Typography

A few months back I wrote about the odd case of the Somali shilling. Despite the fact that Somalia's central bank was looted in 1991 and ceased to function thereafter, orphaned Somali shillings continued to circulate, and do so to this day. Along these same lines, so-called "Swiss Dinars" circulated in northern Iraq between 1993 and 2004 despite having been demonetized and discredited by their issuer, the Central Bank of Iraq (CBI). Why did shillings and dinars continue to have value despite being orphaned from/disowned by their issuer? The bigger question at stake is this: what gives so-called fiat money its positive price? The few bits of information I've found on the Swiss dinar come from a 2004 paper by Mervyn King, then governor of the Bank of England, a short article in the New York Times by Hal Varian, and a 2004 paper by Foote, Block, Crane, and Gray on the economic policy in Iraq. I've found a few odds and ends elsewhere from newspaper and numismatic...

Imagine a market where buyers and sellers of moneyness congregate. In this post I'll flesh this market out. By moneyness I mean the extra bit of value, or premium, ascribed to some good or asset because of its exchangeability . Assets that are more exchangeable, or liquid, will have a larger premium attached to them. Less liquid assets will have little to no premium. Put more explicitly, let's say that Microsoft issues two types of shares, MSFT.A and MSFT.B. Both are entirely alike. They have the same dividend, carry the same voting rights, and are ranked equally in terms of seniority. The only difference is that MSFT.B shares are more exchangeable. Let's say that while MSFT.B can be sold whenever the owner wishes, MSFT.A can only be sold by their owner after one year has passed. A moneyness premium should emerge as the price of B shares trade above the price of A shares. Because the shares are entirely similar, this divergence can only be a product of B's superior li...

Once in a while I veer out of the realm of abstraction into the land of usefulness. This post is meant to be helpful for anyone currently invested in stocks. Contrary to what you might think, your stock portfolio is not a hedge against inflation. This won't be a big deal if you're not concerned about inflation. If you are, read on. In an ideal world, stocks would be great inflation hedges. Take a business with revenues of $100, costs of $50, and earnings of $50. After inflation doubles all prices, the business's revenues now amount to $200, its costs $100, and earnings $100. Adjusting for inflation, the firm's earnings power has stayed constant. In this ideal world, a stock is a 100% inflation hedge. In our not-so-perfect world, companies must pay taxes. This alone isn't sufficient to turn stocks into poor inflation hedges, but when we mix taxes with historical cost accounting , the distortions can be dramatic. The actual accounting details behind this may seem ach...

IMF board room I like to think of the International Monetary Fund's special drawing rights (SDR) program as the world's largest Local Exchange Trading System , or LETS. A truly unique part of the monetary landscape, what follows is a short visual essay on SDRs. What is an SDR? An SDR has two aspects. First, an SDR is a unit of account, or, put differently, a measure of value. As a unit-of-account, the SDR is defined by the IMF in terms of a reference good, or a medium of account. When the SDR was first introduced in 1969, an SDR was defined as 0.888671 an ounce of gold, so the yellow metal was the SDR's first medium of account. The IMF later redefined the SDR as a certain quantity of central bank currencies. As of 2012, an SDR is comprised of a basket of 0.423 euros, 12.1 yen, 0.111 pounds, and 0.66 US dollars. Thus the modern day SDR is defined in terms of multiple media of account. The Suez Canal Authorities currently uses the SDR to calculate the Suez Canal Tariff, whi...

'...the peculiar feature of a money economy is that some commodities are denied a role as potential or actual means of payment. To state the same idea as an aphorism: Money buys goods and goods buy money but in a monetary economy goods do not buy goods. This restriction is - or ought to be - the central theme of the theory of a money economy.' -Robert Clower [ A Reconsideration of the Microfoundations of Monetary Theory , 1967] I started to sell some of my XRP yesterday, and the process of doing so brought to mind Robert Clower's famous quote. Clower's aphorism describes an idealized pure-money economy that exists only in theory. Were we to apply it to the real world, we'd be missing a lot. To begin with, Clower omits "money" for "money" transactions like the XRP trade I'm about to describe. XRP is the cryptocurrency used to pay transaction fees in the Ripple system . In order to arrive at my end goal of holding Canadian paper, I have to ent...

The Telegraph's Willard Foxton writes that Silk Road, a venue where people exchange drugs for bitcoin, is in a recession of sorts. He blames this on higher bitcoin prices: Following the recent surges in the value of Bitcoin, people have been selling less and less, initially because the value of the Bitcoins was going up so fast people were unwilling to part with them; then, once the Bitcoin price started crashing, dealers were unwilling to part with valuable drugs for Bitcoins worth who-knows-what. I find Foxton's claim unlikely. Yes, in a regular economy, soaring demand for dollars may cause recessions because certain prices are sticky. But the bitcoin universe isn't a sticky price universe. Silk Road sellers will quickly reprice their product in order to convince buyers to part with their bitcoin. Buyers will modify their bids in order to convince sellers to part with their drugs. As bitcoin prices rise or fall, the real value of transactions in the Bitcoin universe sho...

For the full version, go here . The chart below only includes Eurosystem assets, not liabilities. It goes back just a few years. The full version goes back to 2000 and includes liabilities. To remove a data series, either click on its legend label or the line on the chart. Remove as many series as you want to get a better understanding for how balance sheet items interact. This is in beta, so it may be a bit buggy. Expect redraw delays. ECB Balance Sheet Tool Redraw all assets (May take a second or two)