Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Mon, 19 Dec 2016

Euro Introduction as Demonetization


Peter Guy at Regulation Asia has an interesting piece describing the introduction of the euro as a process of demonetization:

Europeans practiced excessive cash-based tax avoidance for decades before the euro arrived. When forced to exchange their paper currencies, lira, francs, and pesetas, bundles of cash emerged in suitcases to buy other cash-generating assets like real estate.

The irony of it all is that today the €500 note is the currency note of choice for money launderers because of its large denomination (the 1000 Swiss franc note is more valuable but it is nowhere near as ubiquitous as the euro note). As Guy points out:

The euro was easier to launder with banks around the world than the individual currencies it replaced.

Guy also refers to the dangers of a cashless society, but that argument has been made far more eloquently and persuasively by Scott Garrett. The more I think about these issues, the more I think that cryptocurrencies must be a critical element of a modern monetary system in a democratic society.

Posted at 17:32 on Mon, 19 Dec 2016     2 comments     permanent link

Comments...

Ronit Singh wrote on Tue, 20 Dec 2016 02:21

Re: Euro Introduction as Demonetization

Hi Professor, I don't fully agree with your rationale provided: 1)http://www.iimahd.ernet.in/~jrvarma/blog/index.cgi/Y2013/bitcoin.html 2)http://www.iima.ac.in/~jrvarma/blog/index.cgi/Y2013/eWallet-or-bank-account.discuss as in #2 , you mentioned about Day dreaming, In a world that struggles to ensure that systemically important settlement systems like clearing corporations settle in central bank money, we would have a system in which every individual could settle in central bank money. It is even possible that eRupees would find international adoption in the absence of any competition. Thank You..!!

Ronit Singh wrote on Tue, 20 Dec 2016 18:25

Re: Euro Introduction as Demonetization

Dear Professor, I do know you have limited time but there was an article published in journal of economics perspectives. https://www.aeaweb.org/articles?id=10.1257/jep.29.2.213 , I would like to know your views in context with India as wrt to cryptocurrencies. As I believe you are especially qualified to answer. Thank you very much for your time. Sincerely, Ronit Singh.