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...

Nick Rowe points out that if a central bank wants to control the economy's price level, it needn't issue any actual money—it can just edit the dictionary every morning, announcing the meaning of the word "dollar" or "yen" or "pound" to the public. To a modern ear trained on a steady diet of central bank verbiage about interest rates, QE, and open market operations, the idea of conducting monetary policy by simply editing the meaning of a word seems odd. But I've got news for you: starting from Caesar's time and extending into the 1700s, the sort of dictionary money that Nick describes has been the dominant form of money in the West. How has this system worked? People have historically advertised prices for wares using a word, or unit of account, the LSD unit being the most prevalent. In the case of Britain this meant pound/shilling/pence while in France it was livre/sous/denier, both of which come from the Latin librae/solidi/denarii. Th...

The textbook definition of money is anything that functions simultaneously as a store of value , a medium of exchange , and a medium of account . This is the monetary triumvirate, and we need to get rid of it. The first problem with this explanation is that all goods and assets function as stores of value , some better than others. Items that can't 'store' value would be be worthless because their lives would be too fleeting to provide any utility. Even an ice cream cone serves as a store of value, at least for a few minutes. So if everything serves as a store of value, then money must be that peculiar good that functions as both a medium of exchange and a medium of account, right? Wrong. All valuable things function as media of exchange, or, put differently, they all have a degree of exchangeability . A head of cabbage is a cabbage farmer's medium of exchange, since he uses it exchange with a food distributor, and it also functions as one of the distributor's many ...

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...