MONETARY POLICIES not be saved but used to consume.
Japan and other countries have tried vouchers, but the outcome was not particularly successful. Perhaps this is because consumers do not increase their purchases but simply use the vouchers for what they would have
bought any event. in Also,
consider all those gift cards that are purchased but never redeemed. That speaks to
leakages.
Nevertheless, the concept is not all that different from what Fisher had suggested, cash
that would
expire. Use it or lose it.
Although the sovereign has a general monopoly on the coin of the realm, there are numerous exceptions. The Bitcoin may come to mind, but there is a better example since it seems mostly a novelty and of limited use.
Some
local governments have introduced scrip.
In 2009, the largest US state,
California issued an estimated $1 bln of IOUs. They differed from the kind that local governments issued during the Great Depression in that they were issued to a specific entity (supplier) and was not intended to enter general circulation.
Local money illustrates what would happen if governments moved toward a cashless economyspend and bypass the banking circuit
estimated that around a dozen local currencies operate in the UK. The BOE has reviewed the local currencies and concluded that due to their size, they do not represent a risk to monetary or financial stability.
Ithaca, New York has introduced Ithacash. It too is meant to support the local economy. Reports suggest Ithaca will shortly issue physical currency notes.
There are two current examples that are worth noting. First, Brixton (south London area) has introduced the Brixton Pound. Reports suggest GBP150k are in circulation. The Brixton pound is fully backed by sterling holdings at the issuing credit union. It is
FX
One of the points that the local money illustrates is what would happen if, as some fear, the governments move toward a cashless economy. We do not think this likely or even possible in the horizon of most
investors.
Nevertheless, local communities can be counted on to innovate as ne c es sa r y , meaning if there is no official money, people will invent something to fill the need. Isn’t that what soldiers did in Germany during
the
o c cu p a t io n period at the end of WWII? Tey did not use gold, which so many continue to argue is the ultimate money, but cigarettes.
Hel ic o pt e r
money has become a catch-all phrase to capture more aggressive and direct printing of money to spur economic activity and inflation. It is a subtle admission that monetary policy has not been exhausted. It also reflects a realization (and anxiety) over blurring monetary and fiscal policy.
Marc Chandler
Global head of currency strategy at BBH Marc to Market
FX TRADER MAGAZINE April - June 2016 73
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