I'm not even at the 101 stage of economics understanding, so forgive me if my question sounds simplistic or naive!
I'm just wondering why, with some of the uncertainty and doubts over some currencies (eg, the euro) and money systems (like sterling and the Bank of England), can't individuals and businesses just use different currencies that might not be facing the same problems or on such a scale? I realise that, on my own, it might be hard asking to get paid in Australian dollars or trying to pay for goods with them, but I also understand that other countries have done similar (I think Zimbabwe has a black market in USD, doesn't it?), so it's not new.
Is it simply a case of reaching a tipping point? Why do businesses seem to only accept payment in their domestic currency? It's not hard to tell customers that you'll accept payment in other currencies.
This is not a comprehensive answer, but probably the biggest hurdle is the legal tender law in the United States. Even if there were enough support to use, say, the Australian Dollar here at home, no other currencies enjoy the monopoly protection that the USD has. This makes it extremely inconvenient to use anything other than the US dollar.
In a free market society in which there are competative currencies then what you are talking about would happen immediately if any currency provider got ANYWHERE near the stage that the U.S has gotten to in terms of inflation, however this doesn't happen for a number of reasons.
1. Legal tender laws prevent people from doing this on a large scale
2. Even if it was an option it would be very difficult to have a transition, especially because there would be a huge shortage of X currency. It would take a fair amount of transition for people en masse to both establish a new understanding of prices as well as changing over to the new currency at all. It takes a while for a new medium of exchange to be established.
3. There is currently no conception in the United States in general that this could or should happen. The idea is alien to at least 90% of people. This makes the transition practically impossible until there's some ideological shift as it blows part 2 to epic proportions.
- Foreign currencies are often also influenced by monetary policy
- You have to own dollars to pay taxes or off to jail you go
Not really much difference between them:
This was partly answered here as well:
The state forces you to pay taxes ONLY in state-printed currency. You can not pay your taxes with any currency you want. Since taxation is in virtually all transactions, even without legal tender laws, taxation makes it practically impossible to use more than one currency because of cost.
Legal tender laws would not be a problem if the state allowed you to pay your taxes in alternate currencies. Abolish taxation and people will migrate to the currency of their choice --- they may chooe to continue to use fiat currency or not. People would likely migrate away from inflationary currencies.
Without taxation, the power to print money is neutered.
I should have perhaps caveated my question by saying that I'm from the UK! Thanks for the replies so far, everyone.
As I understand it, legal tender might have a slightly different meaning to those of you in the US. So far as I know, we are free to use alternative forms of currency (as one of our high street chains did in the early 2000s, accepting euros as well as pound sterling), but only certain sterling denominations can be used to guarantee that the offer to pay a debt is legally recognised. I think the answer about using gold as currency also only relates to the US (certainly, there is no capital gains tax on gold held here).
My question is purely based on curiosity of the mechanics of why countries like the UK don't use a plurality of common currencies when they're able to.
Can you pay your taxes in yen?
Any taxes that I would owe, no. HMRC just asks me to use the average exchange rate for the year for any foreign currency income.
Even so, exchanging from one currency (yen) to another (GBP) isn't particularly hard. As I said, at least one business here traded in two currencies, so it's not a tax problem, so far as I can tell.
@Charles Anthony
I'm doubtful about that. The Romans required taxes to be paid in coins stamped with a special marker, essentially granting them a legal tender status, but other coins still circulated.
Michel,
We are living in the year 2011 right now. The mistakes made in ancient Rome have no bearing on how people will succeed in a stateless society.
Times may change definitively, but economic law does not.
The currency of choice used to pay taxes would be more valueble than other currencies, in so far as paying taxes go. I don't see why taxation, in the direct sense, is the reason why we use a given currency for everday transactions though. Even if we had to pay sales tax in state currency I fail to see why people could not, in the absence of legal tender laws, use competing forms of currency alongside the tax-preferred one.
I understand that bad money drives good money out (Gresham's Law) when both are set equal under law, but that isn't the principle at play in this case.
What is at play here is the inconvenience of having to use more than one currency.
If taxes were very little or avoidable, there would be little inconvenience to convert one from the other. However, that is not the case in our current state of affairs.
In our current state of affairs, taxes are all over such that you would have very few opportunities to even use any other currency domestically.
Is there a tax on the creation of money in the USA?
Australia had free banking and competing currencies throughout the 19th century. In 1910 the Australian government put a 10% tax on the issuing of bank notes. This ended private banknotes in the country.