Typography

Somalia has long played host to one of the world's strangest monetary phenomenon, a paper currency without a central bank. I explored the idea of Somalia's "orphaned currency" more fully four years ago , but if you're in a rush what follows is the tl;dr version. Despite the fact that both the Central Bank of Somalia and the national government ceased to exist when a civil war broke out in 1991, Somali shilling banknotes continued to be used as money by Somalis. Over the years, Somalis also accepted a steady stream of counterfeits that circulated in concert with the old official currency, a state of affairs that William Luther explores in some detail here . The story is worth revisiting because apparently Somalia's newly restored central bank is on the verge of re-entering the game of printing banknotes after a quarter century absence. With the help of the IMF, the Central Bank of Somalia (CBS) plans to issue new 1000 shilling banknotes, the introduction of hi...

"One dollar bill," watercolour by Adam Lister ( source ) R3, a company specializing in distributed ledger technology, has just posted a paper I wrote for them entitled Fedcoin: A Central Bank-issued Cryptocurrency . And here is a nice write-up on the Fedcoin idea in American Banker , which unfortunately is behind their paywall . The paper is pretty wide-ranging, but one thing that's worth focusing on is the ability of Fedcoin to provide some of the same features as banknotes, in particular anonymity and censorship resistance . That a Fedcoin system can be designed to provide the same degree of privacy as cash runs counter to some of its early critics , who see in Fedcoin a coming financial panopticon . One really neat things about good ol' cash is that, like bitcoin, it is a decentralized network. The opposite of this is a centralized network, say something like the deposit banking system. In the banking system, storage of value is handled by the issuing bank throug...

David Andolfatto and Larry White have been having an interesting debate on the public finance case for having a large (or small) Federal Reserve balance sheet. In this post I'll make the case that American taxpayers are better off having a large Fed balance sheet, perhaps not as big as it is now, but certainly larger than in 2008. To explain why, we're going to have to go into more detail on some central banky stuff. The chart below illustrates the growth of the Fed's balance sheet. Prior to the 2008 credit crisis, the Fed owned around $900 billion worth of assets (green line), these being funded on the liability side by $800 billion worth of banknotes (red line), a slender $10-15 billion layer of reserves (blue line), and a hodgepodge of other liabilities. The Fed now owns an impressive $4.5 trillion in assets. These are funded by around $1.5 trillion worth of banknotes and $2.3 trillion worth of reserves. So the lion's share of the increase in the Fed's assets i...