Re: the theory of split currency

On Mon, 30 Sep 1996, Robert Hettinga wrote:

Date: Sat, 28 Sep 1996 20:13:48 -0700 (PDT) From: Fred Foldvary To: Austrian Economics Subject: the theory of split currency Organization: JFK University Mime-Version: 1.0 Sender: owner-austrianecon@agoric.com Precedence: bulk Reply-To: AustrianECON@agoric.com

Is there a name for a dual or split currency, in which there is one currency for domestic use and another, different appearing, currency for foreign usage?

Does anyone know of any country which has had such a split currency?

Is there any literature on such split currency?

Here some thoughts on how it could function in the U.S.: 1) Domestic currency would not be legal tender outside the U.S.

How, exactly, would this be enforced?

2) Foreign US dollars would not be legal tender in the U.S. It would be illegal to hold foreign dollars in the U.S. Travelers would be required to convert them at customs.

How, exactly, would this be enforced? What would the above accomplish, other than to make travel more diffucult and tourism complicated? What about money orders in foreign demoninations? Would there be two American Express Travelers checks? Foreign and domestic?

3) The export of domestic currency would be illegal.

It basically is now in the form of cash. Certainly it is immensely hassling.

4) All exchanges between domestic and foreign currency would be required to be made in official exchanges, with the amounts recorded and reported to the government.

Already the case for sums over $10,000 and in many cases for sums over $7,500 as a matter of corporate policy.

5) All previous currency would be declared of no value after a certain date. All conversions to new currency would be reported.

A painfully poor idea. Just look to Russia's great ruble burnings for proof of this.

A motive for the government would be to control the underground economy, tax evasion, and the trade in illegal substances.

Currently the reason that it is popular to speculate that this would have any effect on illegal substances, the underground economy, or tax evasion, is because the war on drugs and money laundering is unwinable. By definition it must be easy for capital to flow back and forth between the United States and other nations. The more difficult this is made, the more difficult legitimate commerce is to conduct, and, in addition, the more difficult it becomes to make investments from abroad in the United States. It is the failure of Law Enforcement to have any noticable impact on organized crime or drugs that made them strive to impose currency restrictions in the place of legitimate law enforcement in the first place. It was the "soft underbelly" of crime and all that. Unfortuantely it is a hard underbelly to find, a hard one to identify when it is found, and not alltogether very soft. So now babblings about split currencies. What a surprise. I understand the concept, it becomes easier to track exportations of large amounts of money in the form of cash. Unfortunately any idiot could circumvent it with the ease of taking sand from the beach. Just because the United States SAYS a $100 bill is worthless unless its in the U.S., certainly does not make it so. As to circumvention: Form domestic corporation. Purchase stocks, bonds, other non-cash negotiable instruments. Sell said instruments and demand payment in DM or SFr etc. Export foreign currency to the free economy nation of choice. All it does is move the laundering process onshore, and then only in the first step. Most money laundering uses non-cash exportation methods already. Diamonds are becomming more and more popular because of the recent stability of uncut stone prices and the fungibility of diamonds as a currency. Luxembourg currently has the most potent diamond market in the world. Close to 45% of it is estimated to be operating as currency. (Markets seeing the same stones over and over again). Moreover, the cost of exchanging stones in terms of middleman profit is often less than that charged by large scale money laundering operations. Those are the most basic of evasions. I can come up with complicated ones in seconds, and boggling ones in minutes. In addition, as a solution, it fails to anticipate the foreign market for domestic bills. Surely I could exchange currencies with the casas de cambios that will certainly be created to take advantage of the new regulations about a week after they are inacted.

This scenario is not entirely hypothetical. I have read that Senator Patrick Leahy introduced Senate Bill #307 to create such a split currency. The Bill failed to pass the Senate, but this shows the concept is out there.

Is this worth investigation and theoretical examination?

It has born this kind of scrutiny before. Time and Newsweek were onto the story almost two years ago. Considering that something like 3/4 of the circulating supply of U.S. currency is abroad, you tell me how practical a program this is.

Fred Foldvary

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----------------- Robert Hettinga (rah@shipwright.com) e$, 44 Farquhar Street, Boston, MA 02131 USA "'Bart Bucks' are not legal tender." -- Punishment, 100 times on a chalkboard, for Bart Simpson The e$ Home Page: http://www.vmeng.com/rah/

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