The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency. Looking forward, there will increasingly be other options to the dollar.
—World Bank President Robert Zoellick
In June of last year, the small country of O, known (if at all) for producing two world chess champions, took the extreme measure of converting its beleaguered currency, the farrut, to the US dollar. Having suffered from hyperinflation for the past decade, the so-called dollarization program was an attempt at stabilizing a frail economy. A handful of small nations, including Ecuador and the Virgin Islands, have successfully used the US dollar instead of their own currency.
On June 26th the farrut became officially null and void as legal tender in O, and the dollar, which had been introduced gradually into circulation over the previous months, became the only recognized currency in the country. Farruts could be exchanged at the Bancu Centrale at the rate of 127,000 farruts to the dollar, up until July 3rd.
As is widely known, on July 5th the United States government defaulted on its loans. Overnight the dollar became all but worthless. While world economic markets reeled, O's Finance Minster, fighting to save the economic pulse of his small republic, sold state industries to the highest bidder; he used the resulting cash to establish the euro as the country's new currency. As a result, the European bank-cum-corporation Santander owned 80% of O's industries.
Over the next several months this proved a disaster. The entire globe was scrambling for euros, and O, by asking for payment in euros, had simply priced itself out of the world market. Its export-driven economy was at a standstill. Santander itself, refusing to throw good money after bad, sliced its ownership of Oian industries into tranches and bundled them into internationally diversified securities, which it then sold, mostly to Eastern European subsidiaries and Asian conglomerates, so that ultimately it was not clear who owned the floundering Oian manufacturing sector, nor its postal service. It was indisputable, however, that there would be no cash infusion to keep O's factories in business, and without it the country was facing wide-scale unemployment.
The only out was to lower the cost of labor. The finance minister convened his board of advisors and together the group decided on the unconventional move of converting the currency once again, this time to the British pound sterling, which had recently undergone a devaluation due to Britain's quixotic attempts to bolster US financial markets.
No sooner was the proposal announced than an activist group, People for Easy Money, staged a protest. Carrying signs that read "Money Should Be Easy" and "Money Should Make Cents" the group declared that the pound, with its subdivisions of shillings and pence, was too confusing. "No one knows how many shillings are in a pound or how many pence are in a shilling, and no one wants to know," the spokesperson Bendra Letru declared. An overnight poll found People for Easy Money to have an 87% approval rating.
The finance minister appeared on television the next evening to explain the pound had long ago been decimalized and shillings and guineas would not be in circulation. A quiet man with a PhD in mathematics and another in economics, the minister sweated copiously under the camera lights. For the first time in his life, he stuttered, over the word shilling, disproving any notion that it is impossible to stutter over the sound "sh."
He did not win over the hearts of the skeptical public. At the president's request, the finance minister dropped the idea of making the pound O's new currency.
Meeting late into the night, the board of economic advisors settled on the Chinese yuan as the ideal currency for O. The conversion was finalized on October 15th.
On October 18th the Chinese Communist Party began its conversion of all yuans to rupees.
Not sure whether or not O's new currency, the now obsolete yuan, had any value at all on international monetary exchanges, the finance minister put his head in his hands and wept. At this point his board of advisors began a heated debate on what became known as the Yap option.
On the small pacific island of Yap, stones of all shapes and sizes are used as money—the larger the stone, the more it is worth. One board member had learned this as a teenager, when visiting the Smithsonian Institution in Washington DC. In the basement of the Museum of Natural History stood an enormous piece of Yapese money, five feet tall and four feet wide. This board member suggested that Oians give up on any other kind of currency, and simply use the country's stones as money.
A second board member pointed out that the country's limestone had been quarried long ago, to build the very building they were sitting in and all the others like it, and what was left over went to make the country's characteristic chess pieces. There were no stones left in O.
It was suggested they try anyway. Could they not pick another substance, such as quartz, or even bamboo, which could be readily grown and cut into small pieces that would serve as currency?
It was suggested that the previous member of the board was a pinhead, did he not know that quartz was not among O's natural resources, and that if bamboo, which anyone could grow in his or her backyard, was made the country's currency, O would be facing hyperinflation again.
It was countered there was no need to throw around insults, members of board were merely brainstorming, or thinking out loud.
