I remember in live TV debates for the 2014 Scottish independence referendum, the Yes leader insisted that Scotland could not be prevented from using the Pound sterling. It's technically true, but a very, very bad idea.
The US did not have a central bank until 1914. And there was zero net inflation from 1800-1914. The central bank introduced endemic inflation, which appeared immediately.
If you scroll down a bit on this page, you can see the massive inflation/deflation spikes in ~10yr cycles that existed prior to central banking.
A 1914 dollar is worth $33 today. Great job, Fed!
Making sure that the nitwits stuffing their mattresses with dollar bills maintain their net worth is not the goal of our monetary policy, nor is a good goal. The goal is to ensure predictability.
We can make certain assumptions that the rate of inflation won't be far off from this when we evaluate certain financial risks.
Just as in modeling adjustable interest rates for compounding interest, we can make r depend on t, and at that point, it becomes an ODE problem: dP/dt = r(t) * P(t).
Of particular note, debt instruments are denominated in nominal dollars, and they're paid back in nominal dollars, but what concerns the creditor is the real value of those nominal payments. Economic growth has this pernicious habit of pushing nominal prices upward, and if the money supply and credit system don't grow commensurate with the resulting increased demand for liquidity, the real burden of existing nominal debts can rise sharply and unpredictably.
This means that borrowers can find themselves underwater on, e.g., mortgages while the nominal obligations remain fixed, and banks will swiftly foreclose on them and tighten credit when considering their balance sheets. Many of the panics of the 1800's included a lot of this very dynamic.
It's a very bad time.
I'm not convinced it is worth it. Generally world economies are tightly tied anyway and so what is right for large currencies is close enough for everybody. The less coupled you are to the world the more important it is that you can be different.
There are a number of countries/territories which have their “own” currency, but its value (exchange rate) is fixed directly to the USD:
• Hong Kong
• Saudi Arabia
• United Arab Emirates
• Qatar
• Jordan
• Oman
• Bahrain
• Panama
• etc
These are not failed states!
Yeah, I think that is what it 'being a mark for ...' means. Otherwise it would be 'a property of ...' .
What they give up is political control of their bank. There are advantages to having political control, but often political control is abused - which is why failed states have given up on it as part of their efforts to rebound. The US and EU both have controls in place to limit the power of politicians from making changes for political reasons.
Basically the same pressure that would have adjusted your exchange rates instead adjusts how much of the fixed-rate currency exists in your country. With fluctuating rates the pain of a financial outflow is more evenly spread than with a government running out of money, unless the government adjusts taxes to compensate.