the theory of split currency

Austrian-econ is an academic economists' list focused on so-called
"austrian" economics, like Hayek, Von  Mises, etc...

Notice the last little bit about Patrick Leahy...

Cheers,
Bob Hettinga

--- begin forwarded text


Date: 	Sat, 28 Sep 1996 20:13:48 -0700 (PDT)
From: Fred Foldvary <ffoldvar@jfku.jfku.edu>
To: Austrian Economics <AustrianEcon@agoric.com>
Subject: the theory of split currency
Organization: JFK University
Mime-Version: 1.0
Sender: owner-austrianecon@agoric.com
Precedence: bulk
Reply-To: AustrianECON@agoric.com

Is there a name for a dual or split currency, in which
there is one currency for domestic use and another, different
appearing, currency for foreign usage?

Does anyone know of any country which has had such a
split currency?

Is there any literature on such split currency?

Here some thoughts on how it could function in the U.S.:
1) Domestic currency would not be legal tender outside the U.S.
2) Foreign US dollars would not be legal tender in the U.S.
   It would be illegal to hold foreign dollars in the U.S.
   Travelers would be required to convert them at customs.
3) The export of domestic currency would be illegal.
4) All exchanges between domestic and foreign currency would
be required to be made in official exchanges, with the amounts
recorded and reported to the government.
5) All previous currency would be declared of no value after
a certain date.  All conversions to new currency would be
reported.

What would be the implications for banking, international
trade, and the market process?  Would it affect the measurement
of the money supply, and monetary policy?

A motive for the government would be to control the underground
economy, tax evasion, and the trade in illegal substances.

This scenario is not entirely hypothetical.  I have read that
Senator Patrick Leahy introduced Senate Bill #307 to create
such a split currency.  The Bill failed to pass the Senate,
but this shows the concept is out there.

Is this worth investigation and theoretical examination?

Fred Foldvary

--- end forwarded text



-----------------
Robert Hettinga (rah@shipwright.com)
e$, 44 Farquhar Street, Boston, MA 02131 USA
"'Bart Bucks' are not legal tender."
                -- Punishment, 100 times on a chalkboard,
                       for Bart Simpson
The e$ Home Page: http://www.vmeng.com/rah/

> Is there a name for a dual or split currency, in which
> there is one currency for domestic use and another, different
> appearing, currency for foreign usage?

I don't know of such a name, however...

> Does anyone know of any country which has had such a
> split currency?

...this has been a common situation, in fact. South Africa, China, the
Soviet Union, and other unpleasant places have repeatedly done
this. Its usually a remarkably stupid idea.

Perry

"Perry E. Metzger" <perry@piermont.com> writes:

> 
> > Is there a name for a dual or split currency, in which
> > there is one currency for domestic use and another, different
> > appearing, currency for foreign usage?
> 
> I don't know of such a name, however...
> 
> > Does anyone know of any country which has had such a
> > split currency?
> 
> ...this has been a common situation, in fact. South Africa, China, the
> Soviet Union, and other unpleasant places have repeatedly done
> this. Its usually a remarkably stupid idea.
> 
> Perry

Several Western European countries had such split currencies after WW II.
Belgium's two francs have almost been phased out. Spain is the only major
country with two currencies (ESP and ESB). They actually fetch slightly
different interest rates.

Chile introduced 'unidad de fomento' a while back, and many other minor
players do something similar.

---

Dr.Dimitri Vulis KOTM
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps

Dr.Dimitri Vulis KOTM wrote:
> "Perry E. Metzger" <perry@piermont.com> writes:
> > > Is there a name for a dual or split currency, in which
> > > there is one currency for domestic use and another, different
> > > appearing, currency for foreign usage?

> > I don't know of such a name, however...

> > > Does anyone know of any country which has had such a
> > > split currency?

> > ...this has been a common situation, in fact. South Africa, China, the
> > Soviet Union, and other unpleasant places have repeatedly done
> > this. Its usually a remarkably stupid idea.
> > Perry

> Several Western European countries had such split currencies after WW II.
> Belgium's two francs have almost been phased out. Spain is the only major
> country with two currencies (ESP and ESB). They actually fetch slightly
> different interest rates.
> Chile introduced 'unidad de fomento' a while back, and many other minor
> players do something similar.

Art Bell of late-night talk radio has been promoting the theory that the 
U.S. Govt. is going to do this soon.  Supposedly the U.S. taxpayers will 
prop up the external dollars, which get the best exchange rate.

On Mon, 30 Sep 1996, Perry E. Metzger wrote:

> 
> > Is there a name for a dual or split currency, in which
> > there is one currency for domestic use and another, different
> > appearing, currency for foreign usage?
> 
> I don't know of such a name, however...

I have heard "Divided currency" "Distinct Currency" "Seperated Currency"
all of which suggest to me that there is no real name.

> 
> > Does anyone know of any country which has had such a
> > split currency?
> 
> ...this has been a common situation, in fact. South Africa, China, the
> Soviet Union, and other unpleasant places have repeatedly done
> this. Its usually a remarkably stupid idea.

Concur.  I'm not even sure proponents of the idea have any idea what it is
supposed to do or what it infact does.  It tends to be a cure-all type
measure for anything from money laundering prevention to capital
preservation.  In reality about all it does is make it harder to do
business with and in said economies.  It may be used, in the more
draconian states, to seperate treatment of those engaged in foreign
commerce from those not involved in international transactions (read rich
and poor).

