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While everyone is familiar with the fact that US dollars circulate in many countries around the world, the same is not true of foreign currencies circulating in the US.
The question then is why is there so much international demand for the US dollar, and how much of the total $1.74 trillion paper dollars in circulation globally is in the US and how much is used overseas? Continue Reading
The earliest coins in antiquity are thought to be those that originated in the Lydia empire in around 640 BC. Made from a naturally occurring alloy of silver and gold called electrum, these electrum coins had standard weights in a variety of denominations.
But the variable gold & silver mix found in electrum would have created difficulties in valuing these coins, which is why... Continue Reading
Canada’s central bank only holds one type of asset in its investment portfolio - Canadian government bonds.
As well as creating credit risk, this investment strategy risks the ability of the Bank to manage the accuracy of the Canadian dollar. This lack of diversification is a classic case of home bias. And its not just limited to the Bank of Canada.
To dilute this... Continue Reading
In the 1800s, the coins used in the UK and US contained mostly silver. But when the value of silver in coins exceeded the value of the coin itself, people would melt coins down. This lead to crippling coin shortages. The solution to coin shortages was to remove the silver content of coins, which is why to this day not a trace of silver is to be found in circulation coinage. Continue Reading
After months of anticipation, Europe has finally introduced INSTEX, a payments channel to help support Iranian trade in the face of U.S. sanctions. But INSTEX won't have much of an effect.
For the time being, it won't facilitate the all-important Iranian crude oil trade. But even if it does, U.S. sanctions are too powerful for INSTEX to attract many users. Continue Reading
When Japan opened for trade in 1858, Western merchants were thrilled to learn that the Japanese valued gold at a third its international price. This would create an arbitrage for enterprising merchants.
While the arbitrage didn't last long, here's how it occurred in a historical context, and here's how the traders tripled their money. Continue Reading
When the Union switched over to an inconvertible paper money standard during the American Civil War, California managed to stick to its gold standard. This episode give some insights into why contemporary monetary switches, including a potential displacement of the dollar by bitcoin, are so difficult to achieve. Continue Reading
Last month the world settled on a new definition of the kilogram. Our success at harmonizing weights stands in contrast with our failure to establish a universal unit for measuring monetary value. This post explores the difficulty of this project by investigating a late-1860s effort to establish an international system for comparing value. Continue Reading
Shortly after World War II, the U.S. produced almost 200,000 gold discs for Saudi Arabia. Coin collectors usually link the discs to ARAMCO, the Saudi-American company responsible for producing much of Saudi Arabia's oil. This post revisits the monetary arrangements of the era to determine why the discs were actually issued. Continue Reading
The U.S.'s official gold price is set at $42.22, far below the market price. This post explains what would happen if the official price was increased to $1225, the current market price. The result would be a large transfer of U.S. gold ownership from the Federal Reserve to the U.S. Treasury. This would hurt the Fed's ability to run an independent monetary policy. Continue Reading
Germany, France, and the UK intend to create a new Special Purpose Vehicle (SPV) to enable cross-border payments with Iran, which is currently being sanctioned by the U.S. The SPV will be able to carve out some space for the rest of the world to engage in Iranian trade, but we shouldn't overestimate its ability to override U.S. economic power. Continue Reading
So far, all applications submitted to the SEC to list Bitcoin ETFs have been rejected. On the surface this appears strange given that a large number of commodity ETFs have been successfully listed on US exchanges. Does the SEC have a bone to pick with Bitcoin or is in some way anti-Bitcoin? The evidence would suggest not. Rather, the SEC has a requirement that the exchanges it... Continue Reading
The existence of "mattress gold" is believed to inhibit the growth of bank intermediation. By encouraging Turks to bring their gold to banks to be deposited, Turkish authorities believe that overall engagement with banks will increase, presumably leading to faster economic growth. This post explores some of the mechanisms the Turkish State has instituted to draw mattress gold into the... Continue Reading
Gold was used as an intermediary commodity for evading sanctions imposed on Iran, particularly in 2012-13. Gold has certain properties, including a high value-to-weight ratio and good liquidity, that made it convenient. Given that sanctions will probably be reimposed, what will gold's role be in the next round of Iranian sanctions? Continue Reading
When people think about the future of cash, an increasingly cash-lite Sweden is one of the benchmarks that is often brought up. Yet Iceland should not be ignored, since not only does it lead Sweden in digital payments adoption, but it is also experiencing a resurgence in cash usage. Continue Reading
Imagine if the world's metre sticks all grew or shrunk a bit each year. That would make for a confusing system of weights and measures, wouldn't it? Well, that is exactly what happens with money. This post looks at the history of the Pound, the weight and the currency, right up to the modern day Pound Sterling. Continue Reading
Would it make sense to rebuild an international gold standard like the one we had in the late 1800s? Over the years I've been following two economists who have debated this very topic on multiple occasions. Larry White says the idea has merit, David Glasner believes it isn't worth the risk. Let's look at one or two of the most important themes running through the White v Glasner debate. Continue Reading
Since bitcoin futures began to trade on the CBOE in December 2017, they have often traded below bitcoin's current price, a pattern called inversion or backwardation. Gold, which is a similar asset in many respects, almost never inverts. It is always in contango. This article explains why this pattern has prevailed and hypothesizes that it is likely to continue in the future thanks to... Continue Reading
People who live in developed nations have grown used to inflation of around 2% a year over the last few decades. Why do prices generally rise by that amount? What drives the purchasing power of money in these countries? This post explores the last thousand years of monetary history--and three different sorts of monetary systems--to help understand the causes of inflation. Continue Reading
Bitcoin is supposed to be a digital version of gold, but a better analogy would be to uselesstainium, a useless and boring grey metal. The only reason for buying uselesstainium is to sell it on to the next buyer at a better price. This means that the price of uselesstainium--whether it be the physical or digital version--will always be incredibly volatile, a price of zero being as... Continue Reading
Despite having dollarized back in 2008, Zimbabwe has once again entered hyperinflation territory. With it, the infamous dictator and the world's oldest leader at 93, Robert Mugabe, is finally losing grip of power. In this blog post, you can read about Zimbabwe's recent monetary experiment again hideously trying to issue a new version of the Zimbabwe dollar. Continue Reading