Monetary sovereignty


Monetary sovereignty

A state is generally considered monetarily sovereign to the extent that it retains the following legal rights[1][2]:

Contents

Rights of monetary sovereignty

Right of legal tender

The right of legal tender grants the power to determine the currency deemed legal tender for payment of taxes and legal debts. Historically, states have operated on a variety of currencies (see History of Money) and a change in legal tender is typically the result of an economic/political revolution/crisis (see History below).[3][4]

Right of issuance and retirement

The right of issuance and retirement grants the power to issue and retire the legal tender. The state generally extends this right to a variety of public and private institutions, for example private banks, depts. of the treasury, monetary authorities, finance ministers and central banks.

Right of currency monopoly

The right of currency monopoly grants the power to maintain a currency monopoly. This right is typically executed through the prosecution of fraud and counterfeiting, and the regulation of legal currencies, both foreign and domestic.

Examples

World history

Ancient Rome
Shortly after Julius Caesar seized control of the Roman Republic in 49 BCE, he also seized partial monetary sovereignty by coining his own imperial currency and passing a law to restructure debts so that ultimately one fourth of all debts were eliminated[6].
Jewish-Roman wars
After the Roman Empire seized control of Jerusalem in 63 BCE, they usurped the monetary sovereignty of the Jews by forcing them to use the Tyrian shekel for payment of their Temple tax, despite the fact that the Tyrian shekel bore the image of the Phoenician god Baal. This was probably a contributing factor, when Jesus physically forced the money changers out of the Temple in the new testament story of the Cleansing of the Temple. In addition the thirty pieces of silver later given to Judas for the betrayal of Jesus to the Romans are likely to have been Tyrian shekels. After the Jews captured Jerusalem from the Romans both in the First Jewish Revolt of 66 CE and again in the Bar Kochba Revolt of 132-135 CE, they restored their monetary sovereignty by issuing the First Jewish Revolt Coinage and then the Bar Kochba Revolt coinage.
Medieval England
For hundreds of years the British Monarchy issued a currency of royal tally sticks (ie. debts to the crown). In the 17th century, the Bank of England began to add royal tally sticks to their capital reserves, but the royal tally system was officially retired in 1826.
Plano Real
In 1994 Brazil issued a new form of legal tender, the Unidade Real de Valor or Unit of Real Value as part of a set of measures, known as the Plano Real, intended to stabilize inflation of the Brazilian Real [7].
European sovereign debt crisis
When the European Union was formed in 1993, most member states chose the euro for legal tender. Since the European Central Bank controls issuance, retirement and to some extent monopoly rights on the euro, these states have partially transferred their monetary sovereignty to that bank[8][9]. The current debt crisis has sparked debates about whether debtor states should reclaim full monetary sovereignty by leaving the euro[10][11][12].

United States history

1776 - 1790

Colonial Scrip and Taxation Without Representation
As the economy of the thirteen colonies developed, the early Americans utilized a heterogeneous mix of both foreign and domestic currencies. The domestic currency, generally known as colonial scrip, was issued by colonial governments, individuals and corporations. Since colonial scrip increased the liquidity of colonial debtors relative to the British pound, these currencies were widely popular within the colonies but strongly derided by the British. For example, Adam Smith denounced colonial currencies in his book, "The Wealth of Nations", as a "violent injustice" to the creditor and a "scheme of fraudulent debtors to cheat their creditors" (Book II, Chapter II). The British Empire reasserted its monetary sovereignty over the colonies with the Currency Acts of 1751 and 1764, which prohibited the use of colonial scrip as legal tender. As a source of further tension, the British Empire, heavily indebted from the Seven Years' War and seeking revenues to support British troops in North America, issued the Stamp Act of 1765 and the Townshend Acts of 1767, thereby intensifying taxation upon colonists lacking representation within the British state. This system of "Taxation without Representation" was explicitly forbidden by the Rights of Englishmen. In 1774 the First Continental Congress asserted the monetary sovereignty of the colonies by demanding redress for these and other Intolerable Acts.
Continentals and Free Bimetallism
In 1776 the Second Continental Congress issued the Declaration of Independence and then partially financed the ensuing American War of Independence by issuing continental currency. However, these "Continentals" rapidly devalued due to overproduction, poor management and economic warfare in the form of rampant counterfeiting. After the collapse of the continental currency, the War of Independence was primarily financed through the Bank of North America, established in 1781 with loans from France, Spain, the Netherlands and the "Financier of the Revolution", Robert Morris. When the Philadelphia Convention ratified the United States Constitution in 1787, they established a free bimetallic standard for legal tender [13], partially in order to avoid a repeat of the continental currency's inflation debacle.

