tag:blogger.com,1999:blog-6704573462403312459.post6435069304244695588..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Alberta Prosperity Certificates and a Greek parallel currencyJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-6704573462403312459.post-18158363158828799632015-07-05T13:35:55.684-04:002015-07-05T13:35:55.684-04:00Sorry for a late comment, I'm working through ...Sorry for a late comment, I'm working through a backlog of stuff to read.<br /><br />I would like to point out that the various aspects of the demand for a medium of exchange are interdependent to a certain extent, and you present a particular causal relationship among them. While not necessarily wrong, here are my objections:<br /><br />Stability vs. unit of account: in my opinion, you insufficiently distinguish between "stable price" and "unit of account". If I demand a medium of exchange because its price is the unit of account, that is not the same thing as demanding it because it's stable. For example, Ven claims to be very stable (it better be, as its price is based on an index), but nobody demands it for that reason. People prefer their existing own units of accounts even though they are less stable. The Euro, or the Swiss Frank were not particularly stable this year (and there are even less stable examples, like the Ukrainian Hryvnia and Russian Ruble). On the other hand, if the price of your national currency drops too much, people sometimes abandon it as a unit of account and switch to a different unit of account.<br /><br />Volatile vs. declining price: again, this is insufficiently addressed. There was literally no chance that the Alberta Certificates would appreciate against the Canadial dollar. It would only go down. So it does not follow that people abandoned it because it was volatile, it's a bad example in this context. Contrasted with other national currencies or Bitcoin, which may appreciate against the AC.<br /><br />And a final remark, which I already mentioned: this shows the conflict of goals a government faces with respect to money: on one hand, they want seigniorage, and this requires that their currency is liquid and people are willing to hold it for its liquidity. But if they provide liquidity (by redemption or accepting as taxes), they reduce the amount of circulating currency, and reduce their seigniorage. This is also why they face a conflict when dealing with Bitcoin: they want people to use fiat on one hand, but on the other they want to tell people how to use it.<br /><br />2 years ago, as a reaction to the capital controls in Cyprus, I decided not to hold large amounts of money in deposit accounts and rather stick to Bitcoin. Fiat looks stable most of the time, except suddenly it isn't. Fiat also looks liquid most of the time, except suddenly it isn't. These extremes are the result of governments pursuing conflicting goals, and are not going away. Rather, they create publicity and demand for Bitcoin. There is no need for a plunge protection team for Bitcoin, because the governments provide a suicide team for fiat.Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-36922876708628070622015-06-12T19:47:10.161-04:002015-06-12T19:47:10.161-04:00Some older posts on a similar train of thought
htt...Some older posts on a similar train of thought<br />http://www.specie-flow.net/2012/02/18/albertan-prosperity/<br /><br />http://www.specie-flow.net/2012/02/10/the-worgl/<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-25716797828626607202015-05-29T09:29:42.600-04:002015-05-29T09:29:42.600-04:00If it accepts 50% of taxes paid in IOUs, that mean...If it accepts 50% of taxes paid in IOUs, that means its euro income will be cut in half. It needs euros to pay its IMF and other external debts. So the number of IOUs it issues, and the proportion of IOUs it accepts in taxes, needs to be very carefully calibrated.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-90235998671783256592015-05-28T20:15:03.298-04:002015-05-28T20:15:03.298-04:00Greece should issue 1 year 0% bearer bonds, accept...Greece should issue 1 year 0% bearer bonds, accepting them as tax payments up to 50% of the tax paid. Increase the issue amount each year / quarter / month as needed.Tom Greyhttps://www.blogger.com/profile/15046612425809449502noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-59070712022269294962015-05-28T10:14:30.206-04:002015-05-28T10:14:30.206-04:00It depends what you mean by long-term. Even if Gre...It depends what you mean by long-term. Even if Greece floats a new drachma, it could take Greece many years to leave the euro. This is because usage of euros is locked into place thanks to network effects. <br /><br />http://jpkoning.blogspot.ca/2015/01/grexit-escape-to-more-of-same.htmlJP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-15504409570657090592015-05-28T10:10:30.487-04:002015-05-28T10:10:30.487-04:00It's hard to say if it would trade at a premiu...It's hard to say if it would trade at a premium or a discount. The market may set a high enough value on the option to extinguish 1500 euros worth of taxes two-years hence that they are willing to pay, say 1100 euros for FT-coin, a premium to their 1000 euro offer price. As long as the Treasury issues FT-coin at 1000 euros, it is providing investors a risk-free arbitrage. