Consider a country where fiat money is in abundance, where central banking is present backed by government and fractional reserve banking is practiced. What could be the procedure if government wakes up or a mass of people make the government to wake up and abolish all the fiat money and make them real ones? One way could be a general awakening of mass and government to dig up enough gold or other commodity money with less wage rate (compensated by urge to improve future of society) and then make central bank 100% backed up by that commodity money. Then mass and government would be required to wake up the bankers (those of who would be still sleeping) to follow the same suit to become 100% reserved. And lastly, withdraw central bank, making creation of such central bank illegal and creating 100% reserve banking a norm. Many people may get affected by this procedure. Some people who were based on fiat money will suddenly become "real" rich and that will create frustration in those people who would have worked at low wage rate to eliminate this fiat money system for the good of their society. And second problem is that there will be no guaranty that the banks will not start fractional reserve banking hideously even under strong watch of government regulation. So, i guess the process is better be left off to gradual mass awakening. If people one day reach at certain position that they no longer value "fiat money" as an economic good, they will themselves overthrow such item.
Here is a link to "Denationalisation of Money" by Hayek:
http://mises.org/resources/3970/Denationalisation-of-Money-the-Argument-Refined
The book covers many arguments against it, and gives some ideas on how to get back to denationalized money.
Sujoy:Many people may get affected by this procedure. Some people who were based on fiat money will suddenly become "real" rich and that will create frustration in those people who would have worked at low wage rate to eliminate this fiat money system for the good of their society.
And everyone would be crushed under hyperinflation. There will be some people who are hurt/gain in any change of currency, but going back to hard currencies would be a much better and more stable system.
Sujoy:And second problem is that there will be no guaranty that the banks will not start fractional reserve banking hideously even under strong watch of government regulation.
As long as Reserve Requirements are abolished by the government, then you allow the market to decide (and many people here think that under a hard currency it would tend towards 100% reserves).
Sujoy:So, i guess the process is better be left off to gradual mass awakening. If people one day reach at certain position that they no longer value "fiat money" as an economic good, they will themselves overthrow such item.
I personally just think that allowing competetive currencies is the best way to handle this. Abolish legal tender laws, abolish reserve requirements, abolish capital gains taxes, abolish the Federal Reserve, and just allow whatever monies to compete against eachother. Gold and Silver would most likely win in the market, and people would naturally tend towards it since it have very stable purchasing power.
I always like the simple way. Stop the creation of money and credit. Just close the central bank and let the market for money set the interest rate. At this point the market will select what money is. And the best guess is that it will be gold or silver. The Feds could redeem currency in gold if they actually have any of it and sell assets, land, to investors and what not to make up the rest.
This experiment was carried out in the USA in the 1830s. And guess what? The world did not end and the USA had a growing economy despite the predictions of doom and gloom by pundits and the attempt by the soon to be fired central bankers to wreck the economy. Note you must also end banking insurance and other wealth redistribution schemes that transfer wealth from poor tax payers to rich and wreckless bankers.
The aftermath was not predicted by the pundits. Banks simply began to issue checks redeemable in gold. These quickly became currency.
Get your state to nullify legal tender laws.
Why anarchy fails
What would be the effects of that?