A Lesson in Economic Fallacies – Casino Currency – US Dollars?

Go Lean Commentary

CU Blog - Casino Currency - US Dollars Not The Only Option - Photo 1If you go to a casino and win in their games of chance, what do you win?

If you go to a casino and lose in their games of chance, what do you lose?

In both cases the answer is money.

This is still true even though the gamer may cash-in the common currency of a country at the start of the session for tokens, chips or e-Cards. The tokens or chips become a nominal or fiat currency themselves; their value is set by the issuer to be any denomination they want – they may choose to make $100 chips Blue, $1000 chips Green and $10,000 chips Red or any combination. The only thing that matters is the cash-out process: when the gamers wants to receive real world currency value for any chips in hand.

Yes, this is the business model of casinos, but it is based on the principles of economics. The quest to reform and transform Caribbean economy could be based on this model; this is the case with the book Go Lean … Caribbean. The book details the mission to elevate the Caribbean societal engines starting with economics, or more simply: money. This brings so many questions to the fore:

What is money and how do we define it? Why must we define it? Aren’t we all familiar with the dynamics of the money or currency in our wallets and purses? How does the common currency fit into this discussion?

First the definition is important so as to dispel the concern about currency as opposed to money; money is not just currency and currency is not just money. Currency relates to a national designation (US dollar, British pounds, Chinese Yuan) or a regional designation like the Euro or the Eastern Caribbean/EC dollar. Money, on the other hand is a matter of four (4) functions [22]:

A Medium – When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. Money’s most important usage is as a method for comparing the values of dissimilar objects.

A Measure – A unit of account is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. Also known as a “measure” or “standard” of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt. Money acts as a standard measure and common denomination of trade. It is thus a basis for quoting and bargaining of prices.

A Standard – A “standard of deferred payment” is an accepted way to settle a debt – a unit in which debts are denominated, and the status of money as legal tender, that may function for the discharge of debts. When debts are denominated in money, the real value of debts may change due to inflation and deflation.

A Store – Money acts as a store of value; it must be able to be reliably saved, stored, and retrieved – and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of money to function as a store of value.
Source: Retrieved July 10 from: https://en.wikipedia.org/wiki/Money#Functions

CU Blog - Casino Currency - US Dollars Not The Only Option - Photo 1bCasino currencies (tokens, chips and e-Cards) perform all these 4 functions; and more – see the Appendix VIDEO below. The common currency for casino operations can be any currency the operators designate; so why do Caribbean operators always designate US dollars?

This question exposes an Economic Fallacy in the Caribbean region, that significant financial transactions must be in US dollars ($), even in Caribbean casinos. While this must be addressed and remediated, obviously the issues at hand are bigger than just Casino gaming. No, the issues in this commentary address technocratic management for currencies in general.

This commentary is the 6 of 6 from the Go Lean movement on the subject of Economic Fallacies. As related in the previous submissions in this series, the situation in the Caribbean region is likened to the imagery of an animal foraging for food, but then gets distracted and “chases a squirrel up a tree”. The squirrel in the tree will never be a meal; it is just a waste of time and energy for the animal. This analogy conveys the waste of time associated with a frivolous and fallacious pursuit. The other commentaries detailed in this series are as follows:

  1. Independence – Hype of Hope
  2. Austerity – Book Review: Mark Blyth’s “History of a Dangerous Idea”
  3. Education & Student Loans – Not a good Return on Investment
  4. Phillips Curve – Fallacy of Minimum Wage
  5. Self-regulation of the Centers of Economic Activity
  6. Casino Currency – US Dollars?

All of these commentaries are economic in nature. They refer to rules for managing the valuable resources of time, talents and treasuries. There are rules for winning and common mistakes that results in losing. Normally these fallacies are easily discernible after the fact, more so than before hand. So history and good-bad lessons on currency management can be extremely helpful to our Caribbean quest. This is a mission of the Go Lean book, to fortify a strong monetary foundation to ensure forward progress in currency matters in the region.

This book Go Lean…Caribbean serves as a roadmap to introduce and implement the technocratic Caribbean Union Trade Federation (CU) and the Caribbean Central Bank or CCB (a cooperative of central banks), to serve as a regional/super-national entity to shepherd the economic, security and governing engines of the 30 Caribbean member-states. Being technocratic includes studying and applying best-practices, while avoiding fallacies in government oversight. This mission was pronounced in the Go Lean book with this quotation (Page 45):

Fortify the stability of our mediums of exchange, by facilitating our monetary needs through a Currency Union, the Caribbean Dollar (C$), and establishing a Caribbean Central Bank.

