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Archaic and ignored monetary technologies can be very interesting, especially when they teach us about newer attempts to update our monetary system. I recently stumbled on a neat monetary innovation from the bimetallic debate of the late 1800s, Nicholas Veeder's Republic of Eutopia coin: During the bimetallic debates of the late 1800s, one of the more interesting compromises put forward was Nicolas Veeder's cometallic standard. His model 'Republic of Eutopia' coins (1866) had a plug with 12.9 grains of gold and ring with 206¼ grains of silver. A good idea or no? pic.twitter.com/6eZN2YAq6o — JP Koning (@jp_koning) May 28, 2018 If you've read this blog for a while, you'll know that I like to talk about monetary technology. Unlike financial technology, monetary tech involves a technological or sociological upgrade to the monetary system itself. And since we are all unavoidably users of the monetary system—we all think and calculate in terms of our nations unit of ...

Electrum coins [ source ] First proposed by economist Alfred Marshall in the late 19th century as an alternative metallic standard to the gold, silver and bimetallic standards, symmetallism was widely debated at the time but never adopted. Marshall's idea amounted to fusing together fixed quantities of silver and gold in the same coin rather than striking separate gold and/or silver coins. Symmetallism is actually one of the world's oldest monetary standards. In the seventh century B.C., the kingdom of Lydia struck the first coins out of electrum , a naturally occurring mix of gold and silver. Electrum coins are captured in the above photo. While symmetallism is an archaic concept, it has at least some relevance to today's world. Modern currencies that are pegged to the dollar (like the Hong Kong dollar) act very much like currencies on a gold standard, the dollar filling in for the role of gold. A shift from a dollar peg to one involving a basket of other currencies amoun...

Imagine waking up in the morning and checking the hockey scores, news, the weather, and how much the central bank has adjusted the gold content of the dollar overnight. This is what a 21st century gold standard would look like. Central banks that have operated old fashioned gold standards don't modify the gold price. Rather, they maintain a gold window through which they redeem a constant amount of central bank notes and deposits with gold, say $1200 per ounce of gold, or equivalently $1 with 0.36 grains. And that price stays fixed forever. Because gold is a volatile commodity, linking a nation's unit of account to it can be hazardous. When a mine unexpectedly shuts down in some remote part of the world, the necessary price adjustments to accommodate the sudden shortage must be born by all those economies that use a gold-based unit of account in the form of deflation. Alternatively, if a new technology for mining gold is discovered, the reduction in the real price of gold is f...

This post is about the Alberta Prosperity Certificate , one of the world's stranger monetary experiments. Issued in late 1936 and early 1937 by the newly-elected Alberta government, these monetary instruments are the largest-scale example of Silvio Gesell's "shrinking money," or stamp scrip, in action. Gesell, a German business man and self taught economist, had written a treatise in 1891 in which he described a currency that depreciated in value, thus preventing hoarding and encouraging spending. To make this more interesting, let's jump forward in time. In 2014, Greece's Finance Minister Yanis Varoufakis wrote a blog post that described a new Greek financial instrument that could be used to make payments while circulating in parallel with the already-existing euro. Varoufakis's post, combined with constant rumors that Greece may be planning to issue its own parallel currency in order to make internal payments,* means that a revisitation of Alberta...

Milton Friedman's alleged license plate, showing the equation of exchange The excruciatingly large revisions that U.S. first quarter GDP growth underwent from the BEA's advance estimate (+0.1%, April 30, 2014) to its preliminary estimate (-1.0%, May 29, 2014) and then its final estimate (-2.9%, June 25m, 2014) left me scratching my head. Isn't there a more timely and accurate measure of spending in an economy? One interesting set of data I like to follow is the Fedwire Fund Service's monthly , quarterly , and yearly statistics. Fedwire, a real time gross settlement interbank payment mechanism run by the Federal Reserve*, is probably the most important financial utility in the U.S., if not the world. Member banks initiate Fedwire payments on their own behalf or on behalf of their clients using the Fedwire common currency: Fed-issued reserves. Whenever you wire a payment to another bank in order to settle a purchase, you're using Fedwire. Since a large percentage o...

You may know by now that the final revision of U.S. first quarter GDP revealed a shocking 2.9% decline while its mirror image, gross domestic income (GDI), was off by 2.6%. As Scott Sumner has pointed out twice now , the huge decline in GDI is almost entirely due to a fall in corporate profits. Whereas employee compensation, the largest contributor to GDI, rose from $8.97 to $9.04 trillion between the fourth quarter of 2013 and the first quarter of 2014, corporate profits fell from $2.17 to $1.96 trillion (see blue line in the above chart) This incredible $198 billion loss represents a 36% annualized rate of decline! A number of commentators have pointed out the difficulty in squaring this data bloodbath with reality. After all, Wall Street has not been announcing 36% quarter on quarter profit declines. Rather, earnings per share growth has been pretty decent so far this year. If earnings were off by so much, then why are equity markets at record highs? Why have there been no layof...

Santiago skyline This post continues on the topic of the separation of the medium-of-exchange function of money from the unit-of-account function. My previous post discussed how the medieval monetary order was characterized by both a medley of circulating coins and one universal £/s/d unit of account. This post introduces a modern example of medium-unit divergence: the Chilean peso and Chile's Unidad de Fomento . I'll explain how the Chilean system works and end off by asking some questions about the macroeconomic implications of this separation, specifically what happens at the zero lower bound . Like most modern currencies, the peso is issued by the nation's central bank; the Banco Central de Chil e. Local banks offer peso-denominated chequing and savings accounts. Chileans use these pesos as the nation's medium-of-exchange. They pay their bills with pesos, settle rent with it, and buy food with it. The differences between Chile's monetary system and those of ot...

Whenever we think of US monetary policy we usually think of the Fed. There's another side to US monetary policy, and its probably just as significant. Being part of the worldwide US dollar clearing & settlement system means having access to the world's most liquid payments medium: the US dollar-denominated bank deposit. As long as a nation's banks are connected to this network, goods that are produced in that nation will be infinitely more saleable. On the other hand, being cut off from it means that the same goods will be a lot tougher to move. The Iranian monetary blockade illustrates the US Treasury's ability to use banishment from the USD network, or the threat thereof, to exert incredible influence over the world. Network view of cross-border banking, IMF, Minoiu and Reyes (2011) PDF To see how this works we've got to understand how the worldwide US dollar deposit clearing system functions. Let's start at the periphery of the network. An Iranian bank (c...