
Huge currency zones don’t work – we need one per city - alexandere
https://aeon.co/opinions/huge-currency-zones-don-t-work-we-need-one-per-city
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dalke
"City" like Mexico City, with an urban population of 20 million? In which case
Sweden, Norway, and Finland can share one currency. Or my city of 50,000
people? What of Beverley Hills, completely surrounded by L.A.?

In US history, after Jackson disbanded the second US bank, it wasn't _cities_
which had their own currency, but _state-chartered banks_ during the "free
banking" era of 1837–1862. These banks had a high failure rate, so weren't all
trusted. If you traveled, say, to another state where people hadn't heard of
your bank, then they might not accept your money, or not at face value.

Even now, take a look at the UK, which has seven different banks that can
issue notes. All look different, eg, with Scottish figures on the Bank of
Scotland notes. These can be used through the UK, but not all shopkeepers
accept them. "English shopkeepers who are unfamiliar with them may refuse to
accept Scottish or Northern Irish notes" says
[http://www.theguardian.com/money/2012/sep/12/can-i-spend-
sco...](http://www.theguardian.com/money/2012/sep/12/can-i-spend-scottish-
money-england) .

That should give an idea of the problems that will occur should each city has
its own currency.

The author notes the era of free banking in passing: "And as Galbraith points
out, Free Banking coincided with the fastest half-century of growth in the US,
1800 to 1850, still unbeaten". Do note that 37 of those 50 years was with a
central bank, and 12 years of free banking were outside of that period. That
seems more coincidence than a meaningful signal.

The author writes "Bizarre as it sounds, their disagreement led to a
financial-political satire, The Wonderful Wizard of Oz (1900) by L Frank Baum,
which later got made into a children’s film." Note that this is one
interpretation, first made by Littlefield in the 1960s. See
[http://www.halcyon.com/piglet/Populism.htm](http://www.halcyon.com/piglet/Populism.htm)
for some of the history of that interpretation. It may be a good
interpretation, but there is little to no evidence that it was deliberate,
which the author implies.

The author refers to a hypothesis from the 1970s: "Hence, Jacobs argued, all
innovation happens in cities".

Note, however, that many modern innovations take place between people located
in many cities. In the 1970s, telecommunications was expensive. While for most
of my career I've worked with people elsewhere, as a consultant. It's bad
enough taking the exchange rate hit when dealing with other countries. I
wouldn't want to do that for every city as well.

------
nabla9
Big or small, it's not just the size that matters. One per city would be
almost always very unoptimal.

Eurozone is not good currency area because it's too big, but because it does
not fill the criteria for good currency area [1]. US is much better. US-Canada
economic region might be optimal if divided into three[2], but it's not a big
deal. United States can function fine as a single currency region.

[1] A Theory of Optimum Currency Areas (classic paper from Mundell)
[https://www.aeaweb.org/aer/top20/51.4.657-665.pdf](https://www.aeaweb.org/aer/top20/51.4.657-665.pdf)

[2] Optimum Currency Areas within the US and Canada: a Data Analysis Approach
[http://utopia.duth.gr/~pgkogkas/duthwp/4-2012.pdf](http://utopia.duth.gr/~pgkogkas/duthwp/4-2012.pdf)