> 
> Perry
> 

--
I hate lightning - finger for public key - Vote Monarchist
unicorn@schloss.li

On Mon, 30 Sep 1996, Robert Hettinga wrote:

> 
> Date: 	Sat, 28 Sep 1996 20:13:48 -0700 (PDT)
> From: Fred Foldvary <ffoldvar@jfku.jfku.edu>
> To: Austrian Economics <AustrianEcon@agoric.com>
> Subject: the theory of split currency
> Organization: JFK University
> Mime-Version: 1.0
> Sender: owner-austrianecon@agoric.com
> Precedence: bulk
> Reply-To: AustrianECON@agoric.com
> 
> Is there a name for a dual or split currency, in which
> there is one currency for domestic use and another, different
> appearing, currency for foreign usage?
> 
> Does anyone know of any country which has had such a
> split currency?
> 
> Is there any literature on such split currency?
> 
> Here some thoughts on how it could function in the U.S.:
> 1) Domestic currency would not be legal tender outside the U.S.

How, exactly, would this be enforced?

> 2) Foreign US dollars would not be legal tender in the U.S.
>    It would be illegal to hold foreign dollars in the U.S.
>    Travelers would be required to convert them at customs.

How, exactly, would this be enforced?

What would the above accomplish, other than to make travel more diffucult
and tourism complicated?  What about money orders in foreign
demoninations?  Would there be two American Express Travelers checks?
Foreign and domestic?

> 3) The export of domestic currency would be illegal.

It basically is now in the form of cash.  Certainly it is immensely
hassling.

> 4) All exchanges between domestic and foreign currency would
> be required to be made in official exchanges, with the amounts
> recorded and reported to the government.

Already the case for sums over $10,000 and in many cases for sums over
$7,500 as a matter of corporate policy.

> 5) All previous currency would be declared of no value after
> a certain date.  All conversions to new currency would be
> reported.

A painfully poor idea.  Just look to Russia's great ruble burnings for
proof of this.

> A motive for the government would be to control the underground
> economy, tax evasion, and the trade in illegal substances.

Currently the reason that it is popular to speculate that this would have
any effect on illegal substances, the underground economy, or tax evasion,
is because the war on drugs and money laundering is unwinable.  By
definition it must be easy for capital to flow back and forth between the
United States and other nations.  The more difficult this is made, the
more difficult legitimate commerce is to conduct, and, in addition, the
more difficult it becomes to make investments from abroad in the United
States.  It is the failure of Law Enforcement to have any noticable impact
on organized crime or drugs that made them strive to impose currency
restrictions in the place of legitimate law enforcement in the first
place.  It was the "soft underbelly" of crime and all that.  Unfortuantely
it is a hard underbelly to find, a hard one to identify when it is found,
and not alltogether very soft.  So now babblings about split currencies.
What a surprise.

I understand the concept, it becomes easier to track exportations of large
amounts of money in the form of cash.  Unfortunately any idiot could
circumvent it with the ease of taking sand from the beach.  Just because
the United States SAYS a $100 bill is worthless unless its in the U.S.,
certainly does not make it so.

As to circumvention: Form domestic corporation.  Purchase stocks, bonds,
other non-cash negotiable instruments.  Sell said instruments and demand
payment in DM or SFr etc.  Export foreign currency to the free economy
nation of choice.

All it does is move the laundering process onshore, and then only in the
first step.  Most money laundering uses non-cash exportation methods
already.  Diamonds are becomming more and more popular because of the
recent stability of uncut stone prices and the fungibility of diamonds as
a currency.  Luxembourg currently has the most potent diamond market in
the world.  Close to 45% of it is estimated to be operating as currency.
(Markets seeing the same stones over and over again).  Moreover, the cost
of exchanging stones in terms of middleman profit is often less than that
charged by large scale money laundering operations.

Those are the most basic of evasions.  I can come up with complicated
ones in seconds, and boggling ones in minutes.

In addition, as a solution, it fails to anticipate the foreign market for
domestic bills.  Surely I could exchange currencies with the casas de
cambios that will certainly be created to take advantage of the new
regulations about a week after they are inacted.

> 
> This scenario is not entirely hypothetical.  I have read that
> Senator Patrick Leahy introduced Senate Bill #307 to create
> such a split currency.  The Bill failed to pass the Senate,
> but this shows the concept is out there.
> 
> Is this worth investigation and theoretical examination?

It has born this kind of scrutiny before.  Time and Newsweek were onto the
story almost two years ago.  Considering that something like 3/4 of the
circulating supply of U.S. currency is abroad, you tell me how practical a
program this is.

> Fred Foldvary
> 
> --- end forwarded text
> 
> 
> 
> -----------------
> Robert Hettinga (rah@shipwright.com)
> e$, 44 Farquhar Street, Boston, MA 02131 USA
> "'Bart Bucks' are not legal tender."
>                 -- Punishment, 100 times on a chalkboard,
>                        for Bart Simpson
> The e$ Home Page: http://www.vmeng.com/rah/
> 
> 
> 

--
I hate lightning - finger for public key - Vote Monarchist
unicorn@schloss.li