See how good money drives out bad all hail, the Swiss dinar!
he world's most successful currency, this last decade, has been — the dollar? You're not trying. The pound, the yen, the euro? Forget them. The Swiss franc? Closer. The Swiss dinar? Hang on a moment, Dinars (from the Latin denarii) are a legacy of the Ottoman empire, which never got as far as Switzerland, and why, in any case, should a Swiss currency circulate in the north of Iraq? Let Mervyn King, the Governor of the Bank of England, tell us, This is a story with a moral to teach us about money. It begins in the 1980s (according to the Governor, lecturing in San Diego) when De La Rue, the British security printers, got an order from Baghdad for banknotes. These became known as Swiss dinars because the printing plates were made in Switzerland. Then Gulf War I supervened, a no-fly zone was enforced and the north of the country was cut off. In Baghdad, the regime needed more money and ran off some new notes with pictures of Saddam Hussein on them. Holders of the old notes were told that they had three weeks to exchange them for Saddam dinars. The new ones were so cheap and easy to print that in four years the money supply had expanded by a factor of 25. Naturally, they did not buy so much. In time, only the 10,000 dinar note was still worth forging. That has been the story of inflation all over the world — except in the north of Iraq, where the Swiss dinar still held out.
A life of its own
Beneath Iraq's no-fly zone was a country with no government, no central bank, no law of legal tender, and no cash except for the Swiss dinars that the Kurds, who lived there, happened to have in their wallets. De La Rue was not going to print any more, and how would the Kurds have paid for them, anyway? Instead, they made do with what they had, and soon found that this worked rather well. The money supply remained constant, or may even have shrunk, if notes found their way into trouser pockets and then into washing machines. The Swiss dinar developed a life of its own. This was a much better currency than the Saddam dinar, and it soon went to a premium. One Swiss dinar came to be worth as much as 300 Saddam dinars and had trebled in value against the US dollar. That represented a bet on Gulf War II. When the war was officially over, Paul Bremer, the de facto viceroy, announced that Iraq would have a new dinar, supplanting the old ones on terms that made one Swiss worth 150 Saddams. De La Rue got the order, but he would have done better to leave well alone.
Hayek's Law
The Swiss dinar shows us all how little the value of money depends upon official promises. Ministers will always be tempted to get themselves out of trouble by printing some more, and why should viceroys' promises be any different? The Swiss dinar worked because it was worth what the Kurds chose to think it was worth, and the supply was finite. Now what monetary asset does that remind you of? Clue: it's yellow, it's shiny, it's portable... Friedrich Hayek, the libertarian economist, thought that money should not be the monopoly of governments and central banks. If they had competition, the brand of money that did the best job as a store of value and medium of exchange would dominate the market. Good money, in an unusual application of Gresham's Law, would drive out bad. In Iraq, of all places, it did_ The Kurds have shown us the way.
Bottoms up
Forget top-up fees. Bottom-up funding is what our universities need: a benign process of colonic irrigation. This policy is on offer to any political party — such as Tony Blair's or Michael Howard's — which resents top-up fees, does not think they will work but can't devise anything better, as will be apparent in next week's debate. Nothing, indeed, could be simpler than bottom-up funding. The vice-chancellor of Camford gets a letter from the Treasury. Last year, it says, we subsidised Camford to the tune of £50 million. This represents the interest we have to pay on El billion of British government stock. Would you rather have the stock instead of the subsidy? The cost would be the same to us, as you can see, but you would have an endowment to sit on, and a nice warm glow as the dividends spread upwards. It would give you the independence that you used to have, still hanker after, and envy in Harvard and Yale. You would be masters of your own finances, but if you need more, don't come whinging to us. Redevelop some colleges. Take over the polytechnic next door. The option is Carnford's, vicechancellor. Answers by Budget Day, please. Terms and conditions apply. Bottoms up!
Quote, unquote
Dear Chairman, writes the lady from the London Stock Exchange. I'm your relationship manager. We thought you ought to have one. Your shares are quoted on our exchange, so that makes you our customer. I'll be in touch, but do let me know if I can help. The chairman is startled. This, he says, is the first friendly letter I've ever had from these people. Up to now it's all been rules and bills. He has drafted a reply: Dear Manager, or may I call you Claire? Well, thanks. I must say yours is an expensive club to belong to. Haven't you got any brokers who know how to invoice in less than six figures? Add to that what we spend on lawyers and printers and the time I waste coping with fund managers who'd knife me for ninepence and boot Cousin George off the board — and what's it all for? I tried to put our quotation into the accounts as an asset but the auditors disallowed it. Half my friends have taken their companies private and the other half are hoping that some venture capitalist will buy them out. That must be bad for your business. Perhaps you have noticed. Now try to show me I need you.
Spot the synergy
I have not thought it right until now to comment on the affairs of Hollinger International, parent company of The Spectator — but I see synergy in the approach from the Barclay brothers. They already own the Ritz. I look forward to a euphoric future of joint promotions and staff discounts. There will be special room rates for readers who, wanting to capitalise on their houses, elect to sell up and move in.
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