ANCAP is an

alternative currency A complementary currency is a currency or medium of exchange that is not necessarily a national currency, but that is thought of as supplementing or complementing national currencies. Complementary currencies are usually not legal tender and thei ...

system that uses

ammonium nitrate Ammonium nitrate is a chemical compound with the chemical formula . It is a white crystalline salt consisting of ions of ammonium and nitrate. It is highly soluble in water and hygroscopic as a solid, although it does not form hydrates. It is ...

copper Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkis ...

aluminum Aluminium (aluminum in American and Canadian English) is a chemical element with the symbol Al and atomic number 13. Aluminium has a density lower than those of other common metals, at approximately one third that of steel. It has ...

and

plywood Plywood is a material manufactured from thin layers or "plies" of wood veneer that are glued together with adjacent layers having their wood grain rotated up to 90 degrees to one another. It is an engineered wood from the family of manufactured ...

as the units of exchange. The system was first proposed in 1982 by the

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

Robert Hall. ANCAP is an example of a commodity standard.

Background of a commodity standard

In order to understand the uniqueness behind the ANCAP proposal, one must understand the history of the

monetary system A monetary system is a system by which a government provides money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint, the central banks and commercial banks. Commodity money system A commodity m ...

in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

, which currently operates under a

fiat currency Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...

standard. In such a standard, the value of

currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general def ...

is set by the

federal government A federation (also known as a federal state) is a political entity characterized by a union of partially self-governing provinces, states, or other regions under a central federal government (federalism). In a federation, the self-governin ...

. Not long ago, America's monetary system was built on a commodity standard, where the value of currency depended on a

fixed exchange rate A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another m ...

between

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

and a single good or a basket of goods. For a significant portion of American history, the value of the dollar was linked to

gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile met ...

. The price of an ounce of gold was set at a specific dollar amount, and the remaining goods in the economy were set relative to the value of gold.

Problems of a commodity standard

Economists An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...

have noted various problems and benefits associated with a commodity standard. A potential problem arises when the price of the anchor good (or goods) regularly fluctuates. Since the prices of all other goods in the economy are determined by the price of the anchor good(s), they adjust to price fluctuations of the anchor good. Take for example an economy operating under a commodity standard where

gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most spark-ignited internal combustion engines (also known as petrol engines). It consists mostly of organic co ...

is the anchor good. Gas station signs show that the price of gasoline fluctuates on a daily basis. In such a scenario, the prices of every other good are adjusted on a daily basis. Facing daily changes in prices would be a nuisance for consumers, whose natural desire is to see stable prices. A way to avoid this problem is to select an anchor good whose price does not fluctuate, or to choose a basket of goods whose price remains stable over long periods of time. It is questionable whether an

economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...

under a commodity standard would indeed have less

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...

than under a

system. The reason for this is that the commodity content of a fiat currency can be redefined by the government at any time. That is, the government would have the power to create inflation simply by raising the dollar price of the commodity base(s). Such an act would have the same effect as increasing the amount of dollars in the

monetary base In economics, the monetary base (also base money, money base, high-powered money, reserve money, outside money, central bank money or, in the UK, narrow money) in a country is the total amount of money created by the central bank. This include ...

Details of ANCAP

In 1982, the

University of Chicago Press The University of Chicago Press is the largest and one of the oldest university presses in the United States. It is operated by the University of Chicago and publishes a wide variety of academic titles, including ''The Chicago Manual of Style'', ...

published Robert Hall's idea of ANCAP as an alternative to the

gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...

.
Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar ANCAP is based on a weighted average of four commodities--

and

(or ANCAP as an abbreviation). Hall chose the four commodities (which he calls "resource units") from a list also containing wheat, sugar, heating oil, soybean oil, tin, zinc, nylon, cotton, latex, and mercury. One unit of ANCAP would consist of 33 cents' worth of ammonium nitrate, 12 cents' worth of copper, 36 cents' worth of aluminum, and 19 cents' worth of plywood (all prices are in 1967 values). In his proposal, Hall states his position against the idea of a government holding reserves under any type of a commodity standard. He argues that by allowing the government to manipulate the market, the anti-inflationary purpose of the commodity standard would be invalidated. This statement by Hall allows for a wider variation in commodities to be used as the bundle. For example, if the government wanted to hold reserves of a certain commodity, it would certainly not choose plywood because of the size (compared to gold, which has relatively concentrated wealth) and potential deterioration. Hall argues that any commodity can serve as the base as long as it is (1) sufficiently homogeneous and (2) easily measured. However, he claimed that ANCAP was a particularly good choice because the index followed the

Consumer Price Index A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time. Overview A CPI is a statistica ...

very well from the postwar era up until the year he published the idea, 1982. Hall claims that one possible goal of a commodity standard is to stabilize the cost of living (trying to stabilize all prices is likely unrealistic). To do this, commodities whose value changes in accordance with changes in the

cost of living Cost of living is the cost of maintaining a certain standard of living. Changes in the cost of living over time can be operationalized in a cost-of-living index. Cost of living calculations are also used to compare the cost of maintaining a c ...

should be chosen as the base.

References

{{DEFAULTSORT:Ancap (Commodity Standard) Exonumia Alternative currencies