The imposition of a liability
is sufficient to drive a currency. It will drive the currency. It will ensure there will be a demand for the currency — up to the amount you must pay
to absolve yourself of your debt. If it’s a tax debt — enough to pay your taxes. You will have at least that much demand for the currency. Will you demand more than that? Probably. Why? Because you’re going to owe taxes next year, so it is very useful to have more than you need… to pay this year, okay. We do not claim that state money and taxes, or other kinds of obligations are necessary to drive a money. But, historically there are very few examples, so…. just as one apparent example… Ask the question: how did the banks all get together and choose the same unit of account? Well almost always — virtually without exception they use a state money. Virtually without exception, okay. And probably having a legal system that backs it up and that enforces liabilities denominated in that money of account plays a big role in getting them to do that. I do know of one possible exception to this rule, and that was in Northern Europe in the Middle Ages — the banks got together and setup a banque de giro, in which they had their own clearing unit. And they were operating across state lines, they needed a unit of account that was not associated with any state for clearing. And so they seem to have created one. That is an exception. (Question) Well, it’s not hard — it’s a means of clearing between banks, okay. So within each nation you had a currency, and there’s transactions going on. You have bills of exchange written in currencies that cross state lines. And so you would have, let’s say, Italian bills of exchange in France, which require payment in Lira. But the banks got together and seem to have created this unit of account that they can use to clear with each other, so you could submit it to a bank and you wouldn’t have to get Lira, you can get the giro unit of account. This seems to be true — I’m not an expert on this, I read a bit about it 35 years ago. It seems to be a counter example to the normal situation in which banks use the unit of account of the country in which they are operating. So far as individuals choosing to refuse their own state money of account, in their own private transactions, that occurs. Especially — like in Latin America — it’s very common even to write contracts in US dollars. Even though you have your own currency, some contracts like real estate contracts, will be written in dollar terms. You might actually make the payments in the domestic currency, but the contracts are in dollars. Why did they do that? Inflation. It was to get a more stable money of account in which to write these very large contracts, to protect themselves from inflation of the currency. But again, that doesn’t in any way dispute Modern Money Theory. The dollar still is a state money of account, and it can be used outside the United States. It’s a state money of account and it can be used for individual transactions, but even banks can offer you accounts denominated in the dollar money of account. Even in Italy — right– you can have a dollar deposit account at your bank. But it’s still a state money — it’s still consistent with our argument.