Breakaway Currencies

We’ve explored nine different scenarios in which we’ve imagined a region has decided to create a new currency. Read more about breakaway currencies or select another scenario from the list below to view in more detail.

In collaboration with Dr Robert Hancké of the London School of Economics, the UK’s No. 1 retail forex provider,1 IG, has considered...

What happens if Michigan leaves the US dollar and creates its own currency?

Breakaway region Michigan

Parent country United States

Old currency US Dollar (USD)

New currency Michigan Dollar

Michigan map image

Michigan’s economy has been in decline for decades, having been outcompeted in its key industries. Would a new currency be enough to turn the state’s fortunes around?

Why might Michigan create its own currency?

  • Decades of industrial decline and social dislocation in the state are often blamed on currency manipulation by international competitors in Asia
  • Revitalisation of the local economy may require a more permissive monetary regime to give Michigan a competitive advantage over the dollar, both within the US and in the global economy
An abandoned Packard automobile factory in Detroit, Michigan. (photo: Albert duce / Wikimedia CC BY-SA 3.0)

Why is the position of Michigan weak?

  • It went from being a post-war industrial powerhouse to a derelict local economy as a result of global competition in key industries
  • The state has very few new or growing industries
  • Michigan has suffered from a vicious economic cycle: social dislocation has led to a rise in crime, which has scared investors and stifled economic redevelopment
Automotive industry as a % of Michigan’s GDP   source
Manufacturing industry as a % of Michigan’s GDP   source

What could happen... Michigan?

An independent currency in the free-trade area of the US could have significant benefits in the short run

The region could develop new industries and kickstart economic development with a cheaper currency

Since competitive advantages based on undervalued currencies are not likely to last for very long, Michigan could soon lose that cost-based increase in competitiveness and find itself back where it started the US?

The move by Michigan is unlikely to have important economic effects on the rest of the US economy, which is simply too large to for the state’s new currency to have much impact

Monetary independence for old industrial states might boost US competitiveness in the margin – but that margin is not very wide

Currency background

Change in value of US dollar (USD) since 2000, based on SDRs per currency unit   source

Change in value of US dollar (USD) since 2000

Dr Robert Hancké

“It’s unclear to what extent the dollar’s unfavourable exchange rate explains the majority of the problems of Michigan and other rustbelt states.”

What would the political impacts be?

An effective monetary secession is likely to entice other states to follow suit

It would be of particular interest to states that trade a lot with the rest of the US and could benefit from a weak currency against the dollar

Depending on the number and geographic location of these states, this could lead to a wider secessionist movement and a fierce counter-reaction from Washington DC

Would the pros outweigh the cons?

Using a softer currency than the dollar might benefit the region economically

But it might also preclude a more structural shift into high-end services and other post-industrial economic activities

Why won’t it happen?

The idea of an independent currency for states within the US is not really on the table and it is unclear how secession – political or monetary – would work in practice

Michigan has other options for economic revitalisation, such as investment in education, skills and innovation

Dr Robert Hancké is an Associate Professor of Political Economy at the London School of Economics. His research interests include the political economy of advanced capitalist societies and transition economies as well as macroeconomic policy and labour relations.

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