California has, quite impressively, managed to create its own currency, staving off a complete breakdown in state services by printing up IOUs instead of cash.
There’s been no indication (yet) that IOUs are being valued at less than face value, so, voila, Cal-Dollars!
That could change by the end of the week, as banks say they’re going to stop accepting these IOUs as cash on June 10th, which is Friday. Consider this a threat to the state: stop printing IOUs and get your budget problems solved, and we’re going to create havoc by destabilizing your currency.
But we don’t think it will work. For one thing, as the WSJ notes, some smaller banks and credit unions will keep taking IOUs even after this Friday. Are the majors really going to watch their smaller competitors gobble up business? Unlikely. And even if banks say they won’t take them, a whole host of non-financial institutions will probably start — confident that they’ll be redeemed for cash at some point this year.
Now, someone just needs to develop an IOU ATM and they’re all set.
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