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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 ...


28

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 ...


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 ...


16

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 ...


15

In the Stack Exchange reputation "economy", we can think of the reputation points as "money". And the "goods" are: Downvotes — cost 1 point each. Various privileges — zero cost, but unlocked only when the user reaches various thresholds. To my knowledge, these prices (1-point cost of each downvote and privilege thresholds) have never changed. And so, there ...


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

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 ...


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

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. ...


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

"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 ...


11

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

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

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 ...


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 ...


8

One of the key requirements for a currency area to be successful is that there must be a sustainable political mandate to support fiscal transfers between regions, to provide the balancing mechanism that would otherwise have been performed by fluctuating currency rates between those regions. Another is that labour can move freely between regions. The ...


8

You have make a simple model to understand it more easily: Jack, Diane and you all bought coupons called "share of the cake". If you go to redeem it you will get 1/3 of the cake, because there are 3 coupons in existence. But then you had your laundry disaster and suddenly there are only 2 coupons so Jack and Diane can now get 1/2 of the cake for one coupon....


7

When the USD is highly valued, it allows people from the home country, the United States in this case, to purchase goods relatively cheaply from abroad and put pressure on domestic firms to have low prices. From a consumption standpoint, this may be advantageous. A high value USD may also make goods from the United States more expensive relative to goods ...


7

What would happen in the event of a "Leave" vote in the referendum? Well, the pound would quickly fall in value against its major trading partners - and some falls have already happened as the "Leave" vote appears to increase in probability. That makes imports more expensive, which is directly inflationary. Which pushes the Bank of England (the UK's Central ...


7

In general, "Ponzi schemes" in the context of asset pricing refer to "rational bubbles", or a failure of the transversality condition you need when passing from a flow identity to a present value identity. They are not "fraudulent schemes". For instance, there can be a rational bubble on a "fundamentally" worthless asset in a perfect foresight world if its ...


7

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 ...


6

One of the patterns to watch for, which may or may not be a benefit, is what happens during periods of capital controls, account confiscations, hyperinflation, or other financial controls imposed on citizens. Many people will highlight Cyprus as an example, but that's only one example and it's too early to tell if it will be an alternative electronic safe ...


6

No Time To Argue Most importantly, there cannot be an "18 months period of notice". Tt has to be decided suddenly and there cannot be any period in which individuals could respond to the new plan by withdrawing their money and moving cash from one of the member countries to any of the others. New Currencies Each country has to have its own currency. These ...


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