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A report out earlier suggests that the Japanese government is considering distributing “gift certificates” to low-income young people as part of a supplemental budget for the fiscal year starting next month.   A direct cash disbursement, as I have suggested from a fraction of Japan’s $1 trillion of reserves, could be saved, but the idea is that “gift certificates” would not be saved but used to consume. 

Japan and other countries have tried vouchers, but the outcome was not particularly successful. Perhaps this is because consumers do not increase their purchases but simply use the vouchers for what they would have bought in any event.  Also, consider all those gift cards that are purchased but never redeemed.  That speaks to leakages.  Nevertheless, the concept is not all that different from what Fisher had suggested, cash that would expire.  Use it or lose it. 

Although the sovereign has a general monopoly on the coin of the realm, there are numerous exceptions.  The Bitcoin may come to mind, but there is a better example since it seems mostly a novelty and of limited use.    Some local governments have introduced scrip.  In 2009, the largest US state, California issued an estimated $1 bln of IOUs.  They differed from the kind that local governments issued during the Great Depression in that they were issued to a specific entity (supplier) and was not intended to enter general circulation.

There are two current examples that are worth noting.  First, Brixton (south London area) has introduced the Brixton Pound.  Reports suggest GBP150k are in circulation.  The Brixton pound is fully backed by sterling holdings at the issuing credit union.  It is estimated that around a dozen local currencies operate in the UK.   The BOE has reviewed the local currencies and concluded that due to their size, they do not represent a risk to monetary or financial stability.

Ithaca, New York has introduced Ithacash.  It too is meant to support the local economy.  Reports suggest Ithaca will shortly issue physical currency notes. 

One of the points that the local money illustrates is what would happen if, as some fear, the governments move toward a cashless economy.  We do not think this likely or even possible in the horizon of most investors.  Nevertheless, local communities can be counted on to innovate as necessary, meaning if there is no official money, people will invent something to fill the need.  Isn’t that what soldiers did in Germany during the occupation period at the end of WWII?  They did not use gold, which so many continue to argue is the ultimate money, but cigarettes.  

Helicopter money has become a catch-all phrase to capture more aggressive and direct printing of money to spur economic activity and inflation.   It is a subtle admission that monetary policy has not been exhausted.  It also reflects a realization (and anxiety) over blurring monetary and fiscal policy.

Marc Chandler
Global head of currency strategy at BBH
Marc to Market

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