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Reply to Santiago Garcia Couto

April 2, 2010

Over at Marginal Revolution, Mr. Garcia Couto responded to Tyler Cowen’s post about Uruguay’s alternative currency, and provided a link to a relatively informative website, for which I thank him. However, he takes issue with my characterization of the currency:

Hello!

As an Uruguayan i can assure you that is not working that way.

This is the first time i hear something about the “charrua”!! I have no information about it but this but based on what i could read here: http://www.c3uruguay.com.uy/ (spanish) it works as a lending instrument and you can only use it to pay your debts to private or public instititutions which are in the “commercial transaction web” and it is guaranteed by the “Banco Republica” which is a state owned commercial bank (biggest bank in our small financial system) but is not our Central Bank and i doubt you could trade “charruas” for “pesos” in the Central Bank. Besides, i doubt people even call those instruments “charruas”…

Anyway, you can’t call “charrua” a currency and i doubt it will become one, specially because it has been really hard since our last crisis in 2002 to restore people’s confidence in our currency, the uruguayan peso, to reduce our structural dollarization and to finally adopt a monetary policy based on inflation targeting. In this framework I doubt our monetary authority would be happy to encourage the new “currency”!

Anyway, it is great to read news about Uruguay but i wish these were more accurate than the description you quote!

I could be mistaken; however, I’m going off of information found in Complementary Currency Magazine (and linked to by Tyler).

Regarding its exchangability into pesos and its use as payment in taxes:

This company will be able to order the payment from its account to be credited in favour of a state organism or a private member of the network. Accounts will be balanced periodically and participants advised of their trading position.

This amount will be redeemable into national currency or used to pay for petrol or taxes.

This information, as best I can tell, comes from Eduardo Bonomi, Minister of the Interior.

Also, if the description of the currency is accurate, it operates very much like the WIR Bank in Switzerland. If the information is incorrect, I apologize, but as of now I have no reason to doubt its authenticity.

As far as not calling “charrua” currency (meaning money); you can call literally anything you want money. Societies have taken quetzal feathers, shells, eggs, large stones, pottery, pieces of a particular metal, and most recently pieces of paper with pictures of dead statesmen on them as money. I define money as “an agreement within a society to use something as a medium of exchange” (and unit of account, but NOT store of value). Although Mr. Garcia Couto could be correct that it won’t turn out to be a particularly popular money system.

In any case, I thank him for the comment, and I’m still trying to find out more information!

Update: From the website Mr. Garcia Couto linked to:

The network is supported by DIPRODE-OPP as the executing agency, the Central Bank as a financial administrator of the system: the STRO Foundation as technological support and operating manager, and other public and private institutions are in the process of incorporation.

Also, the closest thing I could find on the website regarding exchangability:

What is a network of commercial transactions?

Connect supply and demand, creditors and debtors.

Rights transferred electronically without using physical money.

As a means of payment used transferable rights, in pesos or U.S. dollars.

Transactions are “payments and receipts,” the “debits and credits” among the participants of the Network

100% transparency: systematic recording and automatic movements.

Translation is poor and I don’t happen to know much Spanish, but I think it means to say “As a means of payment using transferable rights, into pesos or U.S. dollars.”

– — — –

P.S. I’m perpetually baffled by the concept of “currency competition”.

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One Comment leave one →
  1. Santiago Garcia Couto permalink
    May 27, 2010 10:38 pm

    I am really excited you actually made all this research because of my post and i am happy to read news about Uruguay in economics blogs!

    I still don’t see that much excitement about “charruas” around here and I don’t think we will see it in the near future…

    Anyway… regarding the “currency” issue, it is true that the “charrua” has some of money’s functions and i was not really clear about that in my previous comment.

    Despite this, i can assure you that this is a tool designed mostly for small businesses and it won’t certainly not compete with the uruguayan peso as a generalized currency in our market. One important thing is that you need to join the network in ordert to be able to use this tool… So i think that those who will join will be mostly companies which sell services/products to others companies but not many retail business which would be a mayor drawback to help the “charrua compete with the peso”

    I do not agree with the “multiple currencies” or “currency competition” between “charruas” and pesos and that was why i wrote my first comment. I can accept that, to some degree, you can call this instrument money but i do no agree with the fact that it will compete with the peso.

    Again, thanks for covering this topic and if you would like discussing this further or translating any source i would be more than willing to help you!

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