There are economic challenges facing the Caribbean, including within the banking community. There is the need for some comprehensive solutions for all of the 30 member-states in the Caribbean. Many of the countries are independent states (16); the remainder are overseas territories of major powers: 6 British, 3 Dutch/Netherlands, 3 French and the 2 American: US Virgin Islands (USVI) and Puerto Rico (PR).

According to the Go Lean book (Page 150), many non-American Caribbean territories – British overseas Territory of the Turks & Caicos Islands, plus the Dutch territories of Bonaire, Sint Eustatius, Saba – use the US dollar as their primary currency.

The historicity of central banking in Puerto Rico helps us to understand how the concepts of fiat currencies can be structured to elevate the regional economy. See the encyclopedic reference here regarding this subject:

Title: Puerto Rico and Central Banking
Central Banking was established in Puerto Rico during its Spanish colonial days. The island began producing banknotes in 1766,  becoming the first colony in the Spanish Empire to print 8-real banknotes with the Spanish government’s approval. After the dissolution of Spain’s New World Empire with the independence of the mainland countries (Mexico, Central and South America, etc), the colonial government in Puerto Rico ordered the issue of provincial banknotes, creating the Puerto Rican peso. However, printing of these banknotes ceased after 1815. During the following decades, foreign coins became the widespread currency. In the 1860s and 1870s, banknotes re-emerged. On February 1, 1890, the Spanish Bank of Puerto Rico (Banco Español de Puerto Rico) was inaugurated and began issuing banknotes, followed 5 year later with peso coins.

On August 13, 1898, the Spanish–American War ended with Spain ceding Puerto Rico to the United States. The Banco Español de Puerto Rico was renamed Bank of Porto Rico and issued bills equivalent to the United States dollar, creating the Puerto Rican dollar. In 1902, the First National Bank of Porto Rico issued banknotes in a parallel manner. Two more series were issued until 1913. After Puerto Rico’s economy and monetary system was fully integrated into the United States’ economic and monetary system, the Puerto Rican dollars were redeemed for those issued by the United States Treasury.

Today, Central Banking in the Commonwealth of Puerto Rico is expressed through 2 governmental entities, one local and one at the US Federal level. The local entity is the Government Development Bank (GDB) of Puerto Rico. The GDB, established in 1942, is the government bond issuer, intragovernmental bankfiscal agent, and financial advisor of the government of Puerto Rico.[1][2] The bank, along with its subsidiaries and affiliates, serves as the principal entity through which Puerto Rico channels its issuance of bonds. As an overview from Wikipedia.com, the different executive agencies of the government of Puerto Rico and its government-owned corporations either issue bonds with the bank as a proxy, or owe debt to the bank itself (as the bank is a government-owned corporation as well).

CU Blog - Casino Currency - US Dollars Not The Only Option - Photo 2On the US federal basis, Puerto Rico is part of the Second District, Federal Reserve Bank of New York (popularly known as the New York Fed), in its representation before the US Federal Reserve System.

The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York State, the 12 northern counties of New Jersey, Fairfield County in Connecticut, Puerto Rico, and the U.S. Virgin Islands. Working within the Federal Reserve System, the New York Federal Reserve Bank implements monetary policy, supervises and regulates financial institutions[1] and helps maintain the nation’s payment systems.[2] See Appendix below for more details on the “New York Fed”.
Source: Retrieved July 10, 2016 from: https://en.wikipedia.org/wiki/Currencies_of_Puerto_Rico

Puerto Rico is indicative of the dysfunction in the Caribbean region – this Commonwealth is in crisis – despite almost 4 million people on the island, monetary decisions are made in New York City. The Go Lean movement (book and blogs) has consistently maintained that Caribbean problems need Caribbean solutions. The monetary policies for Puerto Rico are being made by the same stakeholders making monetary decisions for the United States. The New York Fed handles 65% of the total Federal Reserve Fedwire transactions; neither PR nor USVI register high on their priorities.

As previously related, the US Territories may have a voice in Washington, but they have no vote. Considering the downward spiral of PR’s economy  in recent years, they should not look to others for their long-term solutions. It is a fallacy to think that Caribbean people will be prioritized by foreign masters, thousands of miles away.

Caribbean people – all 30 member-states – need to come to our own aid. The Go Lean book quotes the lyrics from this song:

If there is a load you have to bear
That you can’t carry
I’m right up the road
I’ll share your load
If you just call me
—- Song: Lean On Me; Songwriters: Bill Withers

With the Go Lean roadmap, change will come to the island of Puerto Rico and all the Caribbean. The changes will include a single currency for a Caribbean Single Market, the Caribbean Dollar (C$). There are economic benefits galore. One such benefit is the money multiplier; the Go Lean book (Page 22) defines it as:

In monetary macroeconomics and banking, the money multiplier measures how much the money supply increases in response to a change in the monetary base…. there is a multiplier associated with the currency in the money supply. Therefore it goes without saying that if the Caribbean member-states trade in US dollars, then the multiplier effect is extended to the United States of America. By contrast, if the Caribbean member-states trade in Euros, then the multiplier effect goes to the stakeholders of the European Central Bank – no Caribbean state. Therefore the communities of the Caribbean must embrace, as an ethos, its own currency, the Caribbean Dollar (managed by a technocratic Caribbean Central Bank), thereby bringing local benefits from local multipliers.

