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.
@Aristippus
The capital gains tax is an effective tax on all attempts of using a commodity based currency. I'm unsure if private fiat currencies such as bitcoin have any additional tax on them.
@Charles Anthony
Even so, it isn't neccesarily clear just how much inconvenient using more than one currency would be. The Mexican border states freely circulate mexican pesos and USD alongside each other. The USD itself serves as a secondary currency around the world for day to day transactions. I'll grant you that the inconvenience of multiple currencies might very well discourage more than a few currencies circulating, but it isn't clear that the inconvenience is enough to ensure only the state preferred currency is the exclusive currency.
This is of course assuming the absence of legal tender laws that are another matter.
Michelangelo:Even so, it isn't neccesarily clear just how much inconvenient using more than one currency would be.
Go to the shop down the street and try to pay in gold or pesos. Offer to pay a bit of extra if you have to convince the shop-keeper to take it. See what he says.
The layman may not know about these matters, but does it matter?
Correct me if I'm wrong, but how you originally stated it implied that it was an economic law that fiat currencies would drive out 'good' currency in the absence of legal tender laws because it would be the preferred method to pay tax. My arguement is that this isn't neccesarily the case and that while we may see the tax preffered currency receive a premium because of its status, it wouldn't be inherently enough of a premium to discourage any competing currencies from arising. It might be the case in a specific time period and place, but it isn't an economic law.
Your example wouldn't be much help since legal tender laws do exist right now. The layman may not know or understand why he values the dollar as he does, but we aren't the only ones who know about the laws. If they were abolished, and if a competing currency arose which saw use by the affluent, I have no doubt the layman would begin accepting this currency as well. Even if he didnt understand why he was now doing it.
If you haven't checked out the "why can't you use gold as money" thread, please do. I don't believe the question of why gold can't be used as money has been adequately answered. It looks like there may not be as many reasons as people have suggested.
http://mises.org/Community/forums/t/25390.aspx
@P. Lotor: Think again,
http://www.justice.gov/usao/nv/press/november2009/kahre11172009.htm
http://www.fff.org/blog/jghblog2009-08-17.asp
Clayton -
@Clayton
I've read about that case. They weren't exactly just using gold as money, they were taking advantage at a stupid (and arrogant) government idea of denominating gold coins in artificially low dollar amounts to evade taxation. if everyone had been reporting and paying their taxes appropriately it would be much more interesting.
P. Lotor
@P. Lotor: But that's the point, the government views gold and anything other than its fiat currency as a potential vehicle for tax-evasion. If each exchange is denominated in dollars, its tax consequences can be calculated in dollars. If an exchange is performed with something other than dollars, its tax consequences are based on a somewhat arbitrary "fair market value" of the bartered goods.
In this case, Kahre chose a number that was far from the fair-market value of the gold coins but had been adopted by the government for its own nefarious purposes. Of course, this was doomed to failure and Kahre clearly understood this, else why bother trying to keep it a secret?
You seem to suggest there are no "real" obstacles to using gold coins as money. This case clearly illustrates that you are wrong. One of the hurdles to using gold coins is that you must report them at their "fair market value" when used in any exchange and this means they will be taxed, unlike FRNs.
I am not suggesting there are no obstacles to using gold as currency. I believe there to be significant obstacles, otherwise people would be using gold as currency! if you check out the other thread, I've added a few posts to bring the conversation along. I don't believe the case you brought up is a useful example of why gold can't be used as money because the primary issue is intentional tax evasion.
I am trying to make the case that the government prevents us from using gold as money, but I am finding it somewhat more difficult than I was lead to believe it would be. in the case of Kahre, I would see nothing wrong with the government requiring that the market value (in dollars) of the gold at the time of payment be used for tax reporting purposes.
There are obstacles to using gold as money, and sufficient obstacles that people don't use gold as money, but I've heard a fair amount of misinformation too about why gold can't be used as money.
I would see nothing wrong with the government requiring that the market value (in dollars) of the gold at the time of payment be used for tax reporting purposes.
Well, I strongly disagree with that. The whole reason the government doesn't want people using commodity money is precisely because of the difficulties it causes in funding their wars and welfare dependents. A 'flexible' money allows the government to conceal the magnitude of the burden it is imposing on the public. An honest money means that the individual can see exactly just how much of his wealth is being taken by the government and the costs of creating the illusion of a "social safety net" are prohibitively high.
What natural obstacles are there?
I haven't argued otherwise. you're attacking a straw man here.
What do you mean? did I suggest there were "natural" obstacles? the whole point of the discussion is government obstacles. and those are anything but natural. I am trying to figure out exactly what obstacles government has put in place to keep people from using gold as money.