Money and Finance 4th Summer School on Social Banking Canterbury – 4th of July 2011 Prof. Paul H. Dembinski - (
[email protected]) Observatoure de la Finance (Geneva) and University of Fribourg
Content
Part I : What is Money? How it works? Part II: What is Finance’ How it works? Parts III: The End of Money?
Paul H. Dembinski - Observatoire de la Finance
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1. What is money ? " What is money? A thing, A symbol, A number, A debt A relationship,
" Does money have a “nature”? – Is it stable in time and space?
What Roman cesters have in common with US dollars?
Form? Substance? Do they have any thing in common? Paul H. Dembinski - Observatoire de la Finance
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Georg Simmel
In Philosophy of Money (1900) underlines the difference between the essence and substance of money:
…the particular qualities that the material adds to money lead to its being subsumed under those goods to which, as money, it stands in contrast … so far as its pure essence is concerned, it must be interpreted simply as money, quite apart from all secondary qualities that connect it with the contrasting party. In this sense, money has been defined as ‘abstract value’. … If the economic value of objects is constituted by their mutual relationship of exchangeability, then money is the autonomous expression of this relationship … Money has value not on the account of what it is, but on the account of the ends that it serves …The decisive point, however, is that this value no longer arises from what represents it; on the contrary, the latter is quite secondary, and its nature has no importance except which Paulon H.technical Dembinski -grounds Observatoire de la have Financenothing to do with the sense of value.
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Economists’ view Functions of money
Unit of account Means of payment Medium of exchange / the general equivalent Store of wealth
" Passive vs. active money
Money as trigger of exchange Money as witness (trace) of transfer
" Money and the paradox of pure exchange
equivalence, and gain in exchange Paul H. Dembinski - Observatoire de la Finance
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Theological view « One should by no means minimise the parallelism that Jesus makes between God and Mammon. It is not done for rhetoric purposes, here Jesus describes reality. God as a person and Mammon as a person oppose each other. Jesus qualifies in the same way the relationship between man and either one of them: it is a relationship between the servant and the master. Mammon can be a master as God is one. It means, precisely a personal master. » " Jacques Ellul (L’homme et l’argent, 1955, p 97)
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Money and Monetary order Money as a social institution Fundament of social order Organisational device Transmission of information within an accounting framework Exchange, the social institution requires a “third party” Trust
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Two Anchors of Money Hypothesis The « thing » - substance The rules that govern its circulation -institutional setting including the technological support
" The two anchors, to a large extend,
complement each other in the sense that one is weak the other has to be strong. If not the order collapses. Paul H. Dembinski - Observatoire de la Finance
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Question of guarantee " Against counterfeit (minting or bank
supervision) " Against non redemption -- metal or legal tender " Against loss of value (scarcity management - metal standard or policy rules) Paul H. Dembinski - Observatoire de la Finance
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Who creates Money? " The role of Central Banks " The role of commercial banks " Can we measure the amount of money? High powered money – Central bank money M1 ….. Mn
" Eurodollars - How to cope with financial innovation? Paul H. Dembinski - Observatoire de la Finance
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Monetisation " Extension of the range of monetary quantification " Extension of the range of “general equivalent”
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2. What is Finance? " Involves future : ownership rights, or
promises " Involves uncertainity " Requires a collective memory " Financial contracts are «derivative» in relation to reality
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Functions of the Financial system " " " "
Payment services Mobilisation of savings Allocate credit Manage and limit risk Price it Package it Organise exchange and trade of risks
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Two sets of functions " Typology one: Those dealing with flows of funds;
primary
Those dealing with stocks;
secundary
" Typology two: Allocation of capital (flows) Allocation of risks
" Typology three: Relations – funds Transactions
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Anglo-saxon & Rhenan FS " " " "
Role of banks/vs. Markets Personal vs. Anonymous contracts High transaction costs vs. Low ones Relations vs. Transaction
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Two tier global system emerging " Global markets direct massive volume of savings to enterprises listed on «Big Boards» supplying them with additional capital at a low cost. " Locked in national financial systems, SMEs face much higher cost of capital and end up with a more labour intensive factor-mix " The problem of cost of capital
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Financialisation " Expansion of the size of financial sector " Expansion of its activities linked to “allocation of risk”; " Growing obsession with “return on capital”
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3. The end of Money " Multiplication of assets with differing degrees of « qualification monétaire », because technology changes transaction costs technology changes opportunity costs monetisation of finance financiarisation of money
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Why Money Breaks Up? " " " "
Emergence of new types of transactions Emergence of new exchange networks New ways of settling old transactions Monies of differing ranges (Gersham Law)
" An outstanding development of financial activity
A self-contained theoretic approach A store-wealth function in the economic and monetary system
" Break up of moneyPaulorH. Dembinski fusion- Observatoire money&finance? de la Finance
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New networks of exchange " Corporate Loyalty Schemes (moneys-airmiles)
Money becomes virtual and further independent from central bank supervision Technology-driven process In Swissair bankruptcy filling: airmiles = 1bn CHF
" Local Exchange Trading Systems (LETS)
Money as a factor of social cohesion Mean of exchange Paul H. Dembinski - Observatoire de la Finance
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New payment systems " Simmel: third party authority allows the dematerialisation process " New types of third parties though IT developments solid reputation of the cards issuing companies – Mastercard or Visa enhanced legal framework, securitisation
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The emerging F&M order " Emergence of a hierarchy of interconnected payment sub-systems " Money as a universal expression, as Weltanschauung prism " Payment systems based on creditworthiness and liquidity break the essential
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Future of money&finance Need for appropriate conceptualisation; Need for appropriate statistical measurement; Need for appropriate regulation(s)
" Thank you!! "
[email protected] Paul H. Dembinski - Observatoire de la Finance
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