Symmetrical credit equilibrium currency theory
-Currency stability model through mutual credit between the government and the central bank―
(Revised version of the white paper)
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Summary
- Outline (Abstract)
This paper proposes a new monetary system that balances the risks of both inflation and deflation by symmetrically designing the credit of currencies issued by the government and central banks.
Traditional government banknotes are backed by the government’s own debt (government bonds), so it is easy to damage credit in the event of fiscal deterioration, which has historically led to high inflation. On the other hand, central bank banknotes depend on government bond interest income, etc., and have an asymmetrical credit structure with the government.
This theory is
• Central bank bonds are used to support government banknotes
• Use government credit (tax payment capacity) to support central banknotes
By introducing an interdependent credit structure (symmetrical credit structure), the stability of the currency is institutionally guaranteed.
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- Raised issue: Asymmetry of the conventional monetary system
2.1 Failure structure of government banknotes
As seen in wartime Japan and Zimbabwe, government banknotes have the following problems:
• Support: Government’s own government bonds
• Problem:
• “Support your own currency with your own debt” structure
• The credit cycle is closed and there is no external verification
• Result: Sudden damage to credit → Inflation and hyperinflation
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2.2 One-sided dependence on the central bank system
In the modern central bank system:
• Support for central banknotes: government bonds (government debt)
• Source of credit: the government’s ability to collect taxes
In other words,
Central bank → Dependent on the government
Government → Rely on self-credit
It has an asymmetrical structure.
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- Basic principle: Symmetrical credit structure
The core of this theory is summarized in the following sentence:
Currency credit is most stable when it is mutually supported between different subjects.
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3.1 Definition of symmetry
Issuer, issued currency, supporting assets
Government Government Banknotes Central Bank Bonds
Central bank Central bank notes Government’s ability to pay taxes
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3.2 Circulation structure of credit
• The government holds the debt of the central bank → Credit source of government banknotes
• The central bank relies on the government’s financial base (tax payment) → Credit source of central banknotes
As a result:
A state of “symmetrical balance” in which each other supports each other’s trust
Is established.
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- System design
4.1 Introduction of central bank bonds
• The central bank issues its own bonds (central bank bonds)
• The government holds this as an asset
• Used as a support for government banknotes
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4.2 Principles of Issuance of Government Banknotes
• Government banknotes are issued with central bank bonds as a backing
• Fully accepted as a means of tax payment
• Equivalent exchangeable with central bank tickets
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4.3 Maintenance of central bank banknotes
• It will be issued as usual
• Explicitly rely on the “government’s ability to pay taxes” on the basis of credit
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- Inflation control mechanism
In this theory, inflation is not just a monetary volume, but a collapse of the credit structure.
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5.1 Conventional model
• Government issue alone → Credit runaway → Inflation
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5.2 Symmetrical model
• “Debts of the other party” are always required for issuance
• Credit does not expand in one direction
In other words:
Credit expansion = at the same time, the other party’s debt increases → Automatic suppression pressure
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- Deflation resistance
• The government can expand the supply of currency through central bank bonds
• Central banks also rely on government credit, so austerity will not be one-sided.
Result:
Both inflation control and deflation avoidance
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- Comparison with historical failures
Item Wartime Japan and Zimbabwe Symmetrical Credit Equilibrium Currency Theory
Support Government’s own debt Mutual debt
Credit structure Closed Mutual verification
Inflation resistance low high
Issuance restrictions No substantial Structural restrictions
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- Theoretical significance
This theory is novel in the following respects:
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Monetary credit is defined as relationship (mutual debt) rather than “assets”
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Symmetrical the relationship between the government and the central bank
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Redefine the inflation problem as “asymmetry of credit”
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- Conclusion
The reason why government banknotes were unstable was not because the issuer was weak,
This is because the credit structure was asymmetrical.
The symmetrical credit equilibrium currency theory is
• Mutually connect the credit of the government and the central bank
• Prevent one-way credit expansion
• Ensure monetary stability institutionally
It is a new monetary design.
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- Future issues
• Market design of central bank bonds
• Accounting rules between the government and the central bank
• Consistency with the international monetary system
• Construction of a demonstration model
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