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Currency questions for those with an affinity towards Mediums of Exchange

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banker Posted: Sat, Dec 29 2007 11:32 AM

  So, here is something I have been thinking about for the past 2 months.

Currently, I reside in Tokyo, Japan. I have to commute between 2 and 3 hours a day, which means a lot of train usage. Recently, there has been a movement towards electronic forms of money: SUICA and PASMO. These are RFID cards that people can use in liu of cash. Credit cards are very unpopular in Japan in that they cannot be used in most stores. Also, this rfid money functions are being incorporated into mobile phones.

My question is: if there was a free market in currency in Japan and the railroad companies all got together to make a new currency, how would that currency work?

1. How is the exchange rate determined between Japanese Yen and the new train currency?
2. How is supply of the currency determined (ie pegged to gold, train usage statistics, etc)?
3. What forms of this new currency will there be? (cash?, electronic only?..)
4. How do companies market their new currency to compete against the yen?
5. If this new currency were to become popular, how would this affect debt denominated in yen?

I thought I would try to provoke a different kind of discussion, rather than stuff most people already agree with (at least austrians).

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JAlanKatz replied on Sat, Dec 29 2007 2:42 PM

As far as I can tell, if a "new currency" is pegged to an old currency, then it isn't a new currency at all, just a different unit of the old currency.  If my "Josh" is pegged at 5 Josh's to the dollar, then a Josh is just a 20 cent piece, isn't it?

Now, if there were a free market in currency, I doubt that railroad companies would peg their new currency to the yen.  Who would put any amount of money into this new currency if it faced the same risks as the yen?  To succeed, a new currency (under the regression theorem) needs to be either pegged to an old currency, in which case it isn't a new currency, or have it's own value - that is, be a commodity.  So wouldn't they use a commodity backing?

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