This post talks about why any monetary system (based on the concept of money as a medium of exchange) does not fit into an ideal design of the global economy. This is just a bird’s eye view of a failed system.
Before I start the topic, I want to provide my view on the age old question – was the gold standard (monetary system) any better than the current? The proponents of the gold standard argue it is easier to keep interest rates stable over a long period under a narrow band (How interest rates are set?). Theoretically, it keeps a check on the liquidity in the system. However, some of the pitfalls of such a system, in my view, are the same as the current one. The gold standard could be a relatively better system but I disagree it would serve us better. I feel the gold standard is not a good substitute to the current one. However, this post is not about current versus the gold standard. Continue reading