Tag Archives: money

Random thoughts – keeping you on your toes

Financial Float

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One regular service financial institution ( FI)  customers use regularly is money transfer/ payments.  Whether a small retail customer or a large Corporation moving funds from one entity to another can be a key service expectation.

The movement of money can take many legacy manual forms from cheques, drafts, wire transfers, payment orders and so on  to diect on-line transfers.

Of course just handing over cash was one of the most widely used methods and although still popular for some transactions (e.g., drug deals) that method is slowly becoming replaced by on-line options (e.g., debit cards)

Payment Options

When moving money  there are several considerations:

– timing of the acceptance of the payment

– payment guarantee

–  convenience

Each of the common legacy money transfer options involve taking money from one account and moving it to another.  Because these are not online real time transactions there is risk the funds are not available (lack of guarantee), lost in transit (inconvenient) or take time to move (slow)

When one FI takes the money from your account and then transfers it to another FI  or credits your account and waits for reimbursement, it is called float.  Float can be positve or negative depending on the flow of funds .

Accumulated positive free float funds can be profitable to an FI while negative float can be costly.  In this age of digital technology it is surprising to me Fi’s still have not fully eliminted these legacy manual money transfer methods that involve unnessecary float.

It is true, world commerce continues to moves toward 100% real time online processing more and more, but unbelievably, there still is a high volume of offline processing (whether credit card, cheque or some other similar form )

Personally I find cheques archaic and frustrating but occassionally no alternative is offerd other than these slow inefficient paper options.

Hey bankers out there, get with it.  Join the digital age.  Resistance is futile .  Force your customers to move off these slow, costly, labour intensive, high risk methodologies.  Might have been okay 150 years ago when Canada became a country, but today, seriously.

 

 

 

 

Random thoughts – keeping you on your toes

Rethinking the Monetary System

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Yesterdays post ended with a question – Can this avoidance of economic collapse continue without a major resdesign of the monetary system?

Reworded, is there a major devaluation of money coming if we don’t change something?   Remember, in and of itself money has little value.  You could burn it to keep warm, use it as toilet paper or to make paper clothes but there are better materials for these things than money.

Money is an instrument or tool critical in the exchange of goods and services.  If money was not accepted in return for a good or service it is basically useless.

Demand for Money

Money is only in demand because it has a percieved value.  If money suddenly has no percieved value or is of greatly diminished value some hope it will be replaced, by say gold or diamonds or bitcoins.

Ultimately though all these things are artifical constructs with a requirement for a perceived value.  If the perception changes or dissappears so does the value.

Outside the box thinking

My thought is not to replace money, but rather to standardize it, one currency for the entire world, and fix how much is available and do not allow any manipulations like fractional reserve systems to exist (finally backto that, hope you were not holding your breath).

The currency then does not fluctuate in value and given it is world wide becomes the same everywhere.  Hoarding it or trying to manipulate supply and demand via regulated interest charges or other such machinations would not work.

Goods and services (e.g., housing and food prices – basic necessities ) would not vary in value because the amount of currency was fixed and there would be no more available.  That is, the money suplly would be an irrelevant economic factor.

Inflation, deflational, economic collapse, would all become all things of the past.

Random thoughts – keeping you on your toes

Is there a better way?

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Money is simple a tool to facilate the exchange of goods or services.  Direct exchange of goods and services is called bartering.  Using money (or diamonds or gold) has some key advantages over bartering.

Money or some equivalent placeholder like diamonds or gold display the following attributes:

  • serves no useful purpose on it’s own (e.g., you can’t eat it, read it, talk to it, and so on)
  • the supply is controlled (it’s production and issuance is largely through goverments or other central bodies)
  • how and when it can be used and by whom is regulated (e.g., anti-money laundering, financial institution regulation, fraud control)
  • Is portable, recognizable and believed to hold value

These are the key factors as to why money replaced barter as the main method of facilitating economic exchange.

The monetary system

Humans created money as the key resource underlying the monetary system ( replacing barter).  The rules for production, issuance and use of money can be manipulated for the good of all.

That is, to some extents we can control our economic destiny.

The use of fractional reserves is one of those regulatory practices employed by countries around the world to manage the way money is used.

The intent of these practices is promoting overall greater real economic activity – that is the creation of more goods with a real use for which humans have a need or derive benefit (e.g., food).

The rub of course, is the risk that instead of promoting economic posperity money becomes recognized for it’s real worth – nothing. This leads to economic depressions, the worst in recent memory occurring in the 1930’s, which culminated in world wide conflict.

In recent years governments have employed more rules and attempts at manipulation to avoid the events of the 1930’s.  To some extent these have worked and a major devaluation of money has been avoided.

Can this avoidance of economic collapse continue without a major resdesign of the monetory system?  More of my thoughts tommorow.