Fed Chairman Ben Bernanke has embarked on an ambitious program of monetary expansion, more than doubling the monetary base to almost $1.9 trillion and doubling the size of its balance sheet to over $2 trillion, placing the American economy in a precarious position. If all this excess money begins to be loaned out, the Fed risks creating a hyperinflationary crisis similar to 1920s Germany. If the Fed contracts this money, it risks harming the banks it desperately wants to see bailed out.

While his ideal scenario is to abolish the federal reserve system altogether, his bigger interest is abolishing the government monopoly on the creation of money based on the economic theory that monopolies lead to reduce output and higher prices. He sees competition in currency that would “break the Fed’s stranglehold on money.”  

To open money up to competition, just as we open up the manufacture of widgets to competition, is a wholly dangerous situation. Money, Paul notes, is issued based on trust, “trust that the issuing authority will not debase the currency.” If a company minting money makes underweight coins, people will stop frequenting that maker, so the logic goes. The problem is that under Ron Paul’s plan, merchants are free to choose what currencies to accept. What a nightmare this will cause! Today, the Bank of Los Angeles dollar (BLA$)is trading strong. Tomorrow, some piece of bad news has devalued their currency and it takes three BLA$ to buy an item that cost 1 BLA$ yesterday. The Bank of Los Angeles dollar may be fiscally sound, but because of the State of California’s fiscal problems, the BLA$ reputation suffers. Imagine what happens when investors pump up the stock value of our bank, trade in the currency, and then sell out, leaving the stock to fall back to a more accurate value. Sure, these investors make out like bandits, but the little investor holding BLA$s now has a devalued or worthless currency. And what happens when you go to the store to buy the new U2 album, and they have to post a list of what currencies they will accept today. Can you pay in two gold pieces, one Euro, an Australian half-pound note, three Bank of Los Angeles dollars, two nickels from the Bank of Nebraska, thirty-four half-penny notes issued by the Bank of Ralph Blankowicz. If you return it, can you specify that you want your change entirely in Hector Ramirez $3 notes? How can you travel if a strong currency in Florida is a worthless currency in Maine? And how do you exchange these notes if you go abroad? 

Paul notes that it is in the best interest of stores to accept multiple currencies to attract a wide range of customers. Again, I see this as a fiasco. They have constant headaches valuing or devaluing the currency when Hector Ramirez dollars spike but Ralph Blankowicz coins tank. Today Ramirez bills are worth a fortune. Tomorrow, he skips town and his notes are worth nothing. Can you imagine the accounting nightmare of keeping your books in multiple currencies? Or worse, having to do a nightly, weekly, or monthly exchange rate of all these currencies? 

Contrary to Paul’s statement that the long-term strength of the dollar is weakened by maintaining the Fed’s monopoly on the monetary system, it is actually strengthened. The dollar is accepted everywhere. We don’t have to convert from Nebraska currency to North Dakota notes. Most of us have full faith and credit that the United States of America is here today and will be here tomorrow. The dollar is accepted around the world. Sure, the Euro is also accepted around the world. The United States dollar is no longer the King of the Currency. But in America, the dollar is the only universally accepted coin for all debts. It’s a sound system that has worked well for over 200 years, and there is no need to change it simply because Ron Paul sees a wobbly economy and wants to find someone to blame.

If Congressman Paul wants to make a stronger case for transparency at the Federal Reserve, the real issue is to have the Fed better explain its fiscal policy for the layman. What does issuing more currency mean to the "man on the street." That is a stronger position than to open the country up to wildcat banking. This is a set back to the 1820s, when anyone with 50 cents and a saddle bag could trot into town and call himself a bank. That kind of unsecure banking is why Congress chartered the Bank of the United States to begin with, followed by central banking policies that had their start around the US Civil War.