Measuring the value and usefulness of a currency

[Kuciwalker]

Let's imagine for a minute that we have a measurement for how "useful" a currency is (since nominal value isn't meaningful for this). Basically, how effective is that currency as a means of exchange. Now here's a specific example, how much more "useful" would the Euro become with this measurement if another country were to join the Eurozone, for instance Sweden? I would think that the Euro's utility as a means of exchange would improve, but how can that be measured?

Note that the thing you propose to measure is a function of location.

[Al B. Sure!]

Kuci you're a ****ing jackass. I came into this thread thinking HC was asking about Euros because he said his damn project was about economies of new member states. Once I realized he was asking other stuff, I wanted clarification because frankly, I thought his knowledge was greater than it seemed at first blush.

[DaShi]

Alpert, just let this one go.

[Al B. Sure!]

Let's imagine for a minute that we have a measurement for how "useful" a currency is (since nominal value isn't meaningful for this). Basically, how effective is that currency as a means of exchange. Now here's a specific example, how much more "useful" would the Euro become with this measurement if another country were to join the Eurozone, for instance Sweden? I would think that the Euro's utility as a means of exchange would improve, but how can that be measured?

Note that the thing you propose to measure is a function of location.

Well gee! Lookie here as well:

Oh jeez... I'm actually the guy who, as I said, took courses in International Monetary Econ from an accredited institution and KH is the brilliant one because he's read a few books


I don't get why you are asking these questions and why they perplex you. As far as I can tell, you're saying that whatever the exchange rate is between the pound and the dollar, you get additional utility by possessing pounds instead of dollars in England and dollars instead of pounds in the US beyond the straight exchange rate. You want to know how this is measured and how it is taken into account. Is that what you are asking?


Oh and if you keep converting currency, all you lose is the spread

[Al B. Sure!]

Alpert, just let this one go.

Man this **** makes me sick. If I wasn't repeatedly personally insulted by these two... and on top of that, Kuci is all knowingly regurgitating what I just said! **** MAN

[DaShi]

Start another thread about it. Let HC have this one for his assignment.

[N35t0r]

HC, what do you want to compare? The usefulness of euros in the eurzone vs. the usefulness of dollars in the US? Or worldwide? Or something else?

[duke o' york]

$1 = £0.64 = €0.73 = 10 magic beans.

[N35t0r]

$1 = £0.64 = €0.73 = 10 magic beans.

[Dauphin]

A practical example of this is Argentina I think. I will look for the article....

[Dauphin]

http://online.wsj.com/article/SB123111629554952657.html

Suppose you want to ride the bus or feed a parking meter without exact change. Or suppose you just want to drop a few cents in a street musician's hat. Nothing easier, right? Not if you live in Argentina. Try doing any of these things there, and you could be in for a major hassle.

Why? Because Argentina is in the grips of a small-change shortage. Want change for a five-peso (about $1.70) note? Don't try getting it at a store, unless you plan to buy something -- and be ready in that case to have the merchant refuse your business rather than part with precious centavos, or to have him hand you bon-bons instead of coins. Banks aren't much help either. The law says they're supposed to give you up to 20 pesos worth of change; but most openly flout that rule, supplying just a few pesos worth, or even hanging out "No Change" signs, like the ones at retailers' kiosks.

Why the shortage? Argentina's central bank blames it on "speculators," meaning everyone from ordinary citizens, who stockpile coins, to Maco, the private cash-transport company (think of Brinks) that repackages change gathered from bus companies to resell at an 8% premium. But those explanations ring false. "Black marketeering" would not exist if coins were easy to get in the first place. After all, Argentines could just as easily hoard razor blades or matchbooks. Yet there's no shortage of those. What's so special about coins?

The answer is that coins are supplied by the government alone. "Put the federal government in charge of the Sahara desert," Milton Friedman said, "and in five years there'd be a sand shortage." If Argentina wants to end the coin shortage, it ought to give up its monopoly.

