Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Stock Market Consolidation Week - 29th Nov 15
A Black Friday for Gold Prices - 29th Nov 15
Politicians Driving The World Towards War - Fourth Turning - 29th Nov 15
Stock Market Down Monday, Gold Price Bottoming? - 29th Nov 15
Turkey Downs Russian Jet to Draw NATO and US Deeper into Syrian Quagmire - 28th Nov 15
Stock Market Quiet Week as Primary 5 Continues - 28th Nov 15
Black Friday, Weekend for Europe's Migrants - 28th Nov 15
HUI and Gold - Who's Leading Whom? - 28th Nov 15
Gold And Silver - No Ending Action, But End May Be Near - 28th Nov 15
Social and Cultural Distress Dividing The Nation - Fourth Turning - 28th Nov 15
Sheffield Houses Prices 2015, Best Estate Agents As Rated by Buyers and Sellers - 28th Nov 15
Stock Market Top Valuations, at a Critical Juncture - 27th Nov 15
The Top Shopping Opportunity on Black Friday - 27th Nov 15
Economics Is About Scarcity, Property, and Relationships - 27th Nov 15
UK Immigration Crisis Hits New Extreme of 336k Net Migration, up 32% on 2014 - 27th Nov 15
Vauxhall Zafira B Fire Danger Recall - What to Do Video - 26th Nov 15
Triggers In US Dollar Collapse - 26th Nov 15
Apple Stock is a 10-Year Short - Bear Market Environment - 26th Nov 15
U.S. Federal Reserve Rate Hike - 26th Nov 15
George Osborne's War on Buy to Let Sector Trending Towards Doomsday - 26th Nov 15
Will Turkey Drag NATO into War With Russia in Syria? - 25th Nov 15
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

Wealth Protection, Anything but the U.S. Dollar

Commodities / Gold and Silver 2012 Mar 06, 2012 - 06:24 AM GMT

By: Jan_Skoyles


Best Financial Markets Analysis ArticleLast week, in a much publicised exchange, Congressman Ron Paul asked Chairman Ben Bernanke if he would consider the circulation of gold and silver coins as legal tender. At The Real Asset Co we often write about how gold and silver are money, as history has repeatedly shown. In this article Jan Skoyles looks at why the introduction of silver coins into an economy is a good idea and a widely held view.

‘That’s preservation value!’ exclaimed Congressman Ron Paul at Federal Reserve Chairman Ben Bernanke last week. The Congressman was waving a silver ounce coin at his nemesis. He had just finished giving him a brief lesson on the ability of silver to maintain its value and purchasing power, i.e. the inability of the dollar to do the same.

As many of you will have read by now Dr. Paul’s exchange with Mr Bernanke was the most recent of many lessons for the Chairman in sound economics