Efficient Money Markets
The daily value of foreign exchange was $6.6 trillion in 2019, while world trade's daily value was $0.052 trillion. The foreign exchange market sets the price of money, and the trades to accomplish this is over 100 times the value of goods and services the FX market serves.
Today’s Money markets are dysfunctional and inefficient.
We find similar results in most money markets. Money markets are inefficient in achieving their purpose of setting the price of money. We also find the same problem with capital markets, such as the housing market.
Money and capital markets are inefficient because the value of money to any trader depends on how much money the trader possesses. The more money the trader possesses, the lower the cost of trading money and the lower the value to the trader. To traders with a lot of money, money's value is less than the value to a trader with little money. The cost of money does not correlate with value. It means a market in money is unable to settle on a fair price through trading. The operation of a market where the product's value is less than the cost if a person already possesses it means that the trader who accumulates more money will acquire more money or capital than the trader who has less. The truth of this is known to all players of the game Monopoly. Monopoly was invented to illustrate the inevitable concentration of wealth caused by capital markets. Money and Capital markets operate as though the money itself creates extra money in the market itself.
Alternatively, if the product's value is greater if the person does not possess it, markets can establish a fair price. We can do this by setting the price of using money to zero. We give preference to the trader the less money they possess. Such a market does not work on price but value to the buyer, and in a contested situation, the person with the greatest need will be able to purchase the zero cost money.
Zero price money is not free. It has a cost, but its possession does not create more money for the buyer by holding it. Zero price money gives a return with the extra value obtained from the use of the money. The extra value can be in the form of extra money, provided the money is created from the use of the money.
Returning to the foreign exchange market, instead of establishing the price of money by trading money where the money itself creates more money through a difference between buying and selling, we create a money market that only operates with money used to transfer goods or services. We create a market with zero priced money for the situations where the traded money results in the transfer of goods and services across currencies. This will reduce the number of market transactions by 100 times and save the unnecessary exchange of money. Saving 100 unnecessary transactions improves efficiency.
Here is how to do it for tourists in the USA who travel to Australia and need local currency to buy goods and services. They send a bank in Australia, $5,000 USA dollars. The Australian institution converts the currency to $7142 Australian if the exchange rate is 70. When the money is used, it attracts a small discount on the goods and services purchased. When an Australian tourist goes to the USA, the same process occurs in reverse. If many people use the system the exchange rate will settle to a fair value.
Today some peripheral players in the FX market offer similar services to tourists, and some government Import Export Banks may offer similar services. However, like regular banks, most institutions charge fees for unnecessary service if they can get away with it. They will continue to do so without government intervention, trading entities, or citizenry providing viable alternatives. The stakes are high because not only will we remove the cost of trillions of dollars worth of FX transactions the same principles apply to all money markets and surrogate money markets.