Crazy? Not if history is the guide. Over two centuries ago, Great Britain faced a coin shortage more severe than Argentina's -- so severe that it threatened to stop British industrialization in its tracks. People struggled to get coins for everyday use. The average worker was lucky to make 10 shillings a week, while the smallest banknotes were for 10 times as much. So the coin shortage even prevented factories from paying wages.

Like Argentina's government today, the British government wasn't able to end the shortage. Yet the shortage did end -- thanks to private-sector action. Fed up with the government's inaction, British firms started minting their own coins. Within a decade a score of private mints struck more coins than the Royal Mint had issued in half a century -- and better ones: heavier, more beautiful, and a lot harder to fake. Yet they were also less expensive, since private coiners sold their products at cost plus a modest markup, like other competitive firms, instead of charging the coins' face value, as governments like to do. Finally, when those who had accepted the private coins for payment went back to the issuer to redeem them, issuers offered to exchange their coins for central bank notes at no cost.
Armed with this history, it takes no great flight of fancy to imagine Argentine firms today, including supermarket and retail chains like Carrefour and Wal-Mart, reputable banks like HSBC Bank Argentina, and transport companies like Metrovias, issuing their own centavos and one peso coins. By doing so they'd no longer be at the mercy of the government, or of private coin distributors with their hefty commissions. Ordinary citizens would benefit too.

So why hasn't private coinage already taken hold? Most likely because private firms don't expect the government to put up with it. In Great Britain, despite all the good they had done, private coins were banned in 1817, and issuers were confronted by a mass rush to redeem their coins. This happened, by the way, when official British coins were still in very short supply.

If Argentina wants to end the shortage, it ought, not only to tolerate private coinage, but to sanction it. It can do so, while eliminating any risk that such coinage would be abused, through very simple legislation. It should allow any private firm to issue distinctly marked coins, perhaps subject to some minimal capital requirements, while making it clear that no one need ever accept any privately issued coins, even as change for purchases.

Such a law may be all that's needed to solve the coin shortage, while also preventing anyone from forcing people to accept money they didn't trust. Anyone, that is, except the Central Bank of Argentina.

[Dauphin]

http://www.guardian.co.uk/commentisfree/cifamerica/2009/jan/08/argentina-economy-coins-cash-shortage

Meanwhile, people must struggle to pay their bus fares and argue with shop clerks over change. Want to buy a 2.50 peso Coke? Better pay with a fiver so the attendant can give you a 2-peso bill and 0.50 in change. Paying with four pesos (two 2-peso bills) would require the shopkeeper to part with at least a 1 peso coin and a 0.50 coin – too much of a commodity.

[Hauldren Collider]

Thanks for your answers everyone. I don't think I really understood what I was asking, and I probably still don't, but I think I have a clear enough idea to do my project though I am still curious about many things.

HC, what do you want to compare? The usefulness of euros in the eurzone vs. the usefulness of dollars in the US? Or worldwide? Or something else?

I wanted to know if there is some quantifiable measure of a currency that tells you how useful (as in how easy it is to exchange) a currency is, and it seems to me that Kuciwalker is correct and the bid-ask spread was what I was looking for. The specific question I want to answer is how the Euro is affected by another country joining the Eurozone without inflation. If I understand correctly, this should generally, with regional variation, reduce the bid-ask spread of the Euro.


The question that I still have is when there is no bid-ask spread by statute, such as with the 2-dollar bill or Dauphin's Argentinian coins. How can you measure the utility? Is it possible? But that isn't important to my project, I just find it interesting.

[Kuciwalker]

If I understand correctly, this should generally, with regional variation, reduce the bid-ask spread of the Euro.

In real terms you mean "if more people use the euro, in any given non-euro country there will be more people [e.g. tourists] who want to exchange euros for the local currency, which means whatever institution you use to exchange your currency will take a smaller cut".

[KrazyHorse]

The currency of the new addition is fixed to a certain exchange rate with the Euro ahead of time to facilitate the transition. There are also very strict inflation, interest rate, etc. controls for EU member states to ensure that the Euro remains the same value in each country.