Given the ongoing concerns regarding the strength of Britain’s position in trade negotiations, many alternative policy suggestions that may have previously been politically infeasible or even thought to be unrealistic should be considered if one wants to maximise Britain’s expected, subsequent prosperity. Proposals for Free(r) Banking in terms of Monetary Freedom have been gaining momentum and renewed interest amidst the ongoing, heated debate regarding the need for significant monetary policy reform. Therefore, it is worth considering the potential benefits of Free Banking with respect to trade negotiations. Indeed, trade negotiations will (for Britain, at the very least) will be a hot topic for many years to come (before, during and beyond the upcoming Brexit negotiations).
To begin with, since one of the primary defining qualities of Free Banking is the ability of institutions to issue, use and compete with monies based on voluntary actions rather than the monetary monopoly imposed through contemporary monetary and fiscal policy, the range of interest and exchange rates means that agents (individuals, households, businesses etc.) would be free to use an appropriate combination of monies within a portfolio that suits their diverse expectations-management preferences. One specific channel through which it would do this would be its impact upon special interest groups and lobbying groups in the trade negotiations process.
The impact on Special Interest Groups’ influence on trade negotiations
A major worry is that trade negotiations will privilege and inherently favour large corporations as opposed to small- and medium-sized enterprises since everyone faces risks during these processes but the former have far greater resources with which to lobby for their desired outcome(s).
One of the largest concerns of (large) corporations in terms of supply-chain management and subsequent sales is the impact of Brexit on pound sterling. Essentially, a weaker pound would lead to an increase in the cost of imports (and, thereby, be passed onto the consumers which would work to dampen demand) and the volatility of the pound makes it far more difficult to manage this risk. Therefore, they will lobby especially fervently to gain the best deal they can from the tough trade negotiations before, during and after Brexit to minimise the expected costs associated with these risks.
The disproportionately large influence that these larger entities have upon policy making and subsequent constraining of negotiating positions works to crowd out the interests of smaller organisations and, therefore, Special Interest Groups do not compete at the same level. As such, the preferences of relatively less ‘powerful’ interest groups are likely to be sacrificed in favour of larger corporations that hold more sway and whose actions will likely be picked up by the mainstream media and affect overall sentiments regarding Britain’s economy accordingly. This perverse, institutionally entrenched incentive is exacerbated further by the nature of contemporary Central Banking regimes that work to reinforce imposed monetary monopolies.
A greater range and multitude of exchange rates and interest rates would reduce harmful, counter-productive competition between Special Interest Groups
The greater range of exchange rates and interest rates to suit various organisations’ preferences would mean that this key factor in risk-management could be managed more effectively and, therefore, work to reduce harmful competition between interest groups within the policy making process.
To illustrate this, let us envision a simple thought experiment. Imagine that, as a result of some political shock (e.g the Brexit referendum result), several dimensions of uncertainty are introduced in an economy. To begin with, the country’s currency is experiencing increased volatility; a weakened exchange rate increases fear of increased, expected future import costs (an important channel for inflation) and further uncertainty regarding the time-path of future interest rates (of both the Central Bank and market variety).
Feeling especially threatened by the prospect of increased import costs, those with more political resources (most notably, larger businesses) will move to ensure that public policy (in terms of tariffs, restrictions, quotas for particular goods from various countries and immigration from various countries for certain service-based industries) takes their interests into account. As such, these special interests will lobby fervently to ensure that their interests are represented adequately in the subsequent trade negotiations.
This means that governments, their policy makers and their negotiators start from a position of relative constraint since these ‘bargaining chips’ that the larger interest groups successfully lobbied for are no longer available to them in subsequent negotiations since sacrificing them could significantly deteriorate confidence in their position.
This leaves relatively less maneuvering room for entities that are not as well-endowed with political resources since the more powerful interest groups will work to minimize the expected costs associated with the dimensions of uncertainty relating to the country’s money and they do so by fighting for a more favourable deal on other fronts (e.g trade, labour market and immigration policy for their industries and/or businesses).
However, if there were multiple monies and true Monetary Freedom, then those same interest groups that scramble to enact regulatory capture (and thereby ‘crowd out’ less powerful interests) would feel less threatened since they could optimise their preferences according to the greater range of prevailing exchange rates, interest rates, competing monetary rules etc. Additionally, it could be argued that Free Banking would have made contemporary pound sterling troubles irrelevant.
All of this would enable negotiators to have more ‘bargaining chips’ and ‘cards’ with which to play that dangerous and risky game of ‘trade negotiations’ whilst also allowing them to more significantly incorporate the preferences of interest groups that would have been ‘crowded out’ otherwise.
