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It seems like most countries restrict the citizens to the use of the government currency for exchanging goods.

I'm not a world traveler so maybe there is a country where this is not the case.

Does anyone know of one?

Here are some restrictions on currency in the US that I’m aware of (I’m sure there are more):

  1. The US Constitution. Article 1, Section 10 states “No state shall....make any Thing but gold and silver Coin a Tender in Payment of Debts”. I’m not sure why market participants can’t decide for themselves what tender to use for debts. Although gold and silver have traditionally been stable currencies, there may be other currencies better suited for different markets, debts, etc.. Why limit people to gold and silver? Ironically, like most of the constitution, this clause is now completely ignored.
  2. Coinage Act of 1857. This act forbade the use of foreign coins as legal tender, repealing all acts "authorizing the currency of foreign gold or silver coins". This drove foreign currency, which consisted mostly of coins, out of the US since it was no longer legal tender in the US. The US government did not want currency competition.
  3. FDR orders Americans to hand over their gold to the government in exchange for Federal Reserve Notes. This order made it illegal for Americans to own gold until it was repealed in 1974. Gold is usually the hedge of choice against government issued paper money. Another competitive currency gone.
  4. Gold Repeal Joint Resolution, approved by Congress in 1933, said that only legal tender can be used for “obligations” (an obligation being anything that requires payment in the US). “Every obligation...shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts.” What was the coin or currency that was legal tender? From the resolution: “...coin or currency of the United States, including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations.” For 44 years, Americans were only allowed to use US government issued currency for transactions. This was not repealed until 1977.
  5. Coinage Act of 1965, Section 102 states: “All coins and currencies of the United States (including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations), regardless of when coined or issued, shall be legal tender for all debts, public and private, public charges, taxes, duties, and dues.” Only United States currencies (including Federal Reserve Notes) are currently legal tender in the US. An astute reader may note that legal tender only concerns the repayment of debt, taxes, duties, and dues. This is true. But who is going to accept a currency as payment that is not legal tender? The recipient wouldn’t even be able to deposit the currency in a bank since the bank will not want it due to it not being legal tender for debts. The monopoly of the currency is now complete.
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    What country are you referring to that DOES limit using other currencies? I'm not aware of any. – JohnFx Sep 12 '10 at 20:10
  • I added some examples of currency restrictions in the US to my original question. – Muro Sep 14 '10 at 3:29
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    I question your hypothesis here. Plenty of businesses in New York catering to tourists happily accept foreign currency and have arrangements with their banks to deposit it. Nobody is obliged to accept foreign currency but there's no law against trading arbitrary printed rectangles of paper for goods. – Joel Spolsky Sep 14 '10 at 16:05
  • @Joel. As I mentioned in bullet 5, there is no law against what is used for the buying/selling of goods. There is probably enough foreign currency in NYC to justify the banks offering a foreign exchange type service to businesses. I wonder: Can someone open a Euro only account with a bank without having a dollar account with the bank? Can someone earn interest on a Euro savings account? Can someone write euro checks? Can someone buy a euro certificate of deposit? Can someone obtain a line of credit in euros? In short, can someone do everything with euros that they can do with dollars? – Muro Sep 16 '10 at 1:45
  • Most ex-communist countries(Laos etc), Russia and USSR, Venezuela.. Mind you, just because they limit you from using them doesn't mean that they wouldn't have been in practical use in those countries. In fact, there's a correlation to making/policing it illegal to use some other money and people wanting to use it for various, inflation, etc practical reasons. – Lassi Kinnunen Sep 24 '18 at 8:37
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Sounds like you have a goldbug whispering in your ear.

The Coinage Act doesn't restrict you from using foreign currency or lawful commodity or service to fulfill a debt. You are free to do that whenever you enter into an explicit or implicit contract with another party. If that wasn't the case, your kid trading his bag of chips for a bag of cookies at lunch would be a criminal act.

It does mean that you ultimately must accept US currency to settle a debt. Following the previous example, if your kid gives his friend the bag of chips, but the cookies get destroyed somehow before being transferred, the friend can offer a couple of dollars to complete the transaction.

