Does any industrialized nation allow "competing currencies"?

Factual Questions
1

As mentioned in this thread, it’s a belief of Ron Paul and his cronies that legal tender laws should be abolished and anyone should be allowed to set up their own currency.

I’m rather baffled by this idea, as I can’t think of a single example of it in practice. The closest thing I can think of is Third World states with failed economies where dollars or euros are the de facto currency, or Middle Age mercantilists where it didn’t matter which king’s face was on the coin as long as it was gold or silver.

Is there some nation i’m not thinking of that practices this kind of monetary policy?

2

Well, most or all industrialized countries - including the United States - allow “competing currencies”, in the sense that you are perfectly free to enter into a contract with somebody to buy or sell or lend or - well, do anything really - in any currency which you and the contract counterparty may please.

And people do this quite a lot on the financial markets. Just not at the level of consumer transactions, because it mostly isn’t very convenient at that level.

The point about legal tender laws is not that everybody has to use the legal tender currency, but that every creditor must accept the legal tender currency - if offered - in settlement of his debt. Or, to put in another way, debtors have the right to pay their debts in legal tender currency.

Designating a legal tender currency doesn’t prevent people from entering into transactions denominated in other currencies. So, for example, if you and I are both resident in the United States, there is nothing to stop us entering into a contract whereby you will sell me a cup of coffee for (say) one euro. And you can, if you wish, refuse to sell me the coffee for the US dollar equivalent of one euro. Because a contract to sell does not create a debt, it is unaffected by legal tender laws.

Similarly, we can enter into a contract under which you lend me (say) 1,000 euro and I promise to pay it back, with 5% interest, in one year’s time. If, when the year is up, I turn up with 1,050 euros and offer it to you, we’re good. If I offer you US dollars, you’ll have to accept the dollars, but I’ll have to offer enough dollars to allow you to buy 1,050 euros, which is what I owe you.

By exension, there is nothing to stop us entering into contracts denominated in a currency of our own devising, or devised by some (private) third party, or denominated in acorns or pebbles. We just have no reason to do so. If the US stopped issuing its own currency and created a free-for-all, it’s very unlikely that we would do this; we’d more likely use euros, or Canadian dollars, or Chinese renminbi.

Wikipedia suggests that some countries outlaw the use of foreign currency, or require a licence to transact in foreign currency, but I’m pretty sure that the US is not one of these, and in fact I don’t know of any major country which does this.

3
4

The Royal Bank of Scotland and two other Scottish banks still issue their own banknotes. I hope British Dopers will tell us if they are widely seen or accepted outside Scotland. According to Wikipedia, they are not “legal tender” even in Scotland … but neither are Bank of England banknotes !

5

They pop up sometimes in Northern Ireland, and I have never had a problem spending them.

6

They do not really circulate in England. You can exchange them in any English bank branch for Bank of England notes, or for coin, so there is no fundamental reason why they wouldn’t circulate. But they don’t.

Northern Ireland banks also have (or had until recently?) the privilege of note issue, and this may expalin bucketybuck’s experience that merchants in Northern Ireland are more open to accepting them.

7

Yeah “legal tender” is a specific term for something that a lot of people seem to misunderstand. But anyway, as the offspring of a woman from Scotland and a man from England that grew up in England, I have quite the experience of using Scottish notes in England.

Frankly, it is hit and miss. A lot of people (and yes, shop owners) don’t seem to realise that Scottish notes exist. Even if they do they tend to look at the with a large amount of suspicion. This got even worse when the Bank of England took one pound notes out of circulation completely, as you could still get them in Scotland (and I believe still can from at least one of their banks). Most people in England would look at one of those and assume it is fake or not usable.

In any case, it would be EXTREMELY rare to get a Scottish bank note in your change from a transaction in a shop in England. Basically, people bring them down (or, like me, got them as birthday and Christmas presents), use them in shops, shops send them to banks, banks send them back up north.

8

But their value is strictly pegged to pound sterling. The libertarian idea (as I understand it) is that Joe Bloggs on the street could start printing money and his “Bloggars” and it would be up to market to decide how much they trust Joe Bloggs, and hence how much his currency is worth versus John Smith’s “Pounds Smithey” next door.

As a side note individual banks in Northern Ireland also publish their own bank notes (including crazy funky plastic ones with transparent bits in them, which can’t use on the mainland anywhere). But, again, its just the physical note that is different their value is exactly 1.00GBP.

9

That’s not a competing currency though, as it’s fungible with other sterling notes. The same thing happens in Northern Ireland with sterling. The answer is that some people in England don’t know what they are and refuse to take them, much to the annoyance of Scots (or English people who have just returned from Scotland). Others do.

