Here is one story. I winced at this sentence:
Inflation is below 2 percent even though the Fed has tripled the amount of money in circulation since the 2008 financial crisis.
No, the Fed has not tripled the amount of money in circulation. If it had, you can be quite sure that inflation would not be below 2 percent.
What the Fed has done is pump banks full of excess reserves. If the banks ever lose the desire to hold excess reserves, then things will get interesting. Will the Fed sell bonds in massive quantities in order to sop up reserves? Raise reserve requirements drastically?
Anyway, suppose that Virginia, or some other state, issues a state coin and gets away with it–meaning Congress does not outlaw state coins. What will determine the coin’s value? Presumably, it floats against the dollar–it would be pointless to keep it at a fixed exchange rate. Does Virginia mint only a fixed number of coins, say, one million, and then let the market determine their value? Or does it fix the value of coins in terms of, say, gold, and issue an amount that it can back with gold reserves held at the state level?
The real questions about this are two-fold:
1) What is a “contingency currency?” It seems totally unique to this case, a Google search shows no hits unrelated to this particular situation.
2) How would Virginia circulate this currency with any force? Would it pay state employees and contractors in VA$? Demand all state taxes be paid in VA$? Would businesses in DC, MD, and NC accept VA$? These are the meaningful questions, as far as I’m concerned.
With the Federal $ (F$) being legal tender can VA demand that state taxes be paid in VA$? Fiat money is backed by (the need to repay) debt and taxes. Legal tender means all debt can be paid in F$. Can VA stop accepting F$ for taxes?
Assuming VA$ is not gold backed or U.S. dollar backed but a fiat currency, they’ll need to collect taxes in VA$, otherwise they’ll have a tough time getting it to have value beyond monopoly money.
Has there ever been a case of a non-gold-backed, non-reserve-currency backed currency surviving?
Err, other than one for which taxes are collected in that currency?
Where can I get the Virginia coin?
There you go: http://upload.wikimedia.org/wikipedia/commons/6/65/2000_VA_Proof.png
Excess reserves are just an overpriced alternative to T-bills. The issue is the maturity structure of US govt liabilities. Converting bonds to excess reserves means that the inevitable run on the “bank” will play out more rapidly.