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Old 08-24-2019, 06:26 PM
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Dual Currency


What would the results be, of the U.S. switching to a dual currency system? What I mean by this is the $ dollar remains as an international trade currency, and the W wanker is developed as a domestic-use currency.

What can be said will be the results, what is most likely (or least speculative)
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Old 08-24-2019, 06:31 PM
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How would this even work? If someone in Canada wants to buy something, they can use dollars, but someone in the US can't?

How is the exchange rate set? Fixed? Because the US already has five currencies, not two: There are ten mills in a cent, ten cents in a dime, ten dimes in a dollar, and ten dollars in an eagle.
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Old 08-24-2019, 07:30 PM
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Gresham's law.

Please read. It answers the question better than we can.
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Old 08-24-2019, 07:54 PM
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Originally Posted by Chronos View Post
How would this even work? If someone in Canada wants to buy something, they can use dollars, but someone in the US can't?

How is the exchange rate set? Fixed? Because the US already has five currencies, not two: There are ten mills in a cent, ten cents in a dime, ten dimes in a dollar, and ten dollars in an eagle.
It's not like it hasn't been tried, e.g., in China, as an example of a large market. All you have to do is make the currency not fully convertible, restrict its flow in and out of the country and use in international transactions, dictate an artificial exchange rate, etc.
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Old 08-24-2019, 09:17 PM
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Cuba does something like this. One currency for transactions between cubans and another one for transactions between cubans and non-cubans.

Seems to work OK, though it sure skewed prices higher for tourists. It's set so there's something convertible - the Cuban Convertible Peso - for external trade.

https://www.howtotraveltocuba.com/cuban-currency
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Old 08-24-2019, 10:26 PM
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Not sure about that "seem s to work okay" part.

When we were there, one of the issues was that Cubans preferred to receive the international convertible Cuban peso, not the domestic peso, and were willing to pay a premium for the convertible peso, so they in turn could convert to foreign currencies and get hard money for purchases of foreign goods.

As Exapno says, Gresham's law in operation.
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Old 08-25-2019, 12:02 AM
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Dual currency is always a bad idea from an efficient market perspective. China used to have the Foreign Exchange Certificate, that traded as much as 1.7x greater than the standard Chinese yuan. Caused black markets, deviant behavior and net net was an economic drag.
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Old 08-25-2019, 01:58 AM
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Not sure about that "seem s to work okay" part.

When we were there, one of the issues was that Cubans preferred to receive the international convertible Cuban peso, not the domestic peso, and were willing to pay a premium for the convertible peso, so they in turn could convert to foreign currencies and get hard money for purchases of foreign goods.

As Exapno says, Gresham's law in operation.
That kind of thing doesn't even require having two official coinage systems. USDs are so common in Costa Rica that even the government sets some of its own fees in dollars; Costa Rican companies and private individual buying abroad (whether in the course of daily business or on vacation) are most likely to also use dollars. So, they're also perfectly happy to be paid in dollars. Colones do circulate but if you ask someone which do they prefer, they'll choose dollars.
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Old 08-25-2019, 05:51 AM
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Originally Posted by DorkVader View Post
What would the results be, of the U.S. switching to a dual currency system? What I mean by this is the $ dollar remains as an international trade currency, and the W wanker is developed as a domestic-use currency.

What can be said will be the results, what is most likely (or least speculative)
I think it would hurt the US economy. The way I'm reading the OP is that the US Dollar (USD) would continue to be the international reserve currency. Would responsibility for managing it be moved to the IMF? The US Wanker (USW) would then be the internal US currency used by the government and for US domestic transactions.

Currently, the US Dollar has stability because there is so much of it around. Every country that has foreign reserves keeps USD as part of their reserves. Most commodity contracts and exchanges use USD as their primary currency. Many other international contracts will be made in USD as it's seen to be a stable currency, even if the two countries of the involved parties have stable economies. So I'm presuming the OP is seeking to maintain this international stability.

