If the Fed pegged to the loonie

Nick Rowe had an interesting post here. He asks how the Bank of Montreal would be different from the Federal Reserve if the Fed decided to peg it's currency to the Canadian dollar. I think the difference would be that BMO has access to Canadian Payments Association's LVTS (Canada's monopoly payments clearinghouse) and LOLR services provided by the Bank of Canada, whereas the Fed would have neither benefit.

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Stock as a medium of exchange

American Depository Receipt (ADR) for Sony Corp You've heard the story before. It goes something like this. There's one unique good in this world that serves as a universal vehicle by which we conduct every one of our economic transactions. We call this good "money". Quarrels often start over what items get lumped together as money, but paper currency and deposits usually make the grade. If we want to convert the things that we've produced into desirable consumption goods (or long-term savings vehicles like stocks), we need to pass through this intervening "money" medium to get there. This of course is fiction—there never has been an item that served as a universal medium of exchange. Rather, all valuable things serve to some degree or other as a medium of exchange; or, put differently, everything is money. What follows are several examples illustrating this idea. Rather than using currency/deposits as the intervening medium to get to their desired final...

Yap stones and the myth of fiat money

At first glance, the large circular discs that circulated on the island of Yap in the South Pacific certainly seem quite odd. Too big to be easily transported, the stones are often seen in photos resting against their owner's houses. So much for velocity. Yap stones have been considered significant enough that they have become a recurring motif in monetary economics. Macroeconomics textbooks, including Baumol & Blinder , Miles & Scott ( pdf ), Stonecash/Gans/King/Mankiw , Williamson , and Taylor all have stories about Yap stone money. Why this fascination? Part of it is probably due to the profession's obsession with the categorical divide between "money" and "non-money". In dividing the universe of goods into these two bins, only a few select goods end up in the money bin. That an object so odd and unwieldy as a three meter wide stone could join slim US dollar bills and easily portable silver coins in the category of money is pleasantly counterintu...

Chain splits under a Bitcoin monetary standard

The recent bitcoin chain split got me thinking again about bitcoin-as-money, specifically as a unit of account . If bitcoin were to serve as a major pricing unit for commerce on the internet, we'd have to get used to some very strange macroeconomic effects every time a chain split occurred. In this post I investigate what this would look like. While true believers claim that bitcoin's destiny is to replace the U.S. dollar, bitcoin has a long way to go. For one, it hasn't yet become a generally-accepted medium of exchange. People who own it are too afraid to spend it lest they miss out on the next boom in its price, and would-be recipients are too shy to accept it given its incredible volatility. So usage of bitcoin has been confined to a very narrow range of transactions. But let's say that down the road bitcoin does become a generally-accepted medium of exchange. The next stage to becoming a full fledged currency like the U.S. dollar involves becoming a unit of account...

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