From: Black Unicorn <unicorn@schloss.li>
Date: Tue, 1 Oct 1996 15:03:46 +0800
To: Robert Hettinga <rah@shipwright.com>
Subject: Re: the theory of split currency
In-Reply-To: <v0300780fae75885ba0ff@[206.119.69.46]>
Message-ID: <Pine.SUN.3.94.960930235930.19497B-100000@polaris>
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On Mon, 30 Sep 1996, Robert Hettinga wrote:

> 
> Date: 	Sat, 28 Sep 1996 20:13:48 -0700 (PDT)
> From: Fred Foldvary <ffoldvar@jfku.jfku.edu>
> To: Austrian Economics <AustrianEcon@agoric.com>
> Subject: the theory of split currency
> Organization: JFK University
> Mime-Version: 1.0
> Sender: owner-austrianecon@agoric.com
> Precedence: bulk
> Reply-To: AustrianECON@agoric.com
> 
> Is there a name for a dual or split currency, in which
> there is one currency for domestic use and another, different
> appearing, currency for foreign usage?
> 
> Does anyone know of any country which has had such a
> split currency?
> 
> Is there any literature on such split currency?
> 
> Here some thoughts on how it could function in the U.S.:
> 1) Domestic currency would not be legal tender outside the U.S.

How, exactly, would this be enforced?

> 2) Foreign US dollars would not be legal tender in the U.S.
>    It would be illegal to hold foreign dollars in the U.S.
>    Travelers would be required to convert them at customs.

How, exactly, would this be enforced?

What would the above accomplish, other than to make travel more diffucult
and tourism complicated?  What about money orders in foreign
demoninations?  Would there be two American Express Travelers checks?
Foreign and domestic?

> 3) The export of domestic currency would be illegal.

It basically is now in the form of cash.  Certainly it is immensely
hassling.

> 4) All exchanges between domestic and foreign currency would
> be required to be made in official exchanges, with the amounts
> recorded and reported to the government.

Already the case for sums over $10,000 and in many cases for sums over
$7,500 as a matter of corporate policy.

> 5) All previous currency would be declared of no value after
> a certain date.  All conversions to new currency would be
> reported.

A painfully poor idea.  Just look to Russia's great ruble burnings for
proof of this.

> A motive for the government would be to control the underground
> economy, tax evasion, and the trade in illegal substances.

Currently the reason that it is popular to speculate that this would have
any effect on illegal substances, the underground economy, or tax evasion,
is because the war on drugs and money laundering is unwinable.  By
definition it must be easy for capital to flow back and forth between the
United States and other nations.  The more difficult this is made, the
more difficult legitimate commerce is to conduct, and, in addition, the
more difficult it becomes to make investments from abroad in the United
States.  It is the failure of Law Enforcement to have any noticable impact
on organized crime or drugs that made them strive to impose currency
restrictions in the place of legitimate law enforcement in the first
place.  It was the "soft underbelly" of crime and all that.  Unfortuantely
it is a hard underbelly to find, a hard one to identify when it is found,
and not alltogether very soft.  So now babblings about split currencies.
What a surprise.

I understand the concept, it becomes easier to track exportations of large
amounts of money in the form of cash.  Unfortunately any idiot could
circumvent it with the ease of taking sand from the beach.  Just because
the United States SAYS a $100 bill is worthless unless its in the U.S.,
certainly does not make it so.

As to circumvention: Form domestic corporation.  Purchase stocks, bonds,
other non-cash negotiable instruments.  Sell said instruments and demand
payment in DM or SFr etc.  Export foreign currency to the free economy
nation of choice.

All it does is move the laundering process onshore, and then only in the
first step.  Most money laundering uses non-cash exportation methods
already.  Diamonds are becomming more and more popular because of the
recent stability of uncut stone prices and the fungibility of diamonds as
a currency.  Luxembourg currently has the most potent diamond market in
the world.  Close to 45% of it is estimated to be operating as currency.
(Markets seeing the same stones over and over again).  Moreover, the cost
of exchanging stones in terms of middleman profit is often less than that
charged by large scale money laundering operations.

Those are the most basic of evasions.  I can come up with complicated
ones in seconds, and boggling ones in minutes.

In addition, as a solution, it fails to anticipate the foreign market for
domestic bills.  Surely I could exchange currencies with the casas de
cambios that will certainly be created to take advantage of the new
regulations about a week after they are inacted.

> 
> This scenario is not entirely hypothetical.  I have read that
> Senator Patrick Leahy introduced Senate Bill #307 to create
> such a split currency.  The Bill failed to pass the Senate,
> but this shows the concept is out there.
> 
> Is this worth investigation and theoretical examination?

It has born this kind of scrutiny before.  Time and Newsweek were onto the
story almost two years ago.  Considering that something like 3/4 of the
circulating supply of U.S. currency is abroad, you tell me how practical a
program this is.

> Fred Foldvary
> 
> --- end forwarded text
> 
> 
> 
> -----------------
> Robert Hettinga (rah@shipwright.com)
> e$, 44 Farquhar Street, Boston, MA 02131 USA
> "'Bart Bucks' are not legal tender."
>                 -- Punishment, 100 times on a chalkboard,
>                        for Bart Simpson
> The e$ Home Page: http://www.vmeng.com/rah/
> 
> 
> 

--
I hate lightning - finger for public key - Vote Monarchist
unicorn@schloss.li