It was suggested a government building could be torn down and cut into pieces to provide the limestone necessary to convert to a limestone currency.
This proposal was seconded by two other board members.
It was countered that this was the most pinheaded idea of them all, which statement raised a small cheer and cynical laughter from one side of the table.
While the discussion degenerated around him, the finance minister lifted his head from his hands and stood up. Closing up his briefcase, he left the room without a word. His subordinates were too busy arguing with each other to notice.
In a daze, his feet followed their habitual path to the place he frequented when in need of either solace or modest celebratory indulgence: The Ground Hog coffee shop across the street from the Treasury Department.
He ordered an espressi cortadu and pulled a small, crumpled wad of yuans out of his pocket to pay. The barista shook his head.
"One pawn," he said.
"Pardon me?" the minister responded.
To illustrate, the barista produced a box from under the counter and pulled out a small chess piece. The box was filled with a jumble of figures, all made of the characteristic ochre and pink of O's limestone, in various styles and sizes, obviously culled from many different chess sets.
"One pawn," he repeated. "If you only have a knight or a rook I can make change."
Realizing that even as the board members argued themselves blue, his compatriots had already found a solution the problem, the minister pumped a triumphant fist in the air.
"The invisible hand will solve all problems!" he shouted at the barista. Forgetting his coffee, the minister instead went straight home and made love to his wife for the first time in a month.
The next morning, he called a press conference and declared the country's characteristic chess pieces, carved from pink and ochre limestone, to be the new currency. He issued an official government currency chart and warned against accepting foreign-made chess pieces, especially plastic ones. The infiltration of such substitutes, he admonished, would inflate the country's currency and land O back in the same boat that had started this mess.
For a time all was well. The months of fluctuating currency and the world-market imposed moratorium on exports had lead to a spontaneous overhaul of the national economy. Farmers, who had exclusively grown wheat for export, had diversified their crops; cottage industries in clothing, paper, and kitchen gadgets had sprung up; mechanics and repair men had become adept at fixing the simplest and most complex machines with the limited parts available to them. People had taken to riding bicycles and even horses in lieu of getting around with inaccessible foreign oil. In short, O had become a modern utopia, with a self-sustaining local economy that neither grew nor shrank, but allowed for a comfortable, self-fulfilling way of life for all of the nation's citizens. Meanwhile the country's carbon footprint was approaching zero.
The chess-piece currency merely cemented the closed loop of this new way of life. The humble pawn became a symbol of national pride, while the finance minister himself became a national hero. Although he maintained that he had done nothing that the citizens of O did not do for themselves, speaking invitations poured in from universities, farmers' unions and bridge clubs. He was even asked to host the Christmas TV Special and in the process became good friends with the celebrity host Giorgita Chista and the pop-singer Amorosu. Plans were drawn up to erect his statue in Independence Plaza.
The rest of the world was too busy panicking over its own economic woes to notice the radical changes O had embraced. Too busy, that is, until The Economist magazine ran a cover article on "the little country that could." At first the attention was flattering. The president and the finance minister were invited to address the UN general assembly and the World Committee on Global Warming (WCGW).
Even as the first wave of eco-tourists arrived in O, the WCGW proposed the next climate change summit be held in O. The president readily accepted. Planning and preparations began. Meanwhile, the increasing number of visitors to the country found they had no limestone chess pieces of their own, so offered their national currencies to buy coffee and pay their bed-and-breakfast bills. With little other choice, Oians accepted the foreign money, at times giving rooks and pawns as change. Soon a black market in foreign exchange sprang up.
In an emergency session, Congress passed the Currency Protection Act, requiring all foreigners to exchange any chess pieces they had acquired during their stay back to their own currency when they left the country. But the tourists did not wish to give up their chess pieces. They preferred to take them home as souvenirs of their trip. One by one, queens, bishops, knights and pawns were smuggled from the country. The Oians themselves drew up elaborate foreign exchange charts, which they carried in their pockets and referred to throughout the day as they negotiated the Babel of currency that had infiltrated their utopia. Soon enough, not a single chess piece could be found in O.
Noelle Adams has worked as a journalist in Buenos Aires and Mexico City. She now lives in Seattle.
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