tag:blogger.com,1999:blog-5362801348602268473.post2065605565089704577..comments2023-11-22T00:49:32.887-08:00Comments on Reflections on Monetary Economics: Value of State Currency When it's not Medium of Exchange Nick Edmondshttp://www.blogger.com/profile/15342983814699700396noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-5362801348602268473.post-82327540480493608932015-07-14T05:31:22.582-07:002015-07-14T05:31:22.582-07:00Spend in Drachmas, demand private debt be redenomi...Spend in Drachmas, demand private debt be redenominated and settled in Drachmase but tax partly in Euros?Olivernoreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-74957910370501865112015-07-13T13:15:02.396-07:002015-07-13T13:15:02.396-07:00I welcome this discussion; very worthwhile.
My pe...I welcome this discussion; very worthwhile.<br /><br />My personal search is for some common reference point between future drachma and euro. An example would be 1000 euro = 1 gold oz. = 1500 drachma. Of course, that standard does not exist.<br /><br />What would happen if the Greek government announced an auction for purchase of gold? Assume that 10 million drachma would be offered for gold, no reserve. Someone may get 10 million drachma for one ounce of gold. <br /><br />You must start somewhere.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-9082725942301809082015-07-13T08:05:06.369-07:002015-07-13T08:05:06.369-07:00Some interesting points, there. Here are some of ...Some interesting points, there. Here are some of my thoughts.<br /><br />1. I am not questioning here whether the parallel currency would have value - I think it would. In fact, my scenario could even be seen as super-chartalism, because I am not only saying that tax is what gives it value, but further that the values is strictly determined by the level of taxation and spending. This is currency purely as tax payment tokens, where supply is based on state spending and demand derives from taxation. There are no other reasons to hold the currency, so no other complicating factors in its valuation.<br /><br />2. The Mosler post I linked seems to suggest that the steps I described would be sufficient and that it would not be necessary to freeze out the old currency. This struck me as unlikely and was one of the reasons for doing this post. Like you, I think more is needed. <br /><br />3. I am less sure that if Canada started demanding taxes in euro, say, that this would leave C$ claims as worthless. There are many entities who are short C$ because they have borrowed in that currency. These entities all need to acquire C$ from somewhere to settle their debts and this leads to demand for C$ in the same way that there is demand to cover tax payments. In fact, the level of outstanding private debts is probably considerably larger than the outstanding accrued but unpaid tax. None of this is to suggest that I think the abandonment by the Canadian state of the C$ would have no effect. <br /><br />I'm not trying to provide a critique of neo-Chartalism here - just using an MMT idea to explore questions about the valuation of currency.<br />Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-36152954351901707502015-07-13T07:18:10.402-07:002015-07-13T07:18:10.402-07:00As a follow up, within an "overdraft" st...As a follow up, within an "overdraft" style of banking system, where the central bank assets consist of advances to private banks, the private banking system is only solvent because it is borrowing from the central bank in EUR. Although people want to emphasise central bank "independence", it is still a subsidiary of the Treasury. If one wing of the government insists on using an external currency in its dealings with the private sector, we should not be too surprised that tax policy alone is enough to drive the use of a new unit of account. Obviously incoherent policies can lead to incoherent outcomes; it's hard to fault neo-Chartalist theory for this.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-29005222099117886742015-07-13T06:16:10.744-07:002015-07-13T06:16:10.744-07:00If you flipped your statement around - what if all...If you flipped your statement around - what if all levels of government stopped accepting its currency for tax payments? In a place like Canada, the currency could easily become worthless very quickly. (Since the euro is supranational, it is a different story.) That is consistent with the Chartalist story.<br /><br />Attempting to introduce a parallel currency within the euro area, without blocking the existing euros, is not really a test of neo-Chartalist arguments. The euro has a value which is driven by the tax demand of the other countries, so what Greece does will not affect the value of the euro to any major extent.<br /><br />But if you have an external currency entrenched in the banking system, it would take time for a new unit to displace the old, even with tax backing, as your article suggests. But at the same time, neo-Chartalists would argue that allowing the banking system to use an external currency is a policy error. The regulatory pressure to prevent the use of external currencies is a hidden assumption within new-Chartalism.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-41178592837397455782015-07-13T01:36:23.776-07:002015-07-13T01:36:23.776-07:00It may be that there is some policy option involvi...It may be that there is some policy option involving use by the state of two seperate currencies, but it does seem to throw yet another complexity into the mix.