Monetary Union

In the quest to reunite the English speaking people, one of the steps that will have to be taken eventually is monetary union. Before taking this step, it is important to think about what sort of monetary system we wish to have. Should we continue using a fiat system of paper money or should we adopt some form of commodity money, like the gold standard.

The problems with fiat money include: chronic inflation, a distorted business cycle, and a need for government old age pensions as peoples retirement savings are wiped out by inflation. Commodity money has the advantage that the only way the supply of money can increase is for the production of the monetary commodity or commodities to increase or for people to consume less of the monetary commodity or commodities. In other words, the only way to increase the supply of money in a system of commodity money is by production and savings.

The Empire among its notable features had a very stable money system based on the sovereign or 1 £ gold coin which weighed 123 grains. There are many things that can be said in favor of this system, however I believe that there are problems with a single commodity money system, like the 19th Century Gold Standard.

A single commodity monetary system is vulnerable to supply and demand shocks in a way that can hurt the economy. If an increase in production or reduction in non monetary use for the commodity causes the supply to increase rapidly, inflation results. Conversely if a decrease in production or an increase in the non monetary use causes the supply to contract, deflation results. I believe that a bimetallic (gold and silver) monetary system with no fixed exchange rate between the two metals is probably the best system.

Here I want to mention an additional advantage of commodity money, they allow informal monetary union. During the second half of the 19th Century and the first part of the 20th Century many countries, though continuing to use there traditional monetary unit, in fact, had a common money, gold. If the anglosphere nations adopt the same commodities as money, a formal union is not strictly necessary thought it would have benefits.

This discussion should start with a quick discourse on the Troy system of weights. One Troy ounce is 31.1035 grams. Twelve Tory Ounces (oz t.) is a Troy Pound (lb t.). There are 20 pennyweights (dwt) in an Ounce. A pennyweight contains 24 grains (gr.). A penny weight is thus 1.5551 grams and a grain is .0647 grams.

The British Pound and the U.S. Dollar are both in origin silver moneys. The Pound Sterling is an out growth of Charlemagne’s monetary reforms. Charlemagne introduced a new silver denarius (hence d as the symbol for pennies) with a weight of 24 grains or one penny. Twelve of them were supposed to equal one of the old roman gold solidus coins from which English gets the word shilling and the French the word sou. Since, there were no solidus coins floating around this was mostly a unit of account. Twenty shillings of course had a weight of one pound this was also a unit of account. Eventual governments produced shilling coins.
Over time, governments have a tendency to debase the coinage or reduce the weight of coins so that a given amount of bullion will make more coins for the government to spend. By 1816 shortly before the gold standard was introduced the penny had been reduced in weight from 24 grains to 7 and 3/11 grains. The penny, half penny and farthing which had originally been silver coins were now copper token coins. (If that sounds bad the French were even worse. It took two French sou (French shillings) to buy one English penny. Which just goes to show bad economic policy is not a recent French invention). At this point the coins in circulation were as follows: the Half Farthing with a value of 1/8 d, the Farthing with a value of ¼ d, the Half Penny, the Penny (all made of copper), the Three Pence, Six Pence, Shilling, Half Crown, and Crown. There were also gold coins, but I will come back to them later.

The U.S. dollar was based on the Spanish piece of eight or Spanish Dollar which was, itself based on the German Thaller. The Spanish Dollar was a coin widely minted in South America and it was used in British North America, since the colonies were not allowed to mint their own coins. After the Constitution was ratified, Congress ordered a sample of the coins to be assayed and found that on average the Spanish coins contained 371.25 grains of silver. Congress then authorized the minting of coins according to a decimal scheme using the dollar of 371.25 grains as the Unit. Thus coins of a Dollar, a Half Dollar, a Quarter Dollar, a Dime, a Half Dime, a Cent, and a Half Cent (the last two in copper) were minted.

Now by coincidence four full (i.e. 24 grain) pennies weigh slightly more than a Quarter Dollar, 96 grains v. 92.81 grains respectively. It occurs to me that by slightly increasing the weight of the dollar to 384 grains a Quarter Dollar and Four Pence will be the same coin.

I propose that such a coin be minted by all the states of the Crown Commonwealth and the government of the United States. The question of whether to use this coin as a quarter dollar, a four pence coin in a traditional 240 penny pound, or a 25th of a 100 penny pound can be left up to the country in question. The only thing that this system would seem to preclude is the decimalization of the true pound using the florin as a tenth pound piece.

The gold coinage question is more easily resolved since the gold coins of the U.K. were not central to the system until the adoption of the gold standard. The U.S. gold coin was the Eagle with 247.5 grains pure gold and the U.K gold coin was the Sovereign with 112.992 grain pure gold. Both coins were minted in 22 caret gold. I propose that the Sovereign be increased to 120 grains and the Eagle reduced to 240 grains. Thus a Half Eagle and a Sovereign would be the same coin as would the the Half Sovereign and the Quarter Eagle.

This would give the anglosphere nations a hard money based on common gold and silver coins. It would allow each county to use its own system, dollar, pound, or decimal ‘pound.’ It would be a step on the road to the closer union of the anglosphere nations.