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This means that the currency in use in a country only has value because of the legal decree of the government of that jurisdiction declaring it to be its legal tender and, more practically, because its value is backed by the ability of that country to raise future taxation revenues. This capacity is partnered by the ability of the government to command its central bank to make payment to anyone to whom funds might be owing using newly created money, if necessary. In this situation, there is no reason for a government to borrow from financial markets.

But, but, government borrowing is just offering investors a safe form of savings. Which government should increase the availability of by borrowing more, surely?

26 thoughts on “Eh?”

  1. Before the 1930s the Hong Kong Dollar was “just” a currency shared between participating banks. Government had nothing to do with it.

  2. “the currency in use in a country only has value because of the legal decree of the government of that jurisdiction declaring it to be its legal tender “

    So US dollars have no vlaue in Venezuela, Cuba, Zimbabwe, and every other shithole where the local government currency is worthless.
    Got it.

  3. “the currency in use in a country only has value because of the legal decree of the government of that jurisdiction declaring it to be its legal tender”

    There is no legal tender in Scotland. None of the Scottish banknotes, nor Bank of England notes, are legal tender. And yet: people get paid, people spend, and so on. It’s a mystery.

  4. Beat me to it, dearieme. And wasn’t he up here a day or two ago? You’d think he might have noticed.

    (Most people don’t understand what “legal tender” actually means. But an accountant purporting to be an economist probably should.)

  5. Has anyone yet provided Spud with the definition of legal tender? I would, except I can’t be bothered to get banned again…
    “If you offer to fully pay off a debt in legal tender, you cannot be sued for failing to repay”

    It’s not much use in everyday life, as the Bank of England points out

  6. Currencies only have value because of the confidence of their utility in commerce.
    That’s it. End of subject.

  7. “If you offer to fully pay off a debt in legal tender, you cannot be sued for failing to repay”
    Is that even true any more? There are plenty of companies who specify how they will paid in their contractual terms. And that will not accept cash (Don’t know if you’ve got to this point in the UK yet but here it is actually illegal to pay for anything over 1000€ in cash. So he can forget his “currency in use in a country ” clause). So I’d imagine you could very well be sued for only offering to pay of a debt in legal tender. Because that would breach the terms of contract. Whether the suit would be successful’s a separate matter.

  8. BiS: It’s not actually a blanket one-size-fits-all thing; there are all sorts of intricate rules about what is and isn’t legal tender for debts of a particular value. That’s the main reason it was abolished in Scotland, in fact: legal tender only covered debts up to (off the top of my head) about £50, and faced with reforming the law, Holyrood decided it had better things to do like banning football chants.

    So I wouldn’t be surprised if, even in Englandandwales, there’s no legal tender for the sort of debts people actually accrue these days.

  9. Spud fawns over Caroline Lucus when opining on MPs pay:

    “People like Caroline Lucas are in it for a cause.”

    Picking one month at random (October 2020) from the Members Interests Register:

    £200 from the BBC – panelist on Any Questions
    £2,000 from Selfridges Project Earth – panelist on web based public event
    £400 Town & Country Planning Association speech on Webinar
    £1,500 GTI, a careers platform – speech to business recruiters network breakfast event
    £200 BBC radio 4 Any Questions panelist

    Nice when your cause provides a second income.

  10. What’s more ‘currency’ is not necessarily ‘money’. It certainly is not in the UK where each banknote has the text “I promise to pay the bearer on demand the sum of £x” printed on it. That is the transaction is not actually complete until the seller, the currency receiver goes and gets his money from the bank in exchange for the currency bank note.

    Of course nowadays the CB racket will just hand him another promissory note….

  11. MrVA. A bank note is a promissory note. Essentially it’s the same as cheque or, for that matter, you can write your own on any any convenient piece of paper or farmyard animal. In this case it’s drawn on the Bank of England. Which makes it legal tender & thus currency

  12. And remember it’s a token of exchange in commerce. So readily & confidently exchangeable for goods or services (for the time being, anyway). However the Bank of England is not a purveyor of goods or services. So its notes circulate.

  13. Andrew C: Assuming that’s a relatively normal month, I make that £50k p.a. for what… an hour’s work a week? Call it three to allow for preparation, which is probably overly generous considering who we’re talking about.

    Totally normal down-to-earth people, every one of ’em. (And I’d remind everyone that the original justification for introducing a salary for MPs was that an increasing number of them had no independent income.)