1791 - 1811

Alexander Hamilton - Debt, Taxation and Fixed Bimetallism
In 1790 President George Washington appointed Alexander Hamilton as United States Secretary of the Treasury. During his time as Treasurer, Hamilton wrote a series of reports and letters promoting the expansion of federal sovereignty. Hamilton's proposals were generally opposed by Thomas Jefferson, James Madison and others who favored a small federal government with limited sovereignty as outlined by the United States Constitution. Although this conflict ultimately led to the formation of the American two-party political system, Hamilton was largely successful in extending the monetary sovereignty of the federal government through the passage of following policies:
  • Hamilton Tariff - The Tariff of 1789 [14] was the second statute ever enacted by the new federal government of the United States. Most of the rates of the tariff were between 5 and 10 percent, depending on the value of the item. Hamilton was anxious to establish the tariff as a regular source of government revenue and as an indirect subsidy to domestic manufacturers in order to counteract the United States' heavy dependence on foreign goods. However, the tariff was also seen as an indirect tax on Americans in the form of generally higher prices for both foreign and domestic manufactured goods. Farmers were particularly hurt by the higher prices, and this has been cited as a contributing factor to the American Civil War. The tariff also led to Hamilton establishing the United States Revenue Cutter Service in order to enforce tax collection.
  • The Compromise of 1790 - In 1790 Hamilton promoted a series of controversial bills, generally known as the Compromise of 1790. Since many states were indebted to both domestic and foreign creditors, Hamilton proposed consolidating the states' debt under the federal government in order to more efficiently finance its payment. He further argued that the expectation of federal debt payments would create a vested interest in the success of the federal government among creditors and therefore a federal debt would be beneficial to the credit rating of the federal government. In opposition, Jefferson and others argued that, since many states had already paid their debts, it was unfair to hold them responsible for their neighbors' debts via the federal government. Since many of the solvent states were in the Southern United States, Hamilton offered the compromise of moving the capital south from Philadelphia to Washington DC, in exchange for southern support of federal debt assumption. In 1790 this compromise was enacted into law by the passage of the Funding Act and the Residence Act.
  • Whiskey Tax - In order to pay off the debt assumed through the Funding Act, Hamilton promoted a prohibitionist whiskey tax on American whiskey producers, and congress enacted this tax in 1790. The tax was widely opposed on the western frontier, especially among corn farmers, whose fierce resistance to taxation became known as the Whiskey Insurrection. While the federal government ultimately quashed armed resistance, many farmers still peacefully refused to pay and the tax was repealed in 1800.
  • The Bank Bill of 1791[15]
Land Speculation and the End of the First Bank of the United States
When Hamilton left office in 1795, his successor, Oliver Wolcott Jr., informed congress that more funds were required to service the federal deficit. He offered the option of increased taxation but instead recommended that congress sell their shares in the First National Bank. Congress agreed and sold their shares. From this time until the War of 1812 the federal government operated on deficit for 2 years and on a surplus for 14 years. When the real estate bubble collapsed in 1796-1797, thousands of Americans went bankrupt, many of them were also punished with years in debtors' prison, including Robert Morris and the father of Robert E. Lee.[16]. This led to the passage of the Bankruptcy Act of 1800, which was repealed only 3 years later. In 1811 congress chose not to renew the charter of the First National Bank, thereby removing the monetary rights granted by the Bank Bill. The First Bank of the United States became a regular private bank and was ultimately bought out by Philadelphia philanthropist, Stephen Girard.

1812 - 1831

War of 1812 and the Second Bank of the United States

1832 - 1860

The Bank War
President Andrew Jackson fervently opposed the Second Bank of the United States. He vetoed the renewal of its charter in 1832 and in 1834 he famously declared, "Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!"[17] When the charter of the Second Bank expired in 1836, it became a regular bank and eventually collapsed 5 years later.