Desisting from economic fallacies, there is a dose of reality in the Go Lean roadmap: the US will not allow its territories to wean off the US dollar as the currency base. But there is no controversy if the Caribbean dollar is an electronic currency for PR and USVI.

This is the plan!

The CCB, a cooperative of the existing central banks, will consolidate all reserves for the member central banks. The reserves will be a basket of currencies from the world’s most impactful currencies. Yes, that includes the US, but other currencies too. The roadmap calls for the following basket currencies to constitute Caribbean reserves:

  • US dollar
  • British pounds
  • Euros
  • Japanese Yen or Chinese Yuans

CU Blog - Casino Currency - US Dollars Not The Only Option - Photo 4There is the opportunity for the C$ deployed by the CCB to be an all electronic card/payment system; see photo here. Just like in the foregoing casino scenario, there is only the need to deliver the reserve currency, at cash-out time when an individual or company has to remit the funds in any basket currency outside the Caribbean region.

An all-electronic card would mean local transactions conducted electronically. With the onset of credit cards, debit cards and payment cards in the region as the preferred payment method, this scheme becomes more viable. Electronic settlements also allow for the easy calculation and collection of State Sale Taxes and VAT. Other benefits include:

  • Free Foreign Exchange to convert back to basket currencies – then cardholders will be more inclined to leave stored value balance on the card.
  • Free Foreign North-South Remittances: Free for these basket currencies transactions, so as to accumulate balances in the CCB “our” account.

Since casino operations can transact in any fiat currency, the Go Lean roadmap calls for modeling casinos and launching the C$ as a fiat, accounting-value-only currency at first and then eventually to graduate to banknotes and coins. This is the exact model of the Euro currency during its launch.  The EU/Euro case study provide lessons – foreign currency, inflation, sovereign defaults – that must be applied in the technocratic administration of the CU/CCB/C$. Since the Go Lean roadmap calls for the CCB to be a cooperative entity of the existing central banks in the region, this will foster interdependence among the Caribbean neighboring member-states. This need for regional stewardship of Caribbean currencies was pronounced early in the book, in the opening Declaration of Interdependence (Page 13) with these statements:

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

xxv. Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the Federation and member-states.

The planners of this new Caribbean monetary regime has documented hard-learned lessons on the issue of currency in the Caribbean region and elsewhere; (many CU member-states endured painful currency fluctuations over the past decades – on more than one occasion). So we accept that any attempt to reboot the Caribbean economic landscape must first start with a strenuous oversight of the proposed regional C$ currency.

The Go Lean book, and previous blog/commentaries, stressed the key community ethos, strategies, tactics, implementations and advocacies necessary to establish a strong Caribbean financial eco-systems and a strong currency. These points are detailed in the book; see this sample from the book as follows:

Community Ethos – Economic Principles – Economic Systems Influence Individual Choices Page 21
Community Ethos – Economic Principles – Voluntary Trade Creates Wealth Page 21
Community Ethos – Economic Principles – Consequences of Choices Lie in the Future Page 21
Community Ethos – Economic Principles – Money Multiplier Page 22
Community Ethos – Governing Principles – Lean Operations Page 24
Community Ethos – Governing Principles – Return on Investments Page 24
Community Ethos – Ways to Impact the Future – Count on the Greedy to be Greedy Page 26
Community Ethos – Ways to Impact the Greater Good Page 37
Strategy – Mission – Fortify the Stability of the Securities Markets Page 45
Strategy – Provide Proper Oversight and Support for the Depository Institutions Page 46
Strategy – e-Payments and Card-based Transactions Page 49
Tactical – Growing the Economy – Minimizing Bubbles Page 69
Tactical – Separation-of-Powers – Depository Insurance & Regulatory Agency Page 73
Anecdote – Turning Around CARICOM – Effects of 2008 Financial Crisis Page 92
Implementation – Assemble Caribbean Central Bank as a Cooperative Page 96
Implementation – Ways to Better Manage Debt – Optimizing Wall Street Role Page 114
Planning – 10 Big Ideas – Single Market / Currency Union Page 127
Planning – Lessons Learned from 2008 – Managing Economic Crises Page 136
Planning – Lessons Learned from New York City – Metro Card Payment Regime Page 137
Planning – Ways to Measure Progress Page 147
Anecdote – Caribbean Currencies Page 149
Advocacy – Ways to Grow the Economy Page 151
Advocacy – Ways to Control Inflation Page 153
Advocacy – Ways to Better Manage Foreign Exchange (fx) Page 154
Advocacy – Reforms for Banking Regulations Page 199
Advocacy – Ways to Impact Wall Street Page 200
Appendix – New York City Economy Details Page 277
Appendix – Tool-kits for Capital Controls Page 315
Appendix – Lessons Learned from Floating the Trinidad & Tobago Dollar Page 316
Appendix – Controlling Inflation – Technical Details Page 318
Appendix – e-Government and e-Payments Example: EBT Page 353

