structure
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- Structural principle: Mutual balance
The central principles of this system are as follows.
5.1 Symmetry
The government and the central bank have balance sheet restrictions on each other
5.2 Mutual constraints
Government currency supply is absorbed by central bank bonds
The issuance of central bank bonds is linked to the government’s currency supply
5.3 Definition of equilibrium state
Within the system, the supply and absorption of funds are structurally symmetrical, making it difficult for extreme imbalances to occur
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- Redefinition of imbalance
The imbalance in this theory refers to the following.
The state in which the country loses the means to stabilize the economy due to financial constraints
A state in which dependence on tax revenue excessively affects the economic cycle
A state in which the currency supply is biased in a single subject
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- Expected effect
The following is expected by the introduction of this system.
Reduction of the risk of fiscal crisis
Eliminating the over-concentration of monetary policy
Leveling economic fluctuations
Suppression of credit contraction and excessive expansion
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- Conclusion
The equilibrium monetary system is an attempt to structurally establish equilibrium conditions within the system by redesigning the current asymmetrical government bond and central bank currency structure and introducing government currency and central bank bonds.
The soundness in this theory is not just price stability, but “tolerance to failure as an institutional structure”.