Back to the future with Scottish currency

Generali

Scots Nats and Unionists bearing chips not welcome.

This is an article which suggests some alternatives to the Pound as a currency for a future independent Scotland/Wales/Yorkshire/Tasmania. They use the word 'Scotland' in the article but perhaps we'd have a more sensible conversation if you can substitute it with the word 'Tasmania' in your brain.

Anyway, more in hope than expectation, here goes, Plan A+....

http://ftalphaville.ft.com/2014/02/17/1774172/guest-post-back-to-the-future-with-scottish-currency/

The credit of sovereigns was and is based upon their capacity to levy and collect taxes, and for centuries sovereigns raised funding to fight wars and carry out public works on the basis of their credit. The king’s treasury would propose to tax-payers – most taxes were land-based in those days – to prepay taxation at an agreed discount, let us say a £2 discount for a £10 tax pre-payment, usually made in kind, such as in goods or services provided to the sovereign.

The taxpayer would receive a record of prepayment, which was the half of a split ‘tally stick’ known – interestingly – as the ‘stock’, with the ‘counter-stock’ being retained by the Exchequer. When the tax was due, the tax-payer would take the £10 stock instrument to the Exchequer; it would be matched; the obligation to pay £10 tax would be met; and the taxpayer would realise a profit of £2 or 25% on his prepayment.

The accuracy of this explanation of national accounting remains indelibly in our language today, firstly in the origins of the phrases Tax Return, which was the accounting event of a physical return of a token, and secondly, in the phrase Rate of Return, which was actually the rate over time at which the (say) 25 per cent profit from the discount could be realised: the more tax you paid, the faster was the rate of return of the stock.

sss555s

There is a Scottish independence thread already, which has currency discussed at great lengths.

There is no need for this new thread and by the condescending tone, it is unwelcome.

Reported as spam.

:beer:

Generali

sss555s wrote: »

There is a Scottish independence thread already, which has currency discussed at great lengths.

There is no need for this new thread and by the condescending tone, it is unwelcome.

Reported as spam.

:beer:

Have a blast.

The idea of the thread is to look at a different idea of money rather than to entertain notions of what may or may not happen.

I guess you don't understand the blog piece so decide to ridicule instead. That's rather sad as a first comment, assuming you bothered to read the article at all. I suspect you didn't get past the words, 'Scots Nats' and simply decided it was an anti-Scottish piece.

danothy

sss555s wrote: »

There is a Scottish independence thread already, which has currency discussed at great lengths.

There is no need for this new thread and by the condescending tone, it is unwelcome.

Reported as spam.

:beer:

This thread is about Tasmania though ...

CLAPTON

I think it a good idea to separate the general issue of currency use from the particular issue of Scotland and avoid issue like what is 'fair' or what is not.

There should be a good body of empirical evidence around as we have several counties that use US dollars, many that use Euros and of course many that have there own currency and it wasn't too long ago we had the fixed exchange rates system.

I'm a bit limited as I don't fully understand the mechanics of what central banks actually do.

e.g. Does a country need a central bank : what would happen without one?

wotsthat

sss555s wrote: »

Reported as spam.

Maybe you're getting a little overwrought?

wotsthat

I'm in the same place as Clapton.

What is the role of a central bank? If there's a peg does that just require administration skills?

If there's a homegrown currency (say the Tasmanian Dollar) how would the role of a central bank change?

What would happen if other countries had no confidence in Tasmania's government or central bank.

Is it just a confidence game?

Generali

CLAPTON wrote: »

I think it a good idea to separate the general issue of currency use from the particular issue of Scotland and avoid issue like what is 'fair' or what is not.

There should be a good body of empirical evidence around as we have several counties that use US dollars, many that use Euros and of course many that have there own currency and it wasn't too long ago we had the fixed exchange rates system.

I'm a bit limited as I don't fully understand the mechanics of what central banks actually do.

e.g. Does a country need a central bank : what would happen without one?

