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Strictly, it's not really part of the money supply, because it's not *generally* acceptable in exchange for goods and services. It's the same as Canadian Tire money. (Actually, Canadian Tire money is more like money, because there are no *technical* barriers to spending it elsewhere). It's more like trade credit, only with a positive rather than negative balance in your account at the merchant. And trade credit is a substitute for money, and so reduces the demand for money rather than increasing the supply. (Steve Ferris did a paper on this ages ago.)

But the fact that you can convert it with low transactions cost (zero transactions costs in terms of hassle, which matters as much as fees) is interesting. In that regard, for someone who goes to Starbucks a lot, and who travels a lot, you might even argue that it is *more generally* accepted than dollar bills, and therefore *more* like money than dollar bills. Which is really neat.

Mike Sproul (I think?) made an argument here some months back, saying that monetary economists are always way behind the curve in terms as what we include as "money". Thinking of credit cards and Starbucks cards being much easier to use across "currency areas" reinforces his point.

But forget Starbucks. Does it work for Tim Horton's? That's the important question.

One non-trivial implication: the seigniorage goes to Starbucks, rather than to the UK or Canadian governments.

Starbucks cards have been stable at 1 USD:1 CND for the last 4 years. I have yet to figure out how to exploit this for massive profit.

Nick: "And trade credit is a substitute for money, and so reduces the demand for money"

Interesting point. I could send my little ones off to school with $20 for emergencies and spending money. Or, I could send them off with bus tickets, a $10 Tim Horton's card, a pre-paid cell phone for emergencies, and $5 in cash.

Perhaps there's a post to be written on near money and social control?

JP: ;-)

JP: That's easy! Just stand in line at Starbucks and by people's coffee for the, on your card, in exchange for cash, which you then take to the forex market, swap into the cheaper currency, then put on your card. You could easily make millions that way. Duh!

Just not right now (the Starbucks forex effect has kicked in, all those jars of US and CDN coins have been converted to coffee credits, and we are at parity), D'oh!
Try again the next time we (or the USD) are at 63 cents.

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