Creating a domestic USW currency would give the US government and Federal Reserve more flexibility with managing monetary policy. Inflationary or deflationary actions wouldn't be dampened by the huge bulk of worldwide USD. However, that would bring more scrutiny on what the USW were actually worth. Just how stable is a currency maintained by a country with a $22.5 trillion debt and with a 105% debt to GDP ratio? There would be concerns that USW monetary policy would be inflationary in order to bring down debt. No one would want to hold USW so savings would be depleted leading to reduced capacity for investment. As others have noted, this already happens in less developed countries. (Anecdote: in Croatia last year, I was asked several times to pay in euros, although nobody refused payments in local currency.) Diminished investment, and a desire to move funds to safer international USD accounts would both hit the US economy in a very painful way, in my opinion.

Trvia: There is already a strikedthrough W symbol as a currency code, the Korean Won, although officially that uses a double strikethrough. But at least some text systems use a single strikethrough.
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Old 08-25-2019, 07:57 AM
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In Prague, which is just outside the Euro zone, many businesses accept the Euro gladly. Bartenders and taxi drivers know the conversion rates better than bankers do.

Many businesses in Korea--especially in Itaewon, Seoul's Americatown--happily take US dollars, but some of them peg the dollar at 1000 won, about 17 cents cheaper than it actually is worth. When I use an American credit card, "big box" stores like E-Mart and HomePlus give me the choice of paying in dollars or won. Custom tailors, who cater largely to US service personnel, seem to prefer getting paid in dollars, especially if it's cash.
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Old 08-25-2019, 12:49 PM
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Originally Posted by Wrenching Spanners View Post
I think it would hurt the US economy. The way I'm reading the OP is that the US Dollar (USD) would continue to be the international reserve currency. Would responsibility for managing it be moved to the IMF? The US Wanker (USW) would then be the internal US currency used by the government and for US domestic transactions.

Currently, the US Dollar has stability because there is so much of it around. Every country that has foreign reserves keeps USD as part of their reserves. Most commodity contracts and exchanges use USD as their primary currency. Many other international contracts will be made in USD as it's seen to be a stable currency, even if the two countries of the involved parties have stable economies. So I'm presuming the OP is seeking to maintain this international stability.

Creating a domestic USW currency would give the US government and Federal Reserve more flexibility with managing monetary policy. Inflationary or deflationary actions wouldn't be dampened by the huge bulk of worldwide USD. However, that would bring more scrutiny on what the USW were actually worth. Just how stable is a currency maintained by a country with a $22.5 trillion debt and with a 105% debt to GDP ratio? There would be concerns that USW monetary policy would be inflationary in order to bring down debt. No one would want to hold USW so savings would be depleted leading to reduced capacity for investment. As others have noted, this already happens in less developed countries. (Anecdote: in Croatia last year, I was asked several times to pay in euros, although nobody refused payments in local currency.) Diminished investment, and a desire to move funds to safer international USD accounts would both hit the US economy in a very painful way, in my opinion.

Trvia: There is already a strikedthrough W symbol as a currency code, the Korean Won, although officially that uses a double strikethrough. But at least some text systems use a single strikethrough.
I did not know that about the Won. Maybe I should call my fictional currency the & Tapeworm

Obviously (hopefully), my query was posted out of idle curiosity and this is a very good place to begin, when looking to satisfy idle curiosity.
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Old 08-25-2019, 05:25 PM
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That kind of thing doesn't even require having two official coinage systems. USDs are so common in Costa Rica that even the government sets some of its own fees in dollars; Costa Rican companies and private individual buying abroad (whether in the course of daily business or on vacation) are most likely to also use dollars. So, they're also perfectly happy to be paid in dollars. Colones do circulate but if you ask someone which do they prefer, they'll choose dollars.
Sure - but you don't have a black market in US dollars in Costa Rica, do you? Where there's an official government exchange rate, and a black market exchange rate?