Central banks perform some of several functions as a rule:

1. Lender of last resort: covering shortfalls (normally overnight) where a bank doesn't have quite enough cash and another has plenty. Without this function, banks have to be more cautious which makes banks more expensive to use but also less profitable. The cheaper banking system comes at a price as seen during the GFC.
2. Central Banks can try to manipulate markets for money to try to manipulate inflation, GDP, unemployment or any other goal set by a well meaning Government. That has had varying degrees of success down the years. Markets for money can be manipulated because as the sole supplier of money, a Central Bank can set supply and demand pretty much where it wants in an attempt to force other markets that use that money to behave 'correctly'.
3. Central banks issue money. As a result they earn 'seigniorage', the difference between the cost of issuing money and the 'value' of that money. Think about the cost of issuing a £50 note and what can be bought with that £50 note vs what could be bought with the cost f issuing the note. The difference is seigniorage.
4. Lots of Central Banks also issue and regulate the market for Government debt.
5. Central banks, finally, also often regulate banks and other parts of the financial system.
6. Central banks usually run currency reserves which can be used to try to manipulate FX markets if the bank/Government wants to fix the FX rate of a currency.

Moto2

CLAPTON wrote: »

e.g. Does a country need a central bank : what would happen without one?

Bring on the Bitcoin rampers

As for the question? I have no idea

Generali

wotsthat wrote: »

If there's a peg does that just require administration skills?

Ultimately, IMHO, a currency peg can't be maintained forever. The reason? If there's a huge difference between the 'fixed' exchange rate and the market one then an arbitrage opportunity exists.

Let's say I decide, as President of Tasmania, to fix TMD1 = IWP1 (1 Tasmanian Dollar = 1 Isle of Wight Punt). However if the market for TMD and IWP decides that TMD1 = IWP2 then I can make some cash.

I can change TMD1 into IWP2, buy some goods and import the goods into Tasmania. Sell them for TMD 2 and then take the TMD2 and exchange it into 4 Isle of Wight Punts. I get TMD4 which I can change into IWP8 and so on.

In the end the Isle of Wight will run out of goods or Tasmania will run out of IWPs to swap for my TMDs. The latter is what normally happens.

wotsthat wrote: »

If there's a homegrown currency (say the Tasmanian Dollar) how would the role of a central bank change?

It would simply operate on a smaller scale

wotsthat wrote: »

What would happen if other countries had no confidence in Tasmania's government or central bank.

The currency wouldn't be able to buy goods abroad. In Communist Europe, barter for oil was common as countries like Saudi Arabia didn't want some toilet paper money for their oil, they wanted dollars. Food would do instead however.

wotsthat wrote: »

Is it just a confidence game?

I think that would be unfair to say. Confidence is important but not the whole story. Competence is important too.

CLAPTON

Generali wrote: »

Central banks perform some of several functions as a rule:

1. Lender of last resort: covering shortfalls (normally overnight) where a bank doesn't have quite enough cash and another has plenty. Without this function, banks have to be more cautious which makes banks more expensive to use but also less profitable. The cheaper banking system comes at a price as seen during the GFC.
2. Central Banks can try to manipulate markets for money to try to manipulate inflation, GDP, unemployment or any other goal set by a well meaning Government. That has had varying degrees of success down the years. Markets for money can be manipulated because as the sole supplier of money, a Central Bank can set supply and demand pretty much where it wants in an attempt to force other markets that use that money to behave 'correctly'.
3. Central banks issue money. As a result they earn 'seigniorage', the difference between the cost of issuing money and the 'value' of that money. Think about the cost of issuing a £50 note and what can be bought with that £50 note vs what could be bought with the cost f issuing the note. The difference is seigniorage.
4. Lots of Central Banks also issue and regulate the market for Government debt.
5. Central banks, finally, also often regulate banks and other parts of the financial system.
6. Central banks usually run currency reserves which can be used to try to manipulate FX markets if the bank/Government wants to fix the FX rate of a currency.

so


1. lender of last resort:

this doesn't seem entirely necessary if banks keep more capital reserves though this may mean lending costs are higher and the occasional 'accidental ' insolvency?

how do countries that use the dollar get on?

2. this is rather difficult area: the area of QE , asset price bubbles

if there wasn't a central bank how would the money supply be controlled?
do we need to ?


3. Printing money : I'm sure Tas can do that OK preferrably plastic as it rains a lot there

4. managing government debt : do we need a central bank to do that? Probably not.

5. banking regulation and the choice of suitable people to run other banks doesn't need banking skills does it?

6. fixing exchange rates never works except for a very short term

So it's not clear whether we actually NEED a central bank : clearly some of the tasks are could easily be placed elsewhere.