Not what the OP is looking for, but retailers in border areas between some European countries will accept both currencies and adjust their exchange rate (usually in a ‘rounded up’ manner). E.g. Northern Ireland and the Republic of Ireland, Germany and Denmark.

10

In fairness, it is not very common to see them, I would imagine they only arrive through the odd person bringing some back from a trip to Scotland or something like that. And you would perhaps see a shop assistant taking a second to look at the note as something out of the ordinary, but they would be accepted.

You used to always hear about holiday makers in Scotland claiming that shops there would not accept Northern Irish notes, though that also seems to have faded away. A common claim over here now is that “if it has the queens head on it then you have to accept it”. So even though a shop assistant might wonder about the note, they will take it, probably just to avoid the hassle of arguing about whether it is legal tender or not.

11

My experience has been the further south you go the more fuss you’ll face getting rid of them. Certainly in Greater Manchester, about 100 miles from the border, I’ve never had a problem spending Scottish notes, but I did in London once.

12

Canadian establishments frequently used to have an established policy - accept $US; in tourist areas or large stores, the exchange rate even used to be posted. When the exchange rate was US92cents for $1C, there would be signs “US exchange 95-cents”. It comes from having only 1 neighbour, 10 times the size, usually less than an hour’s drive away. My wife worked at several establishmens where they even had a separate deposit slip entry for US currency (bills only). Another small business, the owner pocketed the US currency for his vacations, which he had acquired at a 10% markup when the dollar was in the 75-cent range.

Of course, now that our currencies are pretty much even, he exchange rate is a lot less favourable. (Because the banks will take their 2 to 5% also.) And it’s not really multiple currencies, so much as US cash tendered is usually translated to Canadian equivalent before the transaction is accounted for, then change is in Canadian cash. Just, some Point-of-Sale systems had a separate button for “US cash in” to do the conversion automatically.

13

Didn’t we used to do this in the US? I understood most currency in the US was once issued by banks.

14

It did, and it led to the predictable economic disaster according to the tenets of Gresham’s Law

15

Until the Civil War, all paper currency was issued by banks. During and after the Civil War, some paper money was issued by the government (greenbacks) and some by nationally chartered (but private) banks. Since the advent of the Federal Reserve, currency is still issued by “banks”, but the banks are the government-managed Federal Reserve Banks.

All types of coin circulated in the Nineteenth Century; for a long time the most popular coin was the Spanish dollar. The gold and silver content was all that mattered. Even then, however, virtually all prices were denominated in US dollars, so we had a single currency in that sense. But you could meet that price with foreign coin, American coin, or any of a slew of private bank notes that was acceptable to both yourself and the merchant.

16

Since the OP couldn’t think of any examples, one common one (or rather, several common ones) in the US is credit card rewards points. They work just like any other money, except that most vendors have decided not to accept them.

17

The Second Life virtual world has a thriving economy based on Linden Dollars, which have an exchange rate with the US Dollar. Some people actually make a living (some even have become wealthy) getting payed in Lindens, and converting them to USD.

18

But as noted above, Joe Bloggs can already do this, right? He can pay with his Bloggars among his friends, he just can’t pay his tax with it because the govt. won’t recognize it.

Since the Toronto Dollar was mentioned above, similar examples along this line are:

Talents for the LETS exchange

The Chiemgauer, local money that devalues over time (to counter the hoarding effect of interest) and can only be used at participating shops

Some local fairs like the Dult in Regensburg use their own “Dultmaus” which you buy with Euros and then redeem at certain booth for a set value

19

Keep in mind that when Paul talks about competing currency he means gold.

But there’s no law against private entities issuing their own fiat currency. (There’s also no law against anyone using gold coins either - a point which Paul somehow is unaware of.)

There are places that are experimenting with local currencies. Colleges are a common site for it. Wikipedia has a list of them.

One disadvantage of private currency is it offers big companies an opportunity to abuse its employees. George Pullman used to pay his employees in his own script. This was only good at the company stores he owned. So Pullman not only controlled how much his workers were paid, he also controlled how much they were charged for food and other goods. Pullman also required his workers to live in buildings they rented from him.

Of course, a libertarian will tell you that situations like this never happen. They apparently feel that George Pullman was a mythological figure.

20

it seems that rentenmark was briefly a “competing currency” in parallel to the legal tender but totally worthless Deutsche mark in the industrialized nation of Germany. Subsequently deutsche mark was scrapped in favor of legal tender reichsmark but rentenmark bills continued to circulate without trouble because they were backed by real assets and not by “full faith and credit” of a gang of politicos.