Typography

While our modern monetary system certainly has plenty of detractors, one of its successes is that we no longer need the services of the local gold regulator . In the late 1700s, the job of a gold regulator was to assay gold coins to determine if they were of the appropriate weight and fineness, modifying (ie 'regulating') the coin if necessary. When he was done, the gold regulator stamped the coin with his seal of approval and put it back into circulation. The job of regulating coins may seem strange to us. But it was an ingenious way to cope with the lack of standardization that bedeviled monetary systems in the 1600 and 1700s, particularly in the colonies. There was no domestic supply of coins in North America back then, so settlers relied on a bewildering array of foreign coins as their media of exchange, each with its own weight and fineness, and most of poor quality. This included not only silver coins such as Spanish dollars, pistareens, and English crowns, but also a gam...

One of the world's most notorious cases of counterfeiting was the 1925 Portuguese banknote crisis, when Artur Virgilio Alves Reis managed to pass off 200,000 fake five-hundred escudo notes, worth around £56 million in 2016 terms. When the Bank of Portugal discovered the counterfeits in December 1925, it announced an aggressive demonetization of the five-hundred escudo note, giving citizens just twenty days to bring in old notes for redemption. By then, the damage had been done. Reis had managed to increase Portugal's supply of banknotes by 5.9%, spending the equivalent of 0.88% of Portugal's nominal GDP into circulation! (More here .) An aggressive note demonetization in the face of large-scale counterfeiting is a thoroughly justified response as it immediately puts a halt to the problem. In this context, it's worth revisiting the world's most recent attempt to combat counterfeiting with an aggressive demonetization — India PM Narendra Modi's forced recall of th...

The recent bitcoin chain split got me thinking again about bitcoin-as-money, specifically as a unit of account . If bitcoin were to serve as a major pricing unit for commerce on the internet, we'd have to get used to some very strange macroeconomic effects every time a chain split occurred. In this post I investigate what this would look like. While true believers claim that bitcoin's destiny is to replace the U.S. dollar, bitcoin has a long way to go. For one, it hasn't yet become a generally-accepted medium of exchange. People who own it are too afraid to spend it lest they miss out on the next boom in its price, and would-be recipients are too shy to accept it given its incredible volatility. So usage of bitcoin has been confined to a very narrow range of transactions. But let's say that down the road bitcoin does become a generally-accepted medium of exchange. The next stage to becoming a full fledged currency like the U.S. dollar involves becoming a unit of account...

"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...

Say the San Francisco Fed decided to secede from the Federal Reserve System or the Bank of Greece started to print its own euro notes without the consent of the Eurosystem. What happens to a nation's currency when the central bank is split into parts? There is a possibility we might be seeing such a situation developing in Libya with the emergence of two different Libyan dinars. Libya's political scene is ridiculously complicated so I'll paint the picture in broad brush strokes. The Central Bank of Libya has several offices, the two relevant ones being the western one in Tripoli and the eastern one in Bayda. Prior to the Arab spring, each area was under the control of the Gaddafi government but both have since come under the control of competing regimes. Tripoli is run by the U.S.-backed Government of National Accord (GNA) while Bayda is under the control of the Tobruk-based House of Representatives. As I understand it, over the last few years of strife the two offices have...

Singapore's $10,000 bill, worth around US$7500, shares title to world's largest value banknote with Brunei's $10,000 Peter Sands has adeptly made the case for eliminating high denomination banknotes. The rough idea is that if all central banks were to eliminate their highest value banknotes, then criminals would have to fall back on smaller denominations or more volatile media of exchange like gold. Since both of these options are more cumbersome than large denomination notes, storage and handling expenses will grow. This means the costs of running a criminal enterprise increases as does the odds of being apprehended. Elimination of cash is a polarizing topic. For now I'm going to sidestep that debate because I think there's a more interesting topic to chew on: might a central bank be unsuccessful in its attempt to withdraw its own high denomination notes? Put differently, what happens if everyone just ignores a central banker's demands to retire the biggest bi...