Tuesday, June 16, 2009

Old Money

In monetary theory, we assume that fiat currency can be supplied at zero marginal social cost, because the costs of paper and ink are negligible compared to the value of the paper commands as currency.

The Alaskan economy offers a slight deviation from that assumption. Of course, they use U.S. currency. But the nearest federal reserve bank is in San Francisco (although that district has a Seattle branch). And much of Alaska is far from a commercial bank branch.

All of this must mean that it is expensive to replace old currency with new, at least through the normal bank-system-channels. So the currency they use is old and quite worn!

I should insist on a discount from merchants who receive the crisp bills I brought from IL and/or make me change with worn bills that I'll bring back to IL.

Market arrangements like these would help solve the problem of supplying crisp currency to Alaska.

I'll let you what the AK merchants think of my theory!

No comments: