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Friday, February 20, 2009

From Choice of Law to Choice of Currency?

In their new book, The Law Market, Larry Ribstein and Erin O'Hara show that states increasingly act as hawkers of legal rules in a "market for law."   These competing systems give individuals choice over the legal regime they find most desirable.  According to Ribstein and O'Hara, parties should be able to use choice-of-law contracts in order to choose which "law" they most prefer.

Last week in the WSJ, Judy Shelton argued in favor of choice of currency -- namely, allowing competition in the market for the type of currency we use to pay our bills.

Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.

I'm not really clear, based on the article, whether Shelton would create a dueling federal gold-based currency, or whether she thinks states should do this, or whether it would be privately provided.  (Would there be federal insurance for those AIG gold-backed dollar bills?  Madoff dollar bills?)  A question for the "Law Market" folks: should we have choice of currency?  I'm guessing the answer might be: sure, but is there really a market for it?  I would imagine that this isn't really an issue.  If anything, international rather than domestic competition amongst currencies should be enough to provide contractual choice here.  Payments to the government might be another matter.  Although if you want to pay your taxes in gold, I can't say I'd stop you.

HT: Frank Pasquale

Posted by Matt Bodie on February 20, 2009 at 02:28 PM | Permalink


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A short and interesting article on the subject can be found here:


The summary concludes:

A gold standard does not guarantee perfect steadiness in the growth of the money supply, but historical comparison shows that it has provided more moderate and steadier money growth in practice than the present-day alternative, politically empowering a central banking committee to determine growth in the stock of fiat money. From the perspective of limiting money growth appropriately, the gold standard is far from a crazy idea.

Posted by: anon | Feb 21, 2009 10:30:06 AM

UCC section 3-107 already allows negotiable instruments to restrict payment to particular types of foreign currency.

Posted by: Chris | Feb 20, 2009 4:35:43 PM

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