Sunday, June 26, 2011

Canadian Tire Money

In response to my last post, Angelo Melino (University of Toronto) sent me to this post, which informs us that Canadian Tire money might soon meet a sad end.

For non-Canadians, Canadian Tire money is issued by the Canadian Tire Corporation, which operates ubiquitous retail outlets across Canada. A Canadian Tire store looks something like a Sears. They sell hardware, auto parts, miscellaneous department store items, cheap auto repairs, gasoline, and of course tires. Canadian Tire notes come in denominations from 5 cents up to 2 dollars, and are issued to you when you purchase something at a Canadian Tire store. In the old days, one would receive 5% of the value of the purchase in Canadian Tire notes, but the rebate has fallen to 0.4%. My memory may be faulty, but I think it was the case (and may still be the case) that one could never be rid of Canadian Tire money, except in the limit, or by virtue of free disposal, as you would receive the rebate even if you made the purchase with Canadian Tire money.

Now, the experience with Canadian Tire money can tell you something about what the promotors of Bitcoin are up against. As you can see here from this 10-cent note, issued, I believe, in the 1980s, Canadian Tire money looks pretty convincing. Canadian Tire has actually gone to some trouble to design the note to avoid counterfeiting. It has a serial number on the back, and a detailed picture on the front of Sandy McTire, the thrifty Scot. Further, as stated on the note, it is redeemable in merchandise (at the Canadian Tire store of course), and to hammer that home, that's stated in both official languages. Thus, Canadian Tire money has Bitcoin beaten on at least two dimensions. It looks something like government-issued currency, which would encourage adoption, and it is a promise to pay something specific on redemption. Further, redemption is not difficult, as essentially any reasonably-sized community in Canada has a Canadian Tire store.

So, you might think that Canadian Tire money might circulate, and be accepted in transactions other than purchases of goods and services at Canadian Tire stores. Not so. There is the odd anecdote, including the one in this Minneapolis Fed Quarterly Review paper by Eichenbaum and Wallace about circulation of Canadian Tire notes but, as most Canadians will tell you, Canadian Tire money tends to sit in desk drawers and closets, and not in wallets. Further, serious experimental evidence strongly supports the view that Canadian Tire money not only does not circulate, but tends to accumulate in hordes that cannot be found when it is time to visit the Canadian Tire store.

One experiment was carried out by yours truly and Mike Stutzer. Stutzer and I designed the experiment. I supplied the Canadian Tire money from my desk drawer, and Stutzer did the field work. Stutzer took a sailing trip from Duluth Minnesota to Thunder Bay Ontario, and attempted to pass the notes in various Thunder Bay bars. As Mike will attest, he got plenty of laughter, but no beer in exchange for his Canadian Tire money.

Of course the problem may have been that Mike tried to exchange the notes in a manner that was most likely to be met with laughter and no beer, as Stutzer may be one of the funniest people on the planet. Mike is a native of St. Louis Park, Minnesota, in a cohort that included Joel and Ethan Coen, (sons of Edward Coen, one-time professor of economics at the University of Minnesota) and Al Franken. St. Louis Park is in part the subject of A Serious Man, and filming took place there and in other Minneapolis suburbs. What is it about a time and place that makes people funny (or maybe people from St. Louis Park have always been funny)? I don't know.

In any case Canadian Tire money is sadly not what it used to be, and may meet its end. In addition to being issued in smaller quantities, it can no longer be redeemed in gasoline, and seems to be shunned by a younger generation of Canadians. Soon, Canadian Tire money could fade from memory, much like the Diefendollar.


  1. Steve,
    Sorry for the off-topic.

    Has you seen this paper?



  2. I saw there was a comment here, and was all excited, thinking that someone was actually paying attention to this piece. No such luck. No, I haven't read that paper.

  3. Wouldn't a person being from St. Louis Park (as evidenced by "A Serious Man") indicate that the person's hilarity didn't contribute to their inability to circulate Canadian Tire Money, but rather their own 'shlimazl'.

    Private currency appears to work with certain cohorts (say, Ron Paul fans) who understand that within their demographic that the money will be redeemable. But, it would be interesting to see if Canadian Tire Money would be exchangeable within a block or two of a store that accepts them.

    It's like trading baseball cards. Once you lose faith that people will give you cash for your baseball card collection, the point of exchange is for nostalgia, not maximizing your utility via optimal portfolio allocations.

  4. Now we have walmart dollars, ipod dollars, etc., on plastic cards, so who needs paper tire money? Also, I think Disney dollars and Toys R Us dollars are still available on paper.

  5. That was a great post, Steven. Unlikely to get as many people riled up as the ones on Krugman, but lovely to read. Thanks.
    - C

  6. Well, that made my day. Glad to be of service. Actually, Canadian Tire once had me riled up. I bought some tires there for my 1977 Honda Civic, and they did not last very long.

  7. You've covered the network and credibility issues with the widespread adoption and circulation of private currencies, but I think there is another issue overlooked by monetary economists as well - though its more socio-psychological than economic. I think a very underestimated barrier to private money is that there is a certain legitimacy to government currency felt among the general public. I think people are, for various reasons, suspicious of private money (especially private fiat money like Bitcoins) and aren't quite sure how it works. I've tried to explain how private money systems could work to people, and they usually just find it confusing. I think private money is hard to get going because without widespread adoption it remains illegitimate and almost mysterious and it's illegitimacy and mystery prevents it from being adopted- leading to a self-reinforcing process. I think if inflation were high and / or volatile the legitimacy of government currency would decrease and we could have more robust private currency circulation. But, I think as long as inflation remains at reasonable levels, I doubt people will attempt to explore alternatives because government money is seemingly the most legitimate among people. For the record, I don't really agree with this reasoning, but that's what I think is going on among people.

    Also, I think a big impediment to private money is the requirement that taxes be paid in government-issued currency.

  8. 1. Successful private money systems existed in the US (Suffolk banking system pre-civil war), Canada (before 1935), and Scotland (early 19th century). It is possible to get these things going.

    2. I never pay my taxes with government-issued currency. The IRS takes checks and Bank of America liabilities, in my experience.

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