The points of effective, technocratic currency/monetary stewardship, were further elaborated upon in these previous blog/commentaries:

http://www.goleancaribbean.com/blog/?p=7140 Azerbaijan sets its currency on free float
http://www.goleancaribbean.com/blog/?p=7034 The Future of Money
http://www.goleancaribbean.com/blog/?p=6800 Venezuela sues black market currency website in US
http://www.goleancaribbean.com/blog/?p=5668 Move over Mastercard/Visa
http://www.goleancaribbean.com/blog/?p=4166 A Lesson in History – Panamanian Balboa
http://www.goleancaribbean.com/blog/?p=3858 European Central Banks unveils 1 trillion stimulus program
http://www.goleancaribbean.com/blog/?p=3814 Lessons from the Swiss unpegging the franc
http://www.goleancaribbean.com/blog/?p=2074 MetroCard – Model for the Caribbean Dollar
http://www.goleancaribbean.com/blog/?p=833 One currency, divergent economies
http://www.goleancaribbean.com/blog/?p=518 Analyzing the Data – What Banks learn about financial risks
http://www.goleancaribbean.com/blog/?p=360 How to Create Money from Thin Air

The quest of the Go Lean roadmap is to elevate Caribbean society and economic engines from the dysfunctional past. Reliance on the US dollar is a fallacy if we want to grow our economy; transacting in their currency will only expand their economy. We want to be a protégé of the technocratic New York Fed (see the Appendix) – for efficient monetary management – not a parasite! We want to master the process of currency management … and maximize our money supply and available credit. This is heavy-lifting, but “Yes, we can!” We can conceive, believe and achieve workable solutions.

This is the end of the series on Economic Fallacies; this case study of casino currencies is only the latest submission. There have been so many lessons to glean wisdom from in the previous submissions: independence hype, austerity, student loans, minimum wage, centers of economic activities. Let’s pay more than the usual attention to debunking these fallacies in this study of “Advanced Economics”.

All the stakeholders in the Caribbean – people, governments and institutions – are urged to lean-in to this Go Lean roadmap for the CU, CCB and the C$. The roadmap serves as turn-by-turn directions to move the region to its new destination: a better homeland to live, work and play. 🙂

Download the book Go Lean … Caribbean – now!


Appendix – Federal Reserve Bank of New York

Since the founding of the Federal Reserve banking system [in 1913], the Federal Reserve Bank of New York in Manhattan’s Financial District has been the place where monetary policy in the United States is implemented, although policy is decided in Washington, D.C. by the Federal Reserve Board of Governors. The New York Fed is the largest in terms of assets of the twelve regional banks. Operating in the financial capital of the U.S., the New York Fed is responsible for conducting open market operations, the buying and selling of outstanding U.S. Treasury securities.

CU Blog - Casino Currency - US Dollars Not The Only Option - Photo 3

The Trading Desk is the office at the Federal Reserve Bank of New York that manages the FOMC Directive to sell or buy bonds.[6] Note that the responsibility for issuing new U.S. Treasury securities lies with the Bureau of the Public Debt. In 2003, Fedwire, the Federal Reserve’s system for transferring balances between it and other banks, transferred $1.8 trillion a day in funds, of which about $1.1 trillion originated in the Second District. It transferred an additional $1.3 trillion a day in securities, of which $1.2 trillion originated in the Second District. The New York Fed is also responsible for carrying out exchange rate policy by buying and selling dollars at the discretion of the United States Treasury Department. The New York Federal Reserve is the only regional bank with a permanent vote on the Federal Open Market Committee and its president is traditionally selected as the Committee’s vice chairman.

Source: Retrieved July 10, 2016 from: https://en.wikipedia.org/wiki/Federal_Reserve_Bank_of_New_York.


Appendix VIDEO – The Grid from Ladbrokes – https://youtu.be/tCQ0fWV4gpg

Published on Apr 14, 2015

Australian Online Gaming Payment Card

Category – Entertainment


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