Tuesday, September 11, 2007

It's my money!

From the perspective of international trade, having a universal currency, such as gold, was profoundly helpful, because it eliminated all currency risk. However, everyone wants to have their own currency. Partly for the seinorage benefits, but also for the purposes of national pride. Having your country's heroes on its bills is part and parcel of independence (It was a big issue with the introduction of the Euro.) So, to encourage dollarization, we need to create a new dollar. Several new dollars in fact. The back of the bill would remain the same, but the front of the bill would incorporate whatever features the newly dollarizing economy desired. It would be a national currency, but still a dollar, like the rebranding of products for different economies. If, for example, Tibet became independent, we could print a batch with various lamas on it that would serve as the Tibetan currency, but would still be dollars and tradable as such.

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