Friday, November 21, 2014


Robert J. Shiller
February 1998

Box 2125, Yale Station
New Haven, Connecticut 06520


"Historical Antecedents of Indexed Units of Account
While the UF is apparently the first successful unit of account indexed to a true price index, the use of units of account separate from money has been known for millennia. Of course, historically, units of account precede money altogether, at least precedes money as we know it. Trade in terms of precious metals themselves, rather than any money, actually preceded the invention of coinage in the seventh century B.C. Units of weight, such as the talent or the shekel, evolved into units of money when coins were minted that had specified relations to the weight. But, since governments could not be trusted to maintain the weight of the coinage, a tradition developed to write contracts in units that did not correspond to any current coins:

Einaudi (1953, pp. 234–235) wrote:
Today each country has only one monetary unit: the lira, the franc, mark, pound
sterling, or dollar. This is the system established by the French assemblies at the
end of the eighteenth century. . . . Prior to the French Revolution, the monetary
system of most European countries was based on altogether different principles.
Contemporary authors could take these principles for granted and did not have to
explain them to others. Their strange terminology causes us, who live in another
world, to wander for a while in a dark forest. By and by, we finally understand the
tacit assumptions of their discourses. The key, needed to interpret the apparent
confusion of the monetary treatises written prior to the eighteenth century, is the
disjunction between a monetary unit and a standard of value and of deferred payment

and another monetary unit used as a medium of exchange.
In medieval and renaissance times, even contracts that were explicitly written in terms of units of currency that were currently circulating as coins sometimes were understood to be executed in terms of some other measure. For example, in Milan in 1445, a debt of one florin would not be paid with one of the gold florin coins, but rather in an amount computed under the assumption that the florin was still worth 384 silver deniers (and not the 768 deniers that the florin coin was then worth), see Cipolla (1956).
Since there were often no coins currently circulating corresponding to these units, the actual units of account were often called “imaginary money.” They were also called “moneta numeraria,” “money of account,” “ideal money,” “political money,” or “ghost money.” From the time of Charlemagne, trade and contracts in Europe were substantially based on the moneta numeraria called the pound, (or equivalently, “livre” or “lira), which was always worth 20 sous (shillings) and each sou worth 12 deniers (pence), see Einaudi (1953). Ultimately, the standard of value represented by this system was the silver denarius issued by Charlemagne in the late eighth century and early ninth centuries, coins that were no longer circulating, or even seen, later in the middle ages and renaissance. Charlemagne’s denarius weighed one 240th of a troy pound, while the earlier Roman denarius had gone through repeated debasements, and was not a unit of account in medieval or renaissance times. Because they are even fractions, the sou (at twelve deniers) and pound were natural units of account, but Charlemagne never issued coins representing these values. Actual exchange was executed in terms of current coinage, which had many names from the realms that issued them, names such as angels, blanks, crowns, crazies, doblons, dollars, douzains, ducats, ducatoons, ├ęcus, farthings, florins, guilders, louis, moutons, nobles, obols, phillipi, reals, sovereigns, stivers, and testoons. Many of each of these would circulate simultaneously in each country, a situation that would create tremendous confusion if there were not a standard unit of account..."



Sunday, November 16, 2014

EC - Report on economic and monetary union in the European Community

Report on economic and monetary union in the European Community

Collection of papers submitted to the Committee for the Study of Economic and Monetary Union


Friday, November 14, 2014

BdF - Managing Gold as a Central Bank


Alexandre Gautier
Director of Market Operations Department, Banque de France

III. Gold and Banque de France Asset Allocation
1. A Changing Environment Long Before the Crisis
An important point from a Banque de France and probably Eurosystem perspective is to be really aware that we have been in a changing environment for many, many years and I would just like to focus on a few points:
(M: Yes, it is known we are going off the USD as the only reserve currency IMS)
 Due to the Eurosystem, the European Central Bank has its own FX reserves. This means that in case of intervention we will first use ECB reserves and then the FX reserves of the national central banks. This is why we do not have the same liquidity constraint, so it was also an important evolution.
(M: explains also why ECB has a veto on member state reserves, other member states assets are not harmonized so for better eficiency it has to be this way)
 Under pressure from the public and shareholders, we have to move in a more efficient way to manage the Bank and a way to do this is to reduce cost, but another way is to increase income.
(M: appologises to soften poblic opinion that gold was sold in past at lower prices)
 Due to the functioning of the Eurosystem, we have regular meetings of national central banks where we discuss many topics in market operations and, of course, financial instruments. When you want to introduce, for example, futures or options, you will probably find another central bank within the Eurosystem that already has this instrument among their available financial instruments. Therefore, it helps you to implement new financial instruments.
(M: Gold policy is a shared and coordinated issue)
 When we recruit people from university, they all have a minimum background in finance and are all fully aware of the asset allocation process and so on, meaning that it is also a help for us to move towards better allocation of our assets.
 The question of IT systems was a big issue in our case. We also need up to date IT systems to be able to move towards more diversification.

H/T to