In 2002, Spain introduced the Euro, and the Peseta was slowly phased out. However, the central bank didn’t set a deadline for people to redeem their old currency. If you find a jar of old coins lying around, you can still cash them in for Euros.
That means there’s still a lot of money out there waiting to be found. According to the Bank of Spain, $2.4 billion is still unaccounted for, Pesetas that were never cashed in. Last year, an enterprising village started accepting Peseta again, hoping to get hold of some of that forgotten currency. Local businesses agreed to take the old notes, and those who have any lying around have been traveling to the town to spend them. Since it’s proved to be a useful little boost to the local economy, other towns have been trying it too.
That’s a nice little story, but re-introducing Peseta more broadly is a good idea too. The big problem with the Euro, in my opinion, is not that it is a Europe-wide currency, but that it is a single currency. No doubt it depends on its huge scope for its international clout, but it would have been much better for individual countries if they had been able to keep their own currencies alongside.
Why? Because different currencies can do different things. All currencies serve someone. The Euro serves the single market. An alternative currency supports local business. Tesco Clubcard points serve Tesco. Multiple currencies allow us to use the one best suited to our needs.
Money also has different purposes. It is a medium of exchange, a store of value, and a standard of value. Some currencies do better at some of those functions than others. The pound is failing as a store of value right now, for example, because inflation is running faster than interest rates. If you’ve got savings in the bank, it is losing value. If you had a choice, you might put your retirement pot in something else.
Thirdly, there are plenty of people preaching the virtues of the free market, but there are some no-go areas where free markets are rarely recommended. One of those is opening the borders to apply some free market logic to the labour market. Currency is another. Declaring your currency to be legal tender is a massive government intervention in the money market – all legal tender is a monopoly. Everyone has to accept the national currency, whether it is working for ordinary people or not.
In a free market for currency, you have to encourage people to use your banknotes by proving that they are stable and secure. People have to have confidence in it, and what it is backed with. If the Bank of England didn’t have a monopoly any more, we might decide that actually they’re not managing the pound very well, and we’d be better off with something more dependable.
When a currency ceases working for ordinary people, they tend to find ways to work around it anyway. Barter networks spring up, timebanking, scrip. When Argentina’s economy collapsed, many people depended entirely on the local currencies that formed around the markets. If you’ve ever traveled in Africa, you’ll know that nobody refuses US dollars. They have no legal status, but people have more confidence in the US Treasury than their own national banks. Since people abandon legal tender when it stops working, you might as well open up the market for currency from the beginning and develop a healthy diversity.
Economist Richard Douthwaite believes we will eventually develop a four tier money system. We’ll have an international one for global trade, and interest-free national currencies under that. Towns and communities will have their own currencies as a third tier, tailor made to suit their own circumstances, like the Transition Towns are experimenting with at the moment. The fourth will be a stable store-of-value currency specifically designed for saving.
What’s happening in Spain right now is a ruse to flush out some forgotten cash, but there’s no reason why it can’t be something much bigger. A diversity of currencies is going to be vital to Greece’s survival by the looks of it, and as Andrew Simms wrote about today, the alternatives are already emerging. As the Euro struggles on, the importance of fresh thinking around currency is growing by the day.