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...

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...

Economists are sometimes guilty of misrepresenting real-world liquid objects as living examples of the abstract variables populating their favorite monetary model. A good example of this is the incorrect reliance on Yap stones to illustrate the idea of fiat money by economists as varying as Keynes, Milton Friedman and James Tobin. Whereas fiat money is intrinsically useless, inconvertible, and unbacked, Yap stones certainly aren't, the anthropological evidence revealing that the stones had cultural and religious significance apart from their monetary value. Similar in concept is the story of the macute , a unit of account used in Angola hundreds of years ago. Much like the exotic Yap stone, the existence of the macute (or macoute) came to the attention of Western thinkers as trade and conquest revealed ever large parts of the globe. Montesquieu was one of the first to describe the macute, noting: The negroes on the coast of Africa have a sign of value without money. It is a sign ...

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...

Florentine florin Last year Scott Sumner introduced the econ blogosphere to what he likes to call the medium-of-account function of money, or MOA, defined as the sign in which an economy's sticker prices and debts are expressed. Here and here are recent posts of his on the subject. I think Scott's posts on this subject have added a lot of depth to the interblog monetary debates. However, I've never been a big fan of Scott's terminology. As I've pointed out before , what Scott calls MOA, most modern economists would call the unit-of-account function of money. Older economists like Jevons and Keynes[1] referred to the unit-of-account as the money-of-account, and modern economic historians also prefer money-of-account. Terminological differences aside, in today's post I want to focus on what I'll call from here on in the unit-of-account function of money. Scott's UOA posts often emphasize the idea of separating the unit-of-account function from the me...