The whole point of the Coinage Acts is to set a level playing field. If you don't pick one dominant store of value, you have a situation where it is impossible to evaluate the cost of goods and services. It has nothing to do with some competition with foreign currency. A robust, modern economy requires an adequate supply of capital and a common reference point for value within the economy.

Think about it further with respect to Article 1, Section 10 of the Constitution. Would you want a fiscally profligate state like California or New York to be able to print money and compel you as a contractor, employee or creditor to accept their scrip as payment? (Or worse, require payment in Gold or Vermont-issued dollars, but pay you in their money.) Of course not. That's why the Federal government controls the currency, and a dollar in Alaska is the same as a dollar in Georgia.

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    The US dollar was first defined in the 1790's as a quantity of silver defined by Congress. I'm not going to go down the rabbit-hole of money conspiracy theories, but suffice it to say that as an American, I don't want to be forced to pay for an obligation in silver coin, Russian Rubles or pork bellies. Not too many others do either, which is why we define the US Dollar, in the US, as legal tender for all debts, public and private. – duffbeer703 Sep 16 '10 at 12:12
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    And regarding the question "why does the government [define] the dominant store of value?", the answer is simple. If the government doesn't effectively declare a monopoly on what constitues monopoly, you're going to have chaos, followed by a de facto standard currency issued by a large corporation, bank or state. This is fact happened during the 19th century -- and was a disaster. The goldbugs don't talk about that much. – duffbeer703 Sep 16 '10 at 12:16
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    There are high transactional costs associated with coin, so 19th century banks would issue bearer notes denominated in dollars (which was defined in reference to gold and silver). The problem was that a note from a local bank in Saginaw, MI would often not be accepted at face value in Charleston, SC. The result was that notes from major banks in NYC and Chicago traded at a premium, and local banknotes traded at a discount. – duffbeer703 Sep 16 '10 at 17:41
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    Let's put this in simpler terms. Say we have a contract that requires me to deliver to you a living adult cow. The cow dies. I don't give you a cow, and you sue. Under the system of "freedom" that you are talking about, the court would require you to wait until I could provide you with a cow. (Since we freely agreed to use cows as the store of value.) In the world we live in, the court will force me to pay you an amount of US dollars equivalent to the reasonable value of a cow. Money is about transferring value. – duffbeer703 Sep 16 '10 at 17:45
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    If you were repaying me a loan in cows then the loan would specify what would happen if you failed to pay. If I thought you were a credit risk I would ask that you provide collateral in case you failed to pay. I may not want US dollars and as such, I should not be required to accept them. – Muro Sep 18 '10 at 14:40
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Wikipedia has a list of countries which ban foreign exchange use by its citizens. It's actually quite short but does include India and China. Sometimes economic collapse limits enforcement. For example, after the collapse of the Zimbabwean dollar (and its government running out of sufficient foreign exchange to buy the paper necessary to print more), the state turned a blind eye as the US dollar and South African rand became de facto exchange.

Practicality will limit the availability of foreign exchange even in free-market economies. The average business can't afford to have a wide range of alternative currencies sitting around. Businesses which cater to large numbers of addled tourists sometimes offer one or two alternative currencies in the hopes of charging usurous rates of exchange. Even bureaux de change sometimes require you to order your "rarer" foreign exchange in advance.

So, while it may be legal, it isn't always feasible.

  • Foreign exchange use is different from daily use. For example, I'm fairly sure that technically it would be illegal to use Thai baht in Laos to buy a car. Anyways, the bans do come into play from it being feasible and practical - it most often rears it's head when the official exchange rate isn't practical. For example like it was in post ussr russia. you would get a much better rate to dollar on the street in front of the official exchange. – Lassi Kinnunen Sep 24 '18 at 8:40
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If I understand correctly, you're actually asking why there isn't a society whose members generally accept/use any currency for transactions, and just like, Google the exchange rate or something. The answer is because it's exceptionally inconvenient. Can you imagine having a wallet with 200 pouches for all the different currencies? Why would you want to deal with exchange rates all the time? What if the value of a currency changes? (A single currency at least has the illusion of being stable). Et cetera.

2

Shops in most touristic places tend to accept major currencies (at least dollar and euro). I remember a trip in Istanbul before the euro existed, the kids selling postcards near the blue mosque were able to guess your country and announce in your language the price in your currency.

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