Recently I've read Fon Hayeks book "Denationalisation of Money", where he suggests to stop the central bank monopoly upon the money supply. Create competitive private currencies and let the free market provide the optimal quantity (and variety) of monetary products.

On the other hand we can imagine a situation opposite to Hayeks: global monopoly. 1 currency for the entire world, regulated by 1 central bank.

Are there any good mathematical models, that allow us to foresee, what would happen in the national and global economy in both cases:

  1. Total annihilation of the central bank, all the money is emitted by competing private organizations.
  2. All the money supply in the world is provided by 1 authority.
  • Economics is as much science as it is black magic. I'm sure there are all sorts of models out there, but I imagine it'd be hard to say they were anything other than SWAGs – user1530 Oct 31 '15 at 20:02
  • And how would the entities of 1) back up their money? I am private entity #1, if I do not need to back up my money the best thing I can do is print as much money until the value of the things I can buy with that money is not enough to the cost of physically printing that money... the not-so-technical name for that situation is scam. – SJuan76 Nov 2 '15 at 4:23
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    @SJuan76 Mr. Hayek says, that in the market this behaviour will be blocked by the competing money producers. If someone prints too much money, other money will be used. Plus we have an example of bitcoin, where emission is limited by the algorithm. – user4035 Nov 2 '15 at 11:55
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    @SJuan76 Your argument could be valid in In case of a very big market share of 1 company and it's ability to inflate the amount of money very quickly. But in case, when there are several competing stable currencies, if 1 issuer decides to overprint, it's exchange rate will decline, signalling to the public, that something is wrong with it. This process won't be instant. And eventually the public won't use this money at all and the company will bankrupt. Like Zimbabwe hyperinflation case: Zimbabwe dollar is gone. – user4035 Nov 2 '15 at 17:03
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    No, the ones hurt would be the ones that accepted that company money's. In fact, this has been done before many times, just that the company was selling "stock" or debt instead of "money". And, guess what? With no external (government) control, time and time again the temptation of printing too much of it has been to strong. These kinds of ideas are drawn on premises like "suppose that the market has perfect information and rational behavior" which are much like "imagine an spherical cow". – SJuan76 Nov 2 '15 at 17:45

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