Typography

Haiti is home to a strange monetary phenomenon. Shopkeepers and merchants set prices in the Haitian dollar , but there is no actual thing as the Haitian dollar. I've written before about an exotic type of unit-of-account known as an abstract unit of account . A nation's unit of account is the symbol used by its citizens and businesses to advertise and record prices. Here in Canada we use the $ while in a country like Japan people use the ¥. The national unit of account almost always corresponds to the national medium-of-exchange . In both Canada and Japan, the $ and the ¥ amounts advertised in shop aisles are embodied by physical dollar and yen banknotes and coins. Abstract units of account, on the other hand, don't correspond to anything that exists. In the UK, for instance, race horse auctions are priced in guineas , a gold coin that hasn't been minted in over two centuries. The guinea is a ghost money , an accounting unit that according to John Munro is "calcu...

I finally had some time to read George Selgin's excellent Floored! over the Christmas holiday. Some family members saw me reading the book and asked me what it was about. The subject that George is tackling—two types of central bank operating systems—is quite technical, so I wasn't sure how to break it down for them. But in hindsight, here's how I would go about it. I'm going to explain what the issues are in terms of an instrument we all use and understand: good ol' fashioned banknotes.  ------- Imagine that when you go to your bank this morning to withdraw $200 in cash, you can only get $100 out of the ATM. The bank manager says that it is expecting another shipment of cash later in the day, so come back then. But be early, he warns, since a lineup is sure to develop. What explains this odd situation? The central bank has started to ration the amount of banknotes it issues. For instance, the Bank of Canada currently supplies Canadians with $85 billion in banknote...