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-74430956278762744482015-05-28T10:05:27.931-04:002015-05-28T10:05:27.931-04:00Interesting. Setting a premium is how Varoufakis&#...Interesting. Setting a premium is how Varoufakis's proposal is structured.<br /><br />"Your second paragraph confuses me. Why assume Greek IOU's are overvalued? If they aren't, then the problems you mentioned don't follow."<br /><br />A Greek IOU denominated in euros will never be worth as much as an equivalent German-issued IOU denominated in euros because of credit risk. It should trade at a discount. If the government is willing to accept Greek IOUs at par rather than at a discount, then it is overvaluing those IOUs. <br /><br />This flows through into your last paragraph. If the government forces merchants to accept Greek IOUs at par as well, then it is requiring everyone to overvalue them. Merchants will react by increasing their sticker prices in defense, which will effectively remove the overvaluation of Greek IOUs but will instead undervalue euros. Gresham's law ensues and Euros will vanish from circulation. That could explain why English shillings disappeared in your example. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-34108107300642396652015-05-28T09:11:38.493-04:002015-05-28T09:11:38.493-04:00Suppose Greece starts to pay its employees with ne...Suppose Greece starts to pay its employees with newly printed drachmas and also accepts them for tax collection. The greek central bank does not ensure convertibility between the two currencies (it accepts them as deposits but lets them float against each other). Also, it anounces that some years from now, it will only accept drachmas for tax payements. Could this allow Greece to have a more expansionnary monetary policy (using the drachma for QE) and to leave the eurozone long-term?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-30347797685574765372015-05-28T03:15:15.066-04:002015-05-28T03:15:15.066-04:00Varoufakis blog seems to suggest heavy discount:
...Varoufakis blog seems to suggest heavy discount:<br /><br />"You pay, say, €1000 to buy 1 FT-coin from a national Treasury’s website (Spain, Italy, Ireland etc. would run their separate FT-coin markets) under a contract that binds the national Treasury: (a) to redeem your FT-coin for €1000 at any time or (b) to accept your FT-coin two years after it was issued as payment that extinguishes, say, €1500 worth of taxes."Jussinoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-8920022670450635362015-05-27T23:11:15.860-04:002015-05-27T23:11:15.860-04:00JP:
A colony would declare that its bills would be...JP:<br />A colony would declare that its bills would be accepted at a 5% premium when paying taxes. In New York, "an allowance of 2.5% was voted every 6 months that the bills remained in circulation before being paid in taxes". More details available from Curtis Nettels, Money Supply of the American Colonies, p. 263, and from Eric Newman, The Early Paper Money of America, p. 15.<br /><br />Your second paragraph confuses me. Why assume Greek IOU's are overvalued? If they aren't, then the problems you mentioned don't follow.<br /><br />The American colonies, by the way, faced a host of valuation issues. They initially declared that NY shillings would be accepted for taxes 1:1 with English shillings. A few years later, they'd find that english shillings disappeared from circulation, so they'd revalue to 1 NY shilling=.7 English shillings, and English shillings would flood back into the colonies. A few years later the process repeated, until after 50 years the NY shilling had lost 90% of its value.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-22907079848577137012015-05-27T18:56:26.940-04:002015-05-27T18:56:26.940-04:00"Preferably, unwanted euros would trickle bac..."Preferably, unwanted euros would trickle back to the European Central Bank to be cancelled, reducing the ECB's seigniorage but augmenting the seigniorage of the Greek state as Greek IOUs rush in to fill the void."