Currency Systems and Their Role in Entering and Leaving the Economic Crisis

This paper discusses the idea that the economic crisis has happened because Western economies use an unfit type of currency. The author questions the very definition of a credit-based fiat currency and analyzes what functions of money it is well-designed to perform. The paper focuses on comparison of two contrasting approaches, having a single universal currency in a given fiscal area and – as Friedrich A. von Hayek suggested – supporting a concurrent presence of more competing currencies of different types. A currency is defined by its substance (physical, arbitrary, electronic protocol), carrier (e.g. a bank note, bullion), monetary unit, transmission system, institutions, collateral (an asset or commodity the currency is collateralized by), creation and termination and monetary authority. The functions it may perform are manifold. Some of them are economic, some are more social. Some of them help an individual, some help the society as a whole. Some of them foster each other, some are contradictory. The question is, whether such contradiction helps a currency to be more balanced or whether it – on the contrary – prevents the currency and consequently the whole economy from reaching its true potential. Close attention will be paid to the dimension of time, too – how the dynamics of a single currency or more concurrent currencies change in time. It is precisely because of the passage of time that an inner error of a monetary system can prevail over its benefits, causing a crisis. A system reliant on a single universal currency backed by a strong authority will be surely more rigid. On the other hand, a multilateral system should be more flexible and willing to undergo some systemic changes to overcome the critical error.