I generally agree in principle that if we're willing to put 'value' in a piece of yellow metal (gold) or a clear piece b of rock (diamond), then why not a smooshed piece of paper (currency)?
I'm sure many here have played the mental have of 'what if money was eradicated and use a bartering system' which leads to the basic logic of (eg.) I have a cow to sell and need some eggs that you own... How do we come to an arrangement? Bits of paper with an IOU on is one of the answers.
To me, this is what's happened here in Somalia... But it's just the next step. Rather than IOU's all over the place there's agreed upon bits of paper that represent some 'debt' that can be called in.
It's little different than the concept of a promissory note which is legal in many (?all?) countries.
So when I read this in the article:
> According to chartal theory, the requirement that people pay taxes with government-issued bits of paper is what drives the positive value of these bits.
> if we're willing to put 'value' in a piece of yellow metal (gold) or a clear piece b of rock (diamond), then why not a smooshed piece of paper (currency)?
The difference is of course that people can create any number of pieces of paper with numbers on them, but they can not create gold.
So you can be sure that your pieces of gold will be equally rare in 10 years, but the rarity of your 1000 Elbonian Dollars depends on the whim of people.
Sure, but they can mine, discover, or loot more of it.
> So you can be sure that your pieces of gold will be equally rare in 10 years
Consider historical events, like the colonial Spanish economy going kerplooey because they brought back too much gold from the Americas and it made the value of the stuff drop like a rock.
In the Somalian example the 'token' already has an established price, so all the parties can go on as before. Its unclear to me that you could just introduce tokens and have everyone accept the exchange rate. That's the trick, I will only accept tokenX because I know I can by Y eggs and 0.Z of a cow. I don't know the same about TokenA.
You could jump start TokenA by giving it the states backing (taxation etc), and it could probably coast just like TokenX for a while though.
So paper currency (at least in the western world) began existence as promissory notes. The notes would denote some physical value insured by a trusted third party, I don't believe currency could ever begin life without some physical backing (and I don't mean gold, gold is worthless... something like wool, or a meal). Once a currency has been established as representing the good it can be exchanged based on the relative value of that good - a piece of paper worth a good meal might be worth two nights on a cot for instance. Mediums of exchange make all commerce easier so at some point this momentum really gets going, but for a significant life of the currency the exchange unit may only have value if you can say "I'd like two nights on the cot, and I can give you this note for a good meal - or I can run across the street and get you a good meal, since it's easier to hand you a note and since you may not be hungry right now, why don't you accept this note and have the meal when you want it."
So the emergence of TokenA is that someone promises that it's worth some value and that the promise made is trusted by enough people.
If you enjoy a good read, I'd suggest you check out Going Postal and Making Money by Terry Pratchett, they discuss (among much hilarity) the emergence of a postal system and stamp trading, along with the eventual evolution into paper money. There are certainly better academic papers about the technical side but I honestly think those two novels make a much more compelling case because you are given a narrative where people start accepting a fiat currency and everyone is doing so for perfectly logical reasons.
I'm sure many here have played the mental have of 'what if money was eradicated and use a bartering system' which leads to the basic logic of (eg.) I have a cow to sell and need some eggs that you own... How do we come to an arrangement? Bits of paper with an IOU on is one of the answers.
To me, this is what's happened here in Somalia... But it's just the next step. Rather than IOU's all over the place there's agreed upon bits of paper that represent some 'debt' that can be called in. It's little different than the concept of a promissory note which is legal in many (?all?) countries.
So when I read this in the article:
> According to chartal theory, the requirement that people pay taxes with government-issued bits of paper is what drives the positive value of these bits.
I don't agree at all.