My understanding is that's what's happening in Cuba, where the market exchange rate for the convertible Cuban peso is higher than the official government rate. That causes the inefficiencies mentioned by China Guy.

It also causes social tensions. If you work in the hospitality industry, you've got better access to the convertible peso, so better chances of buying foreign goods.

But if you're a government worker, you only have the domestic peso, so harder to buy foreign goods.

One article I read indicated that highly trained professionals found it more lucrative to get a job in the hospitality industry, such as tending bar rather than tending patients, because of the access to the convertible pesos from tourists.

Certainly when we were close to leaving at the end of our holiday, we tended to tip heavily, just to get rid of the convertible pesos, since they weren't convertible outside of Cuba.
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Last edited by Northern Piper; 08-25-2019 at 05:27 PM.
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Old 09-02-2019, 08:32 PM
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Here's an interesting article I came across, about the dual currency system in Cuba, and the economic distortion s it causes.

Really, the basic point is that the only purpose for such a system is to increase government control over the economy and the workers. It creates social inequalities between workers who get paid in the convertible peso, compared to those who only gave the regular peso. And it contributes to difficulties in assessing the true profit said and losses of businesses in the tourist industry.

Basic conclusion is that there is no good reason for such a system.

https://havanatimes.org/features/cub...xchange-rates/
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Old 09-03-2019, 12:05 AM
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Sure - but you don't have a black market in US dollars in Costa Rica, do you? Where there's an official government exchange rate, and a black market exchange rate?
You have different exchange rates depending on where you use the money but that is true in any location where I've exchanged money, including the USA (I haven't been to Canada - yet; you guys take up a big chunk of bucket list).
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Last edited by Nava; 09-03-2019 at 12:06 AM.
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Old 09-03-2019, 06:28 AM
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Dual currency regimes arise when a government wants to pay its debts with over-valued paper. AFAIK even the more avant-garde economists don't see this as a likely course for the U.S. to follow. Would existing debt (especially U.S. Treasury debt) be payable in the Magic New Hard Dollars or in the devalued Wankers? And given this frank concession that the U.S. economy was in big trouble, what would give foreigners confidence in the Magic Hard Dollars, anyway?

Normally, in a dual currency system the "hard" money is tied to some high-prestige foreign currency. But what would that be? The pound and euro are in worse shape than the dollar. What are the odds that silver and gold coins will make a comeback before long?
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Old 09-03-2019, 08:38 PM
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The USD is an international reserve currency, in the way that Gold and Silver used to be. This is partly because the USA is a big economy, partly because the USA still has considerable natural resources, and partly because as an 'international reserve currency', other countries tie things to the USD. like oil. Oil is priced in USD: The USD is priced in oil.

The USA has a 'short term' benefit from this: it holds the USD up, which makes it cheaper to buy things overseas, which means that you, personally, are richer than you would be otherwise. This can't last for ever. It can last longer than you, or your children, or your grandchildren live: the irrationality of markets knows no bounds.

The Euro zone over the last 50 years has demonstrated both the strengths and the weaknesses of having a currency that is tied to externalities instead of being tied to your internal economy. The expectation when it was introduced was that it would have such massive positive benefits that the ordinary negative economic effects on partner countries would be insignificant. That hasn't turned out to be true.

There is an argument that detaching the USD from it's 'international reserve' function would allow the USA to find it's natural place in the world economy. This would make the world economy more efficient. There are three major problems with this argument.

1) Making the world economy more efficient doesn't necessarily mean making Americans richer. In the short term, it would certainly make Americans poorer.

2) There are no credible suggestions about how you would actually go about detaching the American economy from the American Dollar. See above for discussions about dual-currency countries: that's just the start: you wouldn't have individuals in the black market, the whole rest of the world would be the black market.

3) After you'd done so, we'd be back to having a system like the old Gold Standard. A 'detached', 'International' USD that the world used as it's international standard. But nobody actually wants to go back to something like the old Gold Standard. It didn't work either.
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