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Competing currencies in Germany

An idea of the late FA Hayek was that people could use different currencies within the same jurisdiction and break away from the idea that if you lived in country A or B, you could only use one currency within A or B and never use more than one in each place. The idea of “monopoly money” is so ingrained that to broach the idea is to incur looks of incredulity. (“But surely that would be messy!”) Now, I have looked quite a bit at the idea of competing currencies and there strikes me as being nothing that is implausible about such an idea as such. This story in the Daily Telegraph is therefore most interesting:

If you live in the Bavarian region of Chiemgau, you can exist for months at a time in a euro-free zone of hills and lakes with a population of half a million people. Restaurants, bakeries, hairdressers and a network of supermarkets will accept the local currency: the Chiemgauer.

Notes are exchanged freely like legal tender. You can even use a debit card. Petrol stations are still a problem, but biofuel outlets are signing up. Dentists are next.

The Chiemgauer is one of 16 regional currencies that have sprung into existence across Germany and Austria since the launch of the euro five years ago.

Article worth reading here from time back by Max More.

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21 comments to Competing currencies in Germany

  • Crosbie

    How would one pay taxes? Where taxes exists, especially income taxes, it is much more convenient to use the unit of account preferred by government. That is the main reason for monopoly of currency.

  • Quenton

    Brings to mind the recent spat about a Dallas pizza chain accepting Mexican Pesos. Granted, their reasons for this aren’t the same as the residents of Chiemgau. While the Chiemgau(ians?) seem to be doing it because they either don’t like, or don’t trust, the Euro, the pizza chain does it out of convieniance to customers (i.e. Market Demand).

    Either way it is the will of the people to decide what they will accept as legal tender. If people want to use lumps of clay or bits of string as currency that’s their bussiness, but I can’t imagine too many governments will take this sort of thing siting down. Some governments (the US government being one of the worst offenders) tend to be very touchy about people not using their fiat currency within their borders.

  • Quenton

    Crosbie:

    Well, in the US, local jurisdictions tax property (land, vehicles) not on what you paid for the property, but on what some government lackey says it’s worth. If you buy a parcel of land for 12 Quatloos they don’t care, they’ll tax you based off of their view of it’s “worth” and then send you a bill to be paid in US Dollars. I suspect this would be the system of choice for tax collectors just such a scenario.

  • Julian Taylor

    How would one pay taxes? Where taxes exists, especially income taxes, it is much more convenient to use the unit of account preferred by government. That is the main reason for monopoly of currency.

    That’s a very un-Libertarian view to take, if you don’t mind me saying so. Why pay taxes in the first place? What does the state do for you anyway?

  • James

    I read that some Italian areas have reverted to the Lira again, so it isn’t something new to the Continent.

  • RAB

    People have been trading round my way for yonks, in a barter kind of way. Service for service, and credits. It’s quite well established up towards Chard and Cheltenham.
    This generally leaves the taxman out of the equation though.
    Ahhhh pity though eh?
    Considering what the taxman gives you in return, that you could have more easily paid for yourself, and cheaper.

  • Isn’t the Chiemgauer one of those regional currencies inspired by Silvio Gesell’s theories? It looks like it, because the notes actually become invalid after a while, unless you pay 2% to extend them. It exchanges 1:1 with the Euro, so the Chiemgauer’s inflation rate is that of the Euro plus the extension fee. One shouldn’t mind if people use that of course but I don’t really see the point either.

  • Phil A

    The last time I was in Russia I took US dollars, we didn’t really need any other currency and there was no problem with being able to take them back home with us after either.

    As they say in the ads “That’ll do nicely Sir!”

  • Tory Anarchist

    I remember before the Euro came in, it was fequent to see prices both in Escudos and Pesetas up in the north of Portugal. Stores had no problem accepting either currency.

  • Johnathan Pearce

    How would one pay taxes? Where taxes exists, especially income taxes, it is much more convenient to use the unit of account preferred by government. That is the main reason for monopoly of currency.

    It is not a bug, but a feature.

  • ian

    Look at LETS schemes across the country – not quite the same but could be if they weren’t normally stuffed out with aromatherapists rather than plumbers…

  • Pa Annoyed

    The problem with multiple currencies isn’t taxes. The taxman doesn’t care if they’re paid in blood, so long as they get paid. Remember this…?

    “Christmas Eve, and absolutely the last one in town! My son will be so happy to get a Transforminator(TM)! How much?”
    “That’ll be £495.95 sir.”
    “Right. Right. Do you take American Express?”
    “No, sir.”
    “Oh. Ah.”

    Up until the banks linked their databases of people’s financial identities so that any bank in the world could recognise you and find out exactly how much you were worth, we did effectively have multiple currencies. A bank card is effectively a separate currency, in the sense of being an optionally-acceptable medium of exchange, (and is effectively multiple currencies in that you can use it abroad). The problem is the infrastructure involved in accounting for, exchanging, and securing the currency, all of which costs and is borne by the users of the currency. National currencies have economies of scale that make this relatively efficient. Unless your smaller-scale alternative currency has some advantageous feature making the cost worthwhile, like being less bulky than paper money, a single currency is simply simpler.

  • Lindsay

    This is a great post in the best Samizdata tradition–the more so for being brief, and letting the commented article speak for itself.

    The phenomenon desribed seems to offer a great empirical test for Hayek’s ideas about denationalisation of money, and the implications and extensions one might derive therefrom. I truly hope a would-be economics PhD student takes this up as a PhD topic.

    As for competing currencies being messy, well it is, but so are many other things. The interesting thing might be to see what devices people adopt so that the messiness doesn’t impact on individual transactions. There are some truly interesting questions here.