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-60914922763623303812015-07-13T01:31:40.541-07:002015-07-13T01:31:40.541-07:00There's no reason why it should be a problem. ...There's no reason why it should be a problem. My scenario where only euro is used was just the assumption I was making in order to explore questions about the value of a currency.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-6582342875616413032015-07-13T01:29:32.983-07:002015-07-13T01:29:32.983-07:00The steps you describe are the sort of measures I ...The steps you describe are the sort of measures I think would be needed to get the local currency (drachma, EUR(G), whatever) into broader use - I'm dubious that use for state finances would be enough in itself. Also, I think where are things are now that these sorts of measures would be necessary anyway due to the state of the greek banking sector.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-61648790920886288472015-07-13T01:25:40.798-07:002015-07-13T01:25:40.798-07:00I think it's useful to understand the role tax...I think it's useful to understand the role taxes have in giving value to a currency. But I do feel that some Neochartalists go a bit far in seeming to think that that is the end of the matter. As to what came first, tbh I don't really care, but that's partly just me.<br />Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-86605885799504927372015-07-12T14:12:44.131-07:002015-07-12T14:12:44.131-07:00In Greece, it seems like all the financial wealth ...In Greece, it seems like all the financial wealth is now in the hands of the private sector. The Greek government is completely broke, with no money at all. Even the tax income due government is pledged completely to creditors for some forth-coming time period. <br /><br /><b> <i> The Greek government is really in a financial pickle. </i></b> <br /><br />If the Greek government confiscates privately held euros and converts to drachma, the effect on import-export will be horrendous. How many drachma are needed to buy a gallon of oil from anyplace? How many drachma to buy a ton of fertilizer?<br /><br />A much easier euro-drachma conversion may result from a government decision to pay for services partly in euros and partly in drachma. Perhaps fuel payment would be all in euros but pension payments would be half euro, half drachma. <br /><br />I think that the Greek government is still getting a small income stream in euros by the tax route. These euros can be recycled by the Greek government. Of course, if the recycled euros all went to pay debts held by creditors, all Greek held euros would eventually disappear.<br /><br />We may be discussing dual currencies for Greece more frequently if today's news is a forecast. The demands being placed upon Greece seem to be approaching 'backbreaking'.<br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-32876779204512878642015-07-12T10:54:22.165-07:002015-07-12T10:54:22.165-07:00Peru uses two currencies as do various other count...Peru uses two currencies as do various other countries. Doesn't seem to be a problem.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-19359442394888795862015-07-12T10:44:18.887-07:002015-07-12T10:44:18.887-07:00Hi,
I just saw this article. I just wrote an arti...Hi,<br /><br />I just saw this article. I just wrote an article explaining how the transition would work, and I doubt that Greece would move to "drachmas", rather "Greek euros", which I call EUR*(G). It would inherit the contractual relationships of the old drachma, which will partially act to fix the domestic price level. It will probably lose value versus the EUR (ex-Greece, which I denote EUR*(X), but the pass-through to the domestic currency should be less than 1:1, so long as the currency has at least some credibility.<br /><br />Meanwhile, capital controls will prevent Greeks from using EUR*(X) within their domestic operations. They will need to hold Greek euros for liquidity management purposes. Once the local currency finds its level, the capital controls could be lifted, and the two forms of "euro" could coexist, as you suggest here. (Although they would probably rename the Greek unit to the drachma first.)Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5362801348602268473.post-42450403696710347902015-07-12T09:53:52.209-07:002015-07-12T09:53:52.209-07:00It's funny how the Neochartalists tell a story...It's funny how the Neochartalists tell a story of people starting to work when the government imposes a tax liability on citizens. In reality, humans cannot do all the work for themselves and need others to do it for them. This "I work for you, you work for me" leads to a system of credits and debits. This system would have come long before governments came into existence. So it's not like people are non-social before governments announces "pay taxes". <br /><br />In this case there is some logic to it. Suppose in the case of Grexit, Greeks do not use the Drachma but have to pay taxes in Drachmas. This would lead to shortage of Drachmas and "price clearing" wouldn't work (price = exchange rate) and quantity adjustments need to happen: which is doing trade in Drachmas. But it might take time for people to realize this. <br /><br />However, this is all hypothetical. The main way in which Drachmas would be used if Grexit happens is the declaration by the State. Not because of some Mosler's Law. Ramananhttp://www.concertedaction.comnoreply@blogger.com