Some questions to think about:
Would the exchange rate between the two be fixed or float? If fixed, would each float against other currencies? Seems like there would be problems unless the domestic currency was convertible only into greenbacks, and then greenbacks could be exchanged into foreign currency at exchange rates that float.
Would the US maintain 2 money supplies: domestic and greenback? Beyond money supply management, the simple wearing out of paper bills would force new issuance.
How would transition work? Seems like a lot of people would dump the peachbacks if devaluation relative to greenbacks was expected.
Is the purpose of all this to maintain the dollar's global role, while plundering the savings of US residents to inflate away debt?
Speculating: Optical or holographic scanning, possibly encoded with the serial number and anti-counterfeit measures. It may aid in tracking a bill's history, at least which banks it's been cleared through and maybe who deposited/exchanged them.
As to Soren's points (in the following 'peachbacks' are the new currency to be circulated only domestically, 'greenbacks' are the old currency to be circulated only internationally):
Would the exchange rate between the two be fixed or float? If fixed, would each float against other currencies? Seems like there would be problems unless the domestic currency was convertible only into greenbacks, and then greenbacks could be exchanged into foreign currency at exchange rates that float.
Don't know. Save for your last question, I would assume both peachbacks and greenbacks might float against other currencies and each other at rates set by the market. I would further assume peachbacks are convertible to greenbacks only at US borders or currency exchanges for people leaving the US, and convertible back to peachbacks for people entering the US. I assume this would be enforced by treating peachbacks internationally as counterfeit money when discovered by banks or authorities and treat greenbacks likewise as counterfeit domestically (this is where the greenback legal tender issues arise). Merchants would readily recognise either currency and refuse to accept the disallowed currency in transactions, knowing their banks will confiscate them in merchant deposits. However a black market could operate.
The exception would be anyone could walk into a bank or currency exchange and voluntarily exchange disallowed currency for allowed currency with accompanying form explaining where the disallowed currency originated. Presumably this would be routine for amounts below say $10K and more scrutiny applied for larger amounts. If the identity of the holder or the serial numbers on the bills tripped an alert, the cash police descend upon the hapless tourist.
Would the US maintain 2 money supplies: domestic and greenback? Beyond money supply management, the simple wearing out of paper bills would force new issuance.
Yes I would assume so. The existing mechanisms for recognizing worn out greenbacks would remain in force as well as be applied to the peachbacks. Exchange would simply be in accord with what is the 'allowed' currency based on domestic or international location. The treasury would retain responsibility for printing both currencies and dispensing new bills to (and collecting old bills from) banks domestic and international as they do now.
Money supply management could be more focused and adjusted differently for domestic and international supply targets, as the Fed felt inclined in pursuit of its policies. Which given two separate money supplies, could now have diverging policies each customized for a particular goal.
How would transition work? Seems like a lot of people would dump the peachbacks if devaluation relative to greenbacks was expected.
Don't know. Peachbacks would be difficult to dump assuming they'd be the only game in town (domestically) and the envisioned enforcement measures. But I could imagine two black markets forming depending on relative valuations.
Is the purpose of all this to maintain the dollar's global role, while plundering the savings of US residents to inflate away debt?
That, in my opinion, is the real question.
Assuming there are no technical nor operational barriers to having this dual currency and black markets are not a significant factor in setting floating exchange rates, it would seem plausible peachbacks could be used to contain or partition some of the effects of the Fed's inflationary policies (but not entirely) while retain at least the appearance of the greenbacks being the favored reserve currency internationally, and thus helping to avoid/minimize the effects of devalued greenback denominated bonds.
Any thoughts as to the feasibility, practicality, plausibility of this last point (your question)? Maybe in light of this last question, the peachback/greenback exchange rate should be fixed, relative to each other and the greenback floats as it does now? I dunno? But given the mindset of the Fed & Treasury these days, the above seems like something they'd want if they thought they could make it fly.