<br /><br />If such a thing were possible, it would be grounds for ejecting Greece from the euro system. Meaning that Greece would lose its share of ECB seignorage (which may be minimal today, but we assume will be higher in the future when interest rates are higher). Possibly a net loss.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-10994963454585074382015-05-27T14:57:48.919-04:002015-05-27T14:57:48.919-04:00JP: I think so. If they trade at a discount, the i...JP: I think so. If they trade at a discount, the increase in real M/P will be smaller than it otherwise would be, but issuing enough of them should still prevent the excess demand for the medium of exchange.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-17459925461830513752015-05-27T14:32:59.990-04:002015-05-27T14:32:59.990-04:00Mike, how did they manage to pay interest on paper...Mike, how did they manage to pay interest on paper currency? Did people have to go into an office each week in order to get paid?<br /><br />Greece could allow for tax acceptance, say 1 IOU discharges 1 euro in taxes. But everyone will decide to pay their taxes (and prepay them too) in Greek IOUs rather than euros, since IOUs are being overvalued relative to euros. As a result, the Greek government won't have the foreign exchange (ie. euros) necessary to pay upcoming debts to the IMF.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-33965809291232032992015-05-27T14:27:58.495-04:002015-05-27T14:27:58.495-04:00Thanks Nick. High time for more CanCon on my blog....Thanks Nick. High time for more CanCon on my blog.<br /><br />"Nobody would want to accept them at any positive value unless they were *more* liquid than Canadian dollars."<br /><br />Yes, I agree. One reason I think that stamp scrip has been accepted in the past despite its awful return (and relative illiquidity) is that scrip has often been a community effort so there are significant social pressures to accept.<br /><br />"2. It would help get Greece out of recession"<br /><br />Here's a question for you. If the ECB is running a contractionary policy such that Greek sticker prices are being pressured downwards and stuff is going unsold, will Greek IOUs be sufficient to offset the problem? Assume that Greek retailers continue to set prices in terms of euros and that Greek IOUs are of poor quality so that they trade at a discount to euros. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-54679486959505868622015-05-27T11:54:06.043-04:002015-05-27T11:54:06.043-04:00This reminds me of American colonial currency, whi...This reminds me of American colonial currency, which circulated beside British currency from 1690 until about 1750. Some of the early American currency bore positive interest, rather than negative interest like the Alberta certificates. The interest payments were abandoned in later issues. It seems that any interest on paper money, either positive or negative, is not practical.<br /><br />The American currencies did circulate, largely because they were accepted in tax payments. Some currencies were stable and some were volatile, depending on the probity of the issuing colony, but they circulated either way. <br /><br />I don't see why Greece couldn't to the same thing. <br /><br />Mike Sproulhttps://www.blogger.com/profile/12949235460682126524noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-15996555181132920422015-05-27T10:38:22.971-04:002015-05-27T10:38:22.971-04:00In Present Value terms, even at a 0% nominal inter...In Present Value terms, even at a 0% nominal interest rate, each Prosperity Certificate would be worth minus 4 cents if held and stamped to maturity. Nobody would want to accept them at any positive value unless they were *more* liquid than Canadian dollars.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-54392985590432638862015-05-27T10:30:04.069-04:002015-05-27T10:30:04.069-04:00Plus Canadian Content!
*If* it could succeed, the...Plus Canadian Content!<br /><br />*If* it could succeed, there would be two advantages to Greece introducing a parallel currency:<br /><br />1. The direct improvement in Greek government finances, as you mention.<br /><br />2. It would help get Greece out of recession, by alleviating the excess demand for money in Greece (and thus create an indirect improvement in Greek government finances).Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-64587757019872450782015-05-27T10:21:22.819-04:002015-05-27T10:21:22.819-04:00Truly excellent post JP. Both topical and historic...Truly excellent post JP. Both topical and historical, and both empirical and theoretical.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com