Typography

The (Great) Tower of Babel , 1563, Bruegel the Elder. "Therefore is the name of it called Babel; because the Lord did there confound the language of all the earth" People bandy the term fiat currency around a lot, but what exactly does it mean? None of us wants to live in a Babel where people use fiat to indicate twenty different thing. So let's try to zero in on what most people mean by playing a game called fiat-or-no t. I will describe a monetary system as it evolves away from a pure commodity arrangement and you will tell me when it has slipped into being a fiat system. (The technique I am using in this post cribs from a classic Nick Rowe post ). So let's start the game. 1) An economy in which gold coins circulate as the medium of exchange. Fiat or not? I think we can all agree that there is nothing fiat at all here. (For simplicity's sake let's assume for the duration of this post that taxes can be paid with anything, and that there is no legal tender.)...

I am a big fan of coinsplainers like Andreas Antonopoulos. Listening to Andreas explain how bitcoin works is a great learning opportunity for folks like myself who know far less about the topic. I am less impressed when bitcoiners engage in fiatsplainin', since they generally have an iffy understanding of the actual financial system and central banking in particular. So for the benefit of not only bitcoiners, but anyone interested in the topic of money, I'm going to fiatsplain' a bit. (I really like this term, I got it from an Elaine Ou  blog post ) Paul Krugman recently had this to say about the difference between bitcoin and fiat money: "So are Bitcoins a superior alternative to $100 bills, allowing you to make secret transactions without lugging around suitcases full of cash? Not really, because they lack one crucial feature: a tether to reality. Although the modern dollar is a “fiat” currency, not backed by any other asset, like gold, its value is ultimately back...

The BBC has an interesting story about India's coinage. Apparently more and more Indians  believe that the ₹10 coin is not real, or that it has been banned by the authorities, and as a result they are unwilling to accept them in trade. Doubts about the ₹10 coin have been emerging for several years now: Amol Agarwal has covered the story here , here , and here . This is an excerpt from the BBC article: "Nobody accepts the coins - grocery shops, tea stalls, nobody accepts it", an auto rickshaw driver in the southern state of Tamil Nadu told BBC Tamil. In the southern city of Hyderabad, a young girl told BBC Telugu she had been saving up to buy her brother a gift but several shop owners wouldn't take her 10 rupee coins. A man on his way to a job interview was forced to get off the bus because the conductor wouldn't accept 10 rupee coins, the only currency he had. "They say it's because the other passengers don't accept the coins in return", explain...

In my recent post for the Sound Money Project, I touched on the odd relationship between central banker and gangster. I want to focus a bit more on this relationship. An awkward truth of central banking is that one of the central bank's most important lines of business—the business of providing cash, specifically high denomination banknotes—primarily serves hoodlums, gangsters, tax evaders, and the mafia. Yes, non-criminals certainly make some use of high denomination banknotes, say a few notes hidden in the cookie jar in case the electricity goes down. But the largest base of users is comprised of folks who hold notes—not in cookie jars—but by the suitcase full; criminals. Banknotes are anonymous after all, so they are an excellent way for criminal organizations to make large-scale transactions without being traced. Providing criminals with high-denomination banknotes is a lucrative line of business. For each $100 note put into circulation, a central bank holds $100 worth of inte...