  14. @Sam – Lucas claims in the Register that her appearances on Any Answers require 10 HOURS preparation time…..

  15. If you go to the BofE and handed them a £10 note and said I demand my ten quid, they will give you ten £1 coins.

    But the coins have no intrinsic value either. They are produced by Authority ( ie Royal Mint ), but contain nothing that makes them worth a pound.

    It is only confidence in the country’s underlying economy or ability of a government to pay its debts that makes a currency worth anything.

  16. @Ottokring
    The “I promise to pay the bearer…” goes back to the time when bank promissory notes were equivalent to gold & silver coinage. So the BoE was a purveyor of goods in the sense that the coin was the value of the gold that comprised it & gold being fungible. Sort of still true. You could take your BoE promissory notes to the Royal Mint (both BoE & the RM being owned by the state) & exchange them for sovereigns. One can also take discontinued issues of paper & exchange for current issues of paper. Far back as you want to go, as far as I’m aware. Although you’d be a fool to do so. All of it’s saleable for more than face value.

  17. The difference is that one is buying a sovereign from the Royal Mint, rather than just exchanging notes for coins. For them it is a business transaction, not fulfilling the Bank’s promisory note. The intrinsic value of a sovereign fluctuates. The BofE will not give you £10 worth of a precious metal, or indeed precious anything – not even a nice shiny ring.

    But a pre 1948 shilling with silver in it was still worth just a shilling. Going back a silver penny was still just a penny.

    True the amount of goods that one could buy with a penny changed over time, but that was mostly due to inflation or scarcity and not the market price of silver.

    The point I’m making is that in modern currencies, notes and specie are both tokens of value rather than having value in their own right.

  18. Legal tender is just for debts. Interestingly when you buy petrol that is a debt because the fuel is in your car before you paid for it. So you can pay for with legal tender like £50 or £100 coins. Yes they exist. They are even YouTube videos of people using them. One guy got arrested for doing so – he won £5k compensation from the police for false arrest. Look up Julian Chamberlain.

  19. If the overall entry for ‘The Gold standard’ is indicative of the standard of glossary entries I am guessing Universities won’t be adding it to lists of reading material any time soon. He does (rarely) make an admission that the entry on The consequences of the Gold Standard is ‘hard’…

  20. Dennis, Noting The Bright Light Emanating From Ely

    But, but, government borrowing is just offering investors a safe form of savings. Which government should increase the availability of by borrowing more, surely?

    It’s Tuesday and Murphy has already forgotten what a bond is, as well as the fact that he’s been humping them for years with the fervor of a rat in heat as a way to fund the New Green Deal.

    What will Wednesday bring?

  21. “What will Wednesday bring?”

    That’ll be ‘tax the rich to pay for a progressive society’ day.

    Thursday will be ‘Steal all your savings to pay for the Green new Deal’ day.

    Friday will be ‘The BoE can print all the money we need without any problems at all’ day.

    Saturday will be ‘Anyone to the right of Jeremy Corbyn is a fascist who should be shot’ day.

    And like our Creator, Spud will rest on the 7th day…….nah, just kidding, Sunday will be ‘I’ve invented a completely new form of economics that just coincidentally requires me to be in charge of everything’ day.

  22. I understand it’s a crime to attempt to pay for something worth more than $A10 000 in cash in Oz these days.

  23. When I was young the use of British pounds in the Republic of Ireland and of Irish pounds in Northern Ireland was so commonplace that there were not just jokes about the exchange rates (in 3rd countries the Irish pound was about a 10% discount to the British pound) but “fun” arithmetical problems for schoolboys about the exchange rates across the porous border.
    Murphy is an Irishman living in England and he does not believe British curency can be used in Ireland!?!
    In mediaeval times marks, florins, ducats, guilders, sovereigns were all accepted in many European countries (and later, Maria Theresa dollars were widely accepted in multiple countries – indeed in soe they were prefered to the local currency) with valuations based on the known gold content ofeach coin.
    Of course, hard reality is not something to be considered in one of Murphy’s blog posts – he inhabits an “alternative reality”

  24. The bizarre thing about people like Murphy is that despite not obviously being either very clever or very knowledgeable, they think they’ve come up with a way to make everybody better off for free. Because nobody actually clever and knowledgeable ever thought of it. People don’t go on Physics boards and claim Relativity is wrong yet every Leftie thinks they are right and 500 years of Economics is wrong.

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