April 14th, 2006

coyote Phil

The First Bank of McDonalds

You know those $5 McDonalds gift certificates? If you go to McDonalds in England, they probably sell you a 5 pound McDonalds gift certificate, or maybe 5 euro. Big deal. But imagine if instead of valueing it in dollars or euros, they valued it in Big Macs. "This note may be redeemed for 2 Big Macs (TM) at any McDonalds."

McDonald's Gift Certificates have then become a currency. The McDonald's Gift Certificate would also then pace inflation. This at first seems like a thing McDonald's wouldn't want to do, because under the current scheme, they can issue gift certificates for $5, and if the person holds onto them, they depreciate in value, and McDonald's keeps the difference.

However, McDonald's has branches all around the world. Even in unstable countries that sometimes suffer hyper-inflation. People in those countries could protect themselves against inflation by investing in capital, but experience shows they rarely are able to do this. In some (but not all) countries, they could invest in gold, or convert their money to some other country's money. But gold and other precious metals are naturally depreciating over time because their importance declines as technology advances, and changing your currency just means you're subject to another nation's inflation rate instead of your own.

But if they could protect themselves against inflation by investing in McDonald's Gift Certificates, everybody wins. McDonald's takes the money they're paid in ozambekos or whatever, and swiftly converts it into dollars. The Ozambekan peasants stash their McDollars under their mattresses, and when inflation hits, they pull them out and - no, they don't take them back to McDonald's - they trade them with each other, just like normal money, instead of starving. McDonald's makes a huge profit on all the McDollars that were bought but never used because the intent was never to buy Big Macs with them.