Currency Competition in Germany

If you think the Euro has an absolute monopoly everywhere in the EU where it is legal tender, think twice. As an article in The Telegraph recently reported, parallel currencies have sprung up all over Germany (and perhaps in other countries in the EU—does any one know?). The Chiemgauer, which is used in Bavaria, is one of these currencies. It has an exchange rate of 1:1 against the Euro but a rate of 2 pc per quarter is charged by the issuing body (which has already found a way to reap the seigneurage profits from its currency). I find two things puzzling:

• In spite of the cost of using the Chiemgauer instead of the Euro (which is freely available to everyone and of good quality), more and more people use the parallel currency. The Chiemgauer didn’t emerge, as Hayek would have liked to see it in the 1970s, because of the bad quality of the money in circulation (see for instance here and here).
• What’s more is that article 35 of the Bundesbank's founding law forbids the circulation of “quasi-currencies,” but “the experiments are being treated as a harmless eccentricity” says the article. So some currency competition, while illegal in Germany, is tolerated.

An explanation is that these currencies reflect a strong sense of nationalism, or even regionalism. The Chiemgauer is named after its region in Bavaria: Chiemgau. Accepting the Chiemgauer is an act of defiance vis-à-vis the European authorities (and perhaps vis-à-vis ideas such as global capitalism). Moreover, because losing the mighty D-Mark was not a pleasant experience for the Germans (and for good reasons), the central bank itself is willing to tolerate what could appear as a threat to the Euro (see the report from the Bundesbank on the subject).

At the end of the day, all this fuels the idea that currency competition is a viable alternative to currency monopoly (note the quasi-entrepreneurial origin of the Chiemgauer). What would be the next step for the Chiemgauer to become a real threat to the Euro? Paying local taxes in Chiemgauers perhaps…

Comments

[Carl Marks]

Marketplace last night had a discussion of areas in France still using francs for transactions. The bank of France will still exchange them for euros until 2012, so this will go on for a little while longer. Also in the report was the findings of a poll which stated taht over 50% of French believe that moving to the Euro was a mistake.

here is the link
http://marketplace.publicradio.org/shows/2007/02/05/PM200702055.html

[Jason Briggeman]

The Chiemgauer has 1.5 million Euros in circulation, compared with $20 million for the domestic "Liberty Dollar", which everyone steeped in our culture would recognize as a harmless eccentricity had they only but heard of it.