How do you start a currency system?

Question

Suppose hypothetically, 10,000 people were marooned on a fertile, bountiful, secluded island and in time they had all occupied their own plot of land and become: farmers, planters, fishermen, miners, foresters, builders, printers and other service personal and manufacturers. They then agreed to form a government and create a reserve bank. Bearing in mind that there would be privately owned supplies of gold, silver and paper on the island, how would the newly elected Reserve Bank Chairman create the monetary system? Specific answers please on what he/she would actually do (!), rather than generalisations about GDP, confidence in the currency system etc., etc.

Answer 1

The Reserve Bank Chairman would ask the treasurer to impose the first annual income tax, being the product of what each worker makes in two months. When all the tax is paid the central bank farm depository contains three cows, two dozen sheep, a gross of chickens, eight ounces of gold sixteen of silver, a crate of coconuts, IOU’s to labour for two months building, painting, cutting hair, massaging, digging irrigation channels, etc. The treasurer will then institute govt services such as maintaining and manning a watch tower near the beach to look out for passing ships; a judicial system to rule on property and contractual disputes; roads and drainage, lock-up for drunks, etc.
When paying for these services the RB Chairman will offer RB notes written on pieces of paper which declare that the bearer can cash in note for two dozen cocoanuts or a dozen chickens or a sheep or quarter of a cow, or a month of massages, etc.
Some will just take the goods but most will probably take the note as it is much easier to handle and then keep it for when they need specific supplies that they will barter with off any other trader. All traders will probably want the notes for reasons of convenience. For the first five years or so the national budget will have to definitely run in the black to give the chance for financial reserves to build up.
In the long term the RB chairman will slowly buy gold and or silver off anyone who has it in exchange for all the other livestock / produce / IOUs in the repository until the currency notes are changed to only offer to exchange for the easier to handle gold or silver.

Answer 2

At least during the beginning, you would need to see the supply and demand for goods and determine scarcity. If you started the first year with just a barter system, you would be able to to begin to form some structures.

The valuations would take a long time to establish, and those scarcity factors would be important to determine benchmarks.

The whole idea of GDP and confidence would take decades to establish.

Answer 3

An economy/ a place may start when there are supplies & demands of goods.

Issue new currency based on the total goods & services they will provide.