Click here to read about the creation of a new currency
in Bristol - the Bristol Pound (hat tip to Chris Colvin, an old Bristolian) Unlike past attempts to create a local
currency, the creators of the Bristol currency have taken care of the last
period problem associated with fiat money.
How have they done this? Well, in
true Thompsonian fashion, the local government accepts the new currency as
payment for local taxes (rates)! This
ensures that it has value in the last period, and therefore encourages traders
and shoppers in Bristol to use it.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of