In times of virtual private currencies, Hayek comments on how he would handle one if he were a Swiss banker issuing

In his book “Denationalization of money” Hayek deals with the issue of monetary policy and makes a proposal of “currency competition”, whose discussion is appropriate in every country, such as Argentina, which has at least two currencies, the Argentine Peso and the American Dollar. It is often thought that the provision of money is a ‘public good’, a non-delegable function of the State. Where did that come from? The book was published by the Institute of Economic Affairs in London.

In this opportunity I will comment how it could be the introduction of new private currencies:


I will assume, during the rest of the discussion, that it would be possible to create different institutions in different parts of the world with freedom to compete in the issuance of banknotes and also in the administration of current accounts denominated in the unit issued by them. I will call these institutions “banks” or “issuing banks” when it is necessary to distinguish them from other banks that prefer not to issue currency. I will also assume that the name or denomination that the bank chooses for issuance will be protected, like any commercial brand, from misuse and that they will have the same protection against forgery as any other document. These banks would compete with each other for the public to use their currency in an attempt to make its use as easy as possible.

The Swiss private “duchy”

Since readers will wonder how these currency emissions can be accepted as money, the best way to begin the explanation is probably to describe how I would act if I were in charge of one of the most important Swiss banks. Assuming it was legally possible (what I have not examined), I would announce the issuance of certificates or interest-free notes and my willingness to open current accounts on behalf of clients in terms of a unit with a registered trade name, for example, “duchies”. The only legal obligation that I would assume would be to convert these notes into demand deposits, at the option of the holder, for 5 Swiss francs, or 5 German marks, or 2 American dollars for “duchy”. This conversion value would be only a minimum for the putting into circulation of private fiduciary money below which the value of my unit could not fall, since at the same time it would announce my intention to regulate the amount of “ducats” to maintain its purchasing power (in terms of a perfectly defined basket of goods) as constant as possible.

I would also explain to the public, that it was aware that it could only hope to keep the “ducats” in circulation if it met the expectations that its real value would remain roughly constant. On the other hand, I would affirm my intention to periodically declare the good in relation to which I intended to keep the value of the “dukedom” constant, although I would reserve the right to alter the composition of the goods pattern, as dictated by my experience and the preferences of the public.

However, it would be necessary, evidently, although it may seem unnecessary or undesirable, that the issuing bank would legally commit itself to maintain the value of its unit; that, said entity specify in its loan agreements that any credit could be reimbursed both in the nominal figure of its own currency and in corresponding amounts of any other sufficient currency, be it one or the other, to buy in the market the equivalent good which, at the time of the loan, had been used as a pattern. Since the bank would have to issue its currency primarily through credit, future borrowers could be discouraged by the formal possibility that the bank arbitrarily increased the value of their currency and should be guaranteed against this possible contingency.

These notes or certificates and their respective accounting credits would be available to the public through short-term loans or through sale through other currencies. Thanks to the option offered, the units would be sold from the beginning with premium over the value of any of the currencies in which they were convertible. The premium would increase to the extent that government currencies continued to depreciate (and the existence of a stable alternative would surely accelerate the process), the demand for stable currency would increase rapidly and soon competing companies would emerge to offer similar units with different names.

The sale (at the window or by auction) would initially be the main form of issuance of the new currency. After the formation of a regular market, the “dukedom” would normally be issued only in the course of banking operations, that is, by short-term loans.


Written by: Martín Krause. Academic Council, Freedom and Progres (Libertad y Progreso)

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