1861 - 1900

Demand Notes
In 1861-62 Abraham Lincoln authorized the Dept. of Treasury's to issue debt-free demand notes as part of financing the United States Civil War.
Crime of '73 and (un)Free Silver
After silver was demonetized by the Coinage Act of 1873, the Free Silver movement aimed to remonetize silver and restore the bimetallic money system. The movement generally pitted debtors, who hoped that silver would provide them with an increase in liquidity, against creditors, who largely controlled the gold supply. Bimetallism was promoted by the Populist Movement, and William Jennings Bryan famously comdemned the monometallic gold standard in his Cross of Gold speech. The Farmers' Alliance also promoted bimetallism, since many farmers had fallen into debt through the crop-lien system. Bimetallism was opposed by a powerful group of creditors including railroad monopolies, banks, and commodity brokers, who eventually defeated the Free Silver movement with the establishment of the Federal Reserve System at Jekyll Island in 1910.

1900 - Present

The Gold Standard and the Federal Reserve System
Executive Order 6102 and Gold Reserve Act
On April 5, 1933, U.S. President Franklin D. Roosevelt issued Executive Order 6102 "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States" and thereby criminalized the possession of monetary gold by any individual, partnership, association or corporation. The Gold Reserve Act of 1934 reinforced state control of gold both by ordering the transfer of all gold and gold certificates from the Federal Reserve to the Departement of Treasury and by changing the nominal price of gold from $20.67 per troy ounce to $35. In 1935 the Supreme Court judgment, Norman vs. Baltimore & Ohio Railroad Co., reaffirmed the state's currency monopoly by invalidating gold clauses.
Executive Order 11110
On June 4, 1963 President John F. Kennedy issued Executive Order 11110 granting the Secretary of the Treasury the authority to issue debt-free silver certificates. However in March 1964, a few months after President Kennedy was assassinated, the Secretary of the Treasury halted redemption of silver certificates for silver dollars and all redemption in silver ceased on June 24, 1968.
Nixon Shock
In 1971 U.S. President Richard Nixon asserted the right of legal tender by canceling the direct convertibility of the United States dollar to gold. In 1977 Congress reaffirmed the state's immunity from gold claims but legalized the use of gold clauses for private obligations (new contracts) in accordance with 31 U.S.C. § 5118(d)(2)[18].

See also

References

  1. ^ "Current Legal Aspects of Monetary Sovereignty" by Francois Gianviti, General Counsel, IMF[1]
  2. ^ "Monetary Sovereignty: The key to understanding economics" by Rodger Malcolm Mitchell [2]
  3. ^ "Money Masters", Documentary by Bill Still (1996, 3.5 hours)[3]
  4. ^ "The Secret of Oz", Documentary by Bill Still (2009, 2 hours)[4]
  5. ^ "Money as Debt I,II,III", Documentaries by Paul Grignon [5]
  6. ^ J.F.C. Fuller, "Julius Caesar, Man, Soldier, Tyrant", Chapter 13
  7. ^ "How Fake Money Saved Brazil", Radio Broadcast NPR [6]
  8. ^ "Current Legal Aspects of Monetary Sovereignty" by Francois Gianviti, General Counsel, IMF[7]
  9. ^ "The Sharing of Sovereignty: the European Paradox" by William Wallace [8]
  10. ^ "It's in Greece's Interest to Reintroduce the Drachma", Der Spiegel Interview with Hans-Werner Sinn, President of the Institute for Economic Research in Munich[9]
  11. ^ "Tour Operator Sparks Greek Currency Row by the Wall Street Journal [10]
  12. ^ "Greek default within the euro is the only real option" by Robert Jenkins, Financial Times[11]
  13. ^ U.S. Constitution 1.10.1.5[12]
  14. ^ (ch. 2, 1 Stat. 24, enacted July 4, 1789
  15. ^ 1 Congress Ch 10 February 25,1791[13]
  16. ^ Timeline: A Brief History of Bankruptcy, New York Times [14]
  17. ^ "Andrew Jackson and the Bank of the United States" by Stan V. Henkels [15]
  18. ^ § 5118. Gold Clauses and Consent To Sue[16]

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