# Tag Info

36

It would not work. Historically speaking, governments that try to fund their operations primarily via the printing press experience not just inflation but hyper-inflation. Why? Well, one explanation is that without taxes nobody has any reason to want the government's currency. You can try to force people to use it, but that just encourages black marketeering....

35

Two reasons: history and ability to control the money supply. History: paper-money started by being issued by trustworthy agents from kings/governments, as a way to be able to transfer the ownership of gold without moving the gold physically. This looked something like "This paper is exchangeable for 10 gold coins at this location". This meant you had to go ...

31

I will focus on some economics reasons not mentioned explicitly so far. There are economic benefits to having your own currency. Your question essentially raises the question of so-called "Optimum Currency Areas" (OCAs). There was a lot of interest in the question of what areas should have the same currency. It is in general not immediately obvious that ...

22

It's not clear what level of answer you're looking for, so here is a much more basic answer. There are indeed many exchanges with many different prices. However, if you have noticed that you could make money by exchanging your BTC for USD, exchanging the USD for SEK, and then exchanging the SEK for slightly more BTC than you started with - then someone else ...

20

dtcm840's answer is about as good as you're going to do for a single actual number: it is clear, well-sourced, and almost certainly misleading. That's not their fault: all comparisons over time periods this far off are rendered meaningless by the very different markets & relative prices of commodities & labor between now and then. This question does ...

18

I'd say that some benefits of Bitcoin and other cryptocurrencies (i.e. "altcoins"), include: Decentralization -- which is advantageous for those who are skeptical of monetary policy, runs on banks, etc. Anonymity, or at least the perception thereof -- with increasingly comprehensive monitoring of transactions (particularly non-cash transactions), those ...

18

tl;dr this would not work in either closed or open economy unless your proposal would include very large cuts to current social and welfare spending as only arguably small part of those could be funded that way. There are several reason for including: there is a limit to the amount of real government spending that can be financed by monetary expansion. For ...

17

The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy. Petroleum products account for over half of Russia's export revenue, and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When ...

15

tl;dr: Energy is one of the worst ideas for a currency that anyone's had. It's not fungible, it's not a store of value, and has absolutely no scarcity. Let's look at the details. Commodity currencies are problematic jmbjera has listed core problems with the gold standard, and with commodity currencies generally: its supply is managed not by a democratically-...

14

There are several exchange rate concepts that need to be distinguished. There are bilateral and multilateral (aka "effective") exchange rates, nominal and real exchange rates, and market-price versus PPP (purchasing power parity) exchange rates. Let's start with the simplest concept: A bilateral nominal exchange rate, e.g., 117 yen/(US dollar), 0.8 pounds/...

14

There are also many countries without their own currency. For example, Ecuador and Panama both use the US dollar as their official currency. See this list for more examples. There are several reasons why you might like to adopt another country's currency, but common factors are high inflation: the domestic currency loses value against foreign ones. ...

13

The Euro was always conceived by most Economists as a political goal, not an economic one. Prologue: There is the theory of Optimum Currency Areas (OCA) which characterizes properties that a larger area would need to have if it were to operate on a single unit of currency. Since the announcement of the Euro around 1990, there were many papers that looked ...

13

The central bank that issues the currency won; they can now issue an additional $100 without increasing the price level. This is similar to seignorage rents due to overseas circulation— in fact, to a central bank, the two are indistinguishable, as the central bank would be unaware that your note had been destroyed. 13 "Cash" is an emergent phenomenon of human economic organization. It exists for lots of reasons, as a provider of economic anonymity, a low transaction cost solution to the double-coincidence of wants, a portable medium of exchange, and a tool of economic accessibility for all including those in the informal economy, foreigners, the unbanked, and those with ... 12 Yes, upon the introduction of the euro on January 1, 1999, all debt (indeed, all nominal contracts) in participating countries was converted from national currency to euros at a legally defined conversion rate. See this press release from December 31, 1998, which states: In accordance with Article 109l (4) of the Treaty establishing the European ... 12 Typically, a devaluation is achieved by selling the domestic currency in the foreign exchange market and buying other currencies. Suppose China sells one trillion Renminbi and buys 157 billion US dollars. From the point of view of the market, it is as if the supply of Renminbi just increased. As in any competitive market, an increase in supply will cause the ... 11 Your coins do not have 0 inflation in the long run First, we need to set straight that you have a critical error in your supposition: The rate of creation of money is not the only determinant of the inflation rate, see here. Even if we ignore these equilibrium effects, is any of these coins superior in its rate of money creation? Suppose hereinafter that ... 11 You might also want to think about If it's not divided then we can easily use the money anywhere. Is that positive and desirable for everyone in all situations? If you want to control the flow of money and people, different currencies are helpful. JoaoBotelho also pointed to control of the supply and historical reasons, I would also add that everyone ... 10 Its important to keep in mind that the exchange rate is a "price for currency" and just like any other price it is determined by supply and demand. The main question now is what determines supply and demand for currency? There are two main models that tell us how exchange rates behave based on the two main forces driving demand (and supply) for ... 10 No matter where you live in the world, there is sort of a minimum value that your currency needs to practically be able to represent somehow. If your standard unit of currency is more than that minimum value, you need to subdivide your currency to be able to represent smaller values. In the U.S., we subdivide our U.S. Dollar into 100 cents, meaning that ... 9 The answer by nominally rigid very correctly hints at oil prices as one of the major causes. I'd add more details and numbers to this point. A slightly longer version is available here. 1. Russian corporations borrowed in foreign currency when external debt was cheaper than domestic debt Paul Krugman pointed at the PPP vs exchange rate changes. I've made a ... 9 The problems with using an energy-back currency are probably the same problems as using gold or anything else. Some of those mentioned in the link (Wikipedia article) include Mainstream economists believe that economic recessions can be largely mitigated by increasing the money supply during economic downturns. A gold standard means that the money ... 9 Some major benefits include: Seigniorage on currency acts as a source of government revenue, allowing for lower taxes and higher spending. One paper (Neumann (1992)) puts this at about \$15 billion a year. Lower borrowing costs on public and private debts due to greater demand for financial assets denominated in the currency, particularly credit risk-free ...

9

How well do you know what you mean with "currency increases"? The term Dutch disease describes an event where a single sector's boom (your example, finding oil) causes the said sector to grow and other sectors to decline as revenues increase in one sector. The booming sector causes the value of the currency (for example, the Dutch guilder) to appreciate (...

9

No, there is no inflation. Inflation is caused by a relative increase in the amount of currency, relative to the amount of scarce goods and services available. As you note, there is a continuous increase in the amount of "currency" here - reputation. However, reputation is not spent on scarce goods and services. There is no meaningful limit on the number ...

9

Yes, there is inflation. StackExchange was created in 2008. Anybody who had 5,000 (arbitrary value) reputation points in 2009 would have been perceived as an outstanding member. Now, having accumulated 5,000 points in ten years of participation on a much expanded site looks less impressive. Thus, achieved respect per reputation point has decreased. The ...

8

Effectively RER is calculated by converting currency from Country A to country B first, than purchasing the same goods in Country B, whereas PPP is the ratio of the price of goods in each country. From the Wikipedia article: If all goods were freely tradable, and foreign and domestic residents purchased identical baskets of goods, purchasing power ...

8

Swiss people do shop outside of their border, exactly as you think they should: "Even the Swiss are staying away from their local stores and products—they would rather buy from neighbouring countries and take advantage of the situation. Switzerland is bound by Germany, France and Italy, and most of its big cities are located just at the border. It is ...

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