Typography

I recently spent some time on Twitter discussing the monetary wonders of Starbucks. In this post I'll bring a bunch of tweets together into a single blog post. I don't go to Starbucks very often, so I only recently learnt that the company has succeeded in getting many of its customers to stop using cash and debit/credit cards to buy coffee. Instead, they are using  Starbucks's own payments option: Wow Starbucks, what a great gig. Starbucks has ~$1.6 billion in 'stored value card liabilities' i.e. the Starbucks Card. So ~6% of the firm's liabilities are comprised of coffee addicts paying 0% for the privilege of lending to their supplier. Source: https://t.co/nGH2arujYz pic.twitter.com/cGcSW3L4MM — JP Koning (@jp_koning) August 11, 2019 Starbucks has around $1.6 billion in stored value card liabilities outstanding. This represents the sum of all physical gift cards held in customer's wallets as well as the digital value of electronic balances held in the Star...

I was disappointed to see that First Trust Bank, a commercial bank based in Northern Ireland, will stop issuing its own brand of banknotes. Under different names , First Trust has been in the business of providing paper money for almost two hundred years, starting with the Provincial Bank of Ireland back in 1825. Source: First Trust 99.9% of the world's population uses government-issued banknotes. A small sliver of us—those who live in Northern Island, Scotland, Hong Kong, and Macau—get to use privately-issued banknotes. Prior to First Trust's announcement, I count twelve private issuers scattered across the globe: Northern Ireland : Bank of Ireland, Danske Bank (formerly Northern Bank), First Trust Bank, and Ulster Bank Scotland : Bank of Scotland, Clydesdale Bank and The Royal Bank of Scotland Hong Kong : HSBC, Standard Chartered, Bank of China (Hong Kong) Macau : Banco Nacional Ultramarino, Bank of China (Macau) Now there are just eleven. To our modern sensibilities, priv...

In my recent post for the Sound Money Project, I touched on the odd relationship between central banker and gangster. I want to focus a bit more on this relationship. An awkward truth of central banking is that one of the central bank's most important lines of business—the business of providing cash, specifically high denomination banknotes—primarily serves hoodlums, gangsters, tax evaders, and the mafia. Yes, non-criminals certainly make some use of high denomination banknotes, say a few notes hidden in the cookie jar in case the electricity goes down. But the largest base of users is comprised of folks who hold notes—not in cookie jars—but by the suitcase full; criminals. Banknotes are anonymous after all, so they are an excellent way for criminal organizations to make large-scale transactions without being traced. Providing criminals with high-denomination banknotes is a lucrative line of business. For each $100 note put into circulation, a central bank holds $100 worth of inte...

50 SEK banknote issued by the Riksbank in 1960 "Do we need an eKrona?" asks Stefan Ingves, the Governor of the Riksbank, Sweden's central bank. The Riksbank is probably the central bank that has advanced the furthest in discussions surrounding the introduction of a central bank-issued digital currency (CBDC)—a new form of risk-free digital money for use by the public. Canada , New Zealand , Australia , the ECB , and China are also dissecting the idea, with more central banks to come in 2018. Sweden is approaching the issue from a unique angle, says Ingves. It is the only country in the world showing a consistent decline in cash and coin usage. I've written about this interesting pattern here , here , and here . Below is a chart: Ingves floats two theories. Either the Swedish public no longer wants central bank money, or alternatively they do want central bank money but not the type that is "made of pieces of paper," preferring instead an as-yet non-existen...

Prime Minister Narendra Modi surprised Indians today by announcing that India's highest denomination notes, the 500 and 1000 rupee, will cease to be legal tender. On first blush, India seems to be enacting Ken Rogoff's idea of cutting down on criminality and tax evasion by phasing out high-denomination notes, which I recently discussed here . But this isn't the case. Rather than removing the Rs. 500, the Reserve Bank of India is replacing it with a new bill. Furthermore, it will also be issuing a Rs. 2000 note, a new highest denomination note. What India is doing is enacting what I'll call an aggressive demonetization . I'd argue that this is an alternative (though not mutually exclusive) idea to Rogoff's. Both schemes are intended to create a logistical nightmare for money launderers; but whereas Rogoff's entails altering the denomination structure of banknotes to get this effect, Modi's aggressive demonetization keeps that structure intact while usin...

COINING IN PARIS c. 1500  (From a French print c. 1755) Not all debasements, or reductions of the precious metals content of coins, are equal. Among scholars of medieval coinage, there is an interesting distinction between aggressive , or bad debasement, and defensive , or good debasement. Let's take defensive debasements first. In medieval times, the minting of coins was usually the prerogative of the monarch. Any member of the public could bring their silver bullion or plate to the mint where the monarch's agents would strike a fixed amount of coins from that silver, returning the appropriate number of coins to the owner but taking a small commission for their pains. A decline in the quality of coin was a fairly natural feature of medieval societies. As silver pennies passed from hand to hand, oil and sweat would remove small flecks of metal.  Compounding this deterioration were less honest methods of removing small bits from each coin, like clipping. Nicholas Mayhew, a numis...

The Federal Reserve may be in a bit of a bind. With the Bank of Japan reducing rates to -0.1%, many commentators are calling on the Fed to reverse its policy of rate normalization and follow Japan into negative territory.  The problem is this. Thanks to the rules laid out in the Federal Reserve Act, the Fed may lack the technical means to dive into negative rate waters. Let me restate this in different terms. If the Federal Reserve were to reduce the rate at which it pays interest on reserves (IOR) to -0.25% or so, the overnight rate may not follow very far. Monetary policy is useless, or at least less effective than it would otherwise be. Not only would monetary policy lose some of its potency when IOR falls below 0%, but an unapproved fiscal transfer from the Fed to another set of government institutions could occur. This is because negative IOR has the potential to provide a large subsidy to a narrow range of governments sponsored-entities that are allowed to keep 0%-yielding depos...

This 2 euro coin is issued by Monaco, which is not a member of the Eurozone Grexit isn't what people take it to be. The standard narrative is that Greece is approaching a fork in the road. It must either stay in the euro or adopt a new currency. I don't think this is an entirely accurate description of the actual fork that Greeks face. Over the next few months, Greece will either: A) stay a member in good-standing of the institution called the "Eurozone" and continue to legitimately use that institution's currency, the euro, or B) leave the Eurozone while continuing to use the euro 'illegitimately.'* This means either the status quo of de jure (official) euroization or de facto (unofficial) euroization. In both cases, the euro stays. The probability of a new drachma emerging is awfully low. The widespread idea that a sick country can rapidly debut a new currency and, more importantly, have that currency be universally adopted as a unit of account is mag...

Dante's 8th level of hell, which housed counterfeiters, among others. Illustration by Doré In this post I'll argue that debasement wasn't necessarily a bad thing. Periodic debasements initiated by a prince may have been a wise solution to a certain set of problems imposed on an economy by the nature of coins.* Debasement is a reduction in the metallic content of a realm's unit of account. Most descriptions of debasement focus on the prince's role in the affair. This is usually a sordid story. The prince would have his mint surreptitiously reduce the amount of silver it put in coin. Next he and his friends would bring some quantity of silver bullion to be coined at this new rate, then quickly spend the coins before the public had the chance to learn about the debasement and defensively raise their prices. The prince and his gang gained at the expense of others. But the prince was rarely the only debaser. Much like the prince, the public actively tried to improve thei...