It’s been a week for 19th century ideas. Congressman Ron Paul called for the US to encourage privateers to fight piracy, Rasmussen found that some Texans are still for succession, and now Detroit businesses have invested money (US$) to form their own currencies.
Private currencies are not themselves new (see Liberty Dollars) but two things are surprising here.
1. This initiative is being sponsored by businesses. They are taking on a lot of cost for something that may not work. Especially given that deflation, not inflation, is the policy concern right now, the timing may be bad.
2. This new money is stil backed by and convertible to the US$. While convertibility is good for trade, it doesn't do much for inflation risk, especially if you are committed to a one-to-one fixed exchange rate. Unlike China, who is accused of undervaluing it's peg, the Cheers likely overvalues itself at one-to-one convertibility. Convincing new businesses to take these notes difficult.
At the same time, The Associated Press reported earlier this year that bartering, essentially a form a currency with similar liquidity problems of a private currency but without the legal restrictions is making a comeback. Of course the dollar faces little threat for a small amount of barter but all this does remind that there are alternatives to the dollar. SDR anyone?
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