Any time we see a financial crisis, it seems we get an experience with new, odd currencies. I wrote a few years ago about notgeld, the scrip issued by Austrian and a few German lander after WW I to pay for their goods when cash was tight. That could only be used to pay back debts to the government. Now it turns out California's IOUs are a new example. But Jesse Walker at Reason points to the lack of standardization as a reason why these notes lack a secondary market. This is creating a problem with discounting (to the extent banks even do it.) But you can't even return these bonds as an offset to taxes. You have to pay the tax in cash and wait to get your California cash redeemed for US currency in October. Thus California makes these IOUs less and less desirable.

Markets exist for everything, even CaliCash, but we know that increased liquidity will increase the price of any asset ceteris paribus. It would be better to issue scrip of standardized denomination, divisible, and useful in paying state or local taxes. Someone should get on the phone to the Governator and get this proposal to him. Or does he want to make them harder to accept?

Even cooler markets in everything: speculators offering to buy CaliCash on Craigslist. You'd probably get more from SecondMarket, but there are forms to fill out. So someone is willing to save you that time, it appears.

Labels: California, economics, it's the spending stupid, money