Saturday, May 6, 2017

What is a common currency?

In terms  of a discussion between Kling and Cochrane, a common currency is what the government uses. It applies when government decides, at a minimum, to collect and pay using a single currency.

In other words, as long as the currency is otherwise well, or unregulated, then it can set the monetary standard. In reference to the Euro, then, a minimal common currency would be more efficient, but governments in Europe will default, on occasion.

The  answer, according to the sandbox, is that we end up with dominant currencies, usually the government tax dollar. In times of monetary efficiency, the tax dollar gets about 75% of the currency market, but that can drop  to 50% during defaults.  There is always at least 25% black market, complementary currencies, gold and metals and plain swaps; as well as unobservable street cash. Don't get your hopes up  for the equivalent of the metric standard, the tax dollar has virtual denominations, it has its own container algebra. And as government is volatile, it changes its basket sizes quite suddenly.

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