  • The last time I was in Russia I took US dollars, we didn’t really need any other currency and there was no problem with being able to take them back home with us after either.

    Must’ve been a while ago. Nearly everywhere accepts only rubles now, with the exceptions being “businesses” like airport taxi drivers.

  • tranio

    Saltspring island in the British Columbia gulf islands has been issuing its own currency for years. They are worth 1 for 1 with Canadian dollars and are usable in any business on the island. They are a tourist favourite and of course many return with those tourists never to be used again. Seignoirage par excellence

  • Johnathan Pearce

    Lindsay, thanks. Appreciated.

    Pa Annoyed, there may be some accounting issues, but then if people want to use different currencies, then presumably people will put up with the additional layer of cost or “messiness”, just as they tolerate having 10 different varieties of toothpaste.

    In a dynamic economy, I would expect a single currency to evolve because of the convenience factor that you mention, but there is always room for competition, and it has the beneficial effect of forcing issuers to preserve the value of a currency. The threat of competition is often just as potent as the actualite of competition.

    There are parallels I think between competiting currencies and computer software. Many folk find it useful to stick with MS-Dos and others don’t. It seems to work without any need for a state system of monopoly control.

  • Pa Annoyed

    Off-topic, and just for fun, but the Heritage Foundation has just published their 2007 Economic Freedom league table of countries. It’s interesting to download the data and then sort it by each category of freedom in turn, including freedom from big government, freedom from business regulation, freedom from tariffs and trade barriers. In which category are Guatemala, Haiti, and El Salvador the top three free nations? In which category of freedom does the UK come 127th out of a class of 157? Find out here.

    Some of their metrics look a bit simplistic to me, so I wouldn’t take it too seriously…

  • Pa Annoyed

    Johnathan,

    Agreed. The point I was trying to make was that we already have had multiple currencies in operation, and the competition between bank cards may be considered akin to the competition Hayek advocates.

    The problems with them are not so much that the Treasury objects either to its loss of monopoly or the inconvenience for the taxman, but that anyone setting up a private currency has to have something really significant to offer to get enough of a slice of the market, the overheads being crippling otherwise.

    With a bank card, you can maintain your account in a variety of national currencies, and have it exchanged for your vendor’s preferred national currency at the point of sale. Any shopkeeper can accept anything they like in payment – glass beads, monopoly money, cigarettes, 1kg ingots of platinum. There’s nothing to stop them. The issue, where there is one, isn’t that you’re not allowed to do it. In many situations people do do it. It’s just a matter of recognising a different currency when you see it.

  • While the libertarian in me welcomes the freedom to use anything one pleases as a means of exchange, my suspicion of the Chiemgauer comes from the motivation behind it. It springs from the anti-globalisation left thinking that money should be constrained to be used locally, spent quickly and not saved, and thus benefitting the local economy.

    The joke is on them anyway, I suspect, because no matter how many barriers to trade one sets up, global market forces dictate anyway and barriers to trade just make things more expensive locally. People can only support idealogical causes for so long and no longer when they see the effects on their own pockets and buying power, and a currency with a built in inflation rate is a sure loser. The shops accepting it will inevitably inflate their own prices to pay cover the cost of dealing with it.

    Inflation is, simply put, a currency issuers way of stealing from your savings, and the other side effect of fiscal drag assists in boosting tax revenues. Ideally I would much prefer to see a currency with less suseptibility to manipulation by government or central banks like, for example, a gold coin. Of course in the old days of the gold standard, money was gold. but governments inevitably prefered to be in a position where they could easier steal value from the populace as they deemed fit.

  • Here in Costa Rica the Colon and the US Dollar run in complete parallel. At any given time people have a good idea of the exchange rate (at the moment it’s something like ₡520 = US$1). The bid/ask spread in banks is typically ₡3 or less, i.e. less than 1%, which indicates the volume of conversions. My bank account is in dollars, but purchases via debit card in colones are converted at spot. Even taxi drivers will take dollars, albeit at a small (4–5%) discount. A lot of consumer goods and services are priced in dollars, notably computer peripherals and my broadband internet connection. Euros are becoming increasingly accepted, although the lower volume means the bid/ask is much less favourable.

  • I think the case of the Linden, an “imaginary” currency in a “game” which unexpectedly became a solid currency fluidly convertible to dollars, is illustrative. All money is of course imaginary, and the value of the Linden Dollar continues as long as people believe in that virtual world, just as much as the United States Dollar maintains its value while people believe– not in the cause, let me be clear– but the existence of the United States of America.

    The state is a fantastic tool for creating large realities, on scales which were impressive within the informational context of the 20th century. The internet of course is a much more powerful imagination enhancer, which creates a solid reality out of the dreams of people. There is really little chance of a war. The internet is overwhelming armed by the people. The first shot of the revolution remains to be fired by the forces of repression, if they would. They have not. Hackers have written the future history of our society in code which continues to be irresistable. The Creative Commons is every day more capable of taking the place in mainstream society that Free Software has taken within the avant-garde of this God-made revolution. The body they would wish to possess came preinnoculated with freedom.

    Imagining a currency is not much of a challenge at all. You can value anything. When information is expensive, the information held by a dollar bill is valuable, and it’s hard to trade at all without it. When information is free, we enter a different level. It’s hard to discern in a way because it’s so different. The Linden Dollar counts here, even though it only buys a virtual haircut. People decide their lives based on the information they encounter. They value particular information. Specific, binary information was encoded in paper money: Is it a whole, beautiful bill, or is it a shred of worthless trash? Binary information coding. It’s as simple as what information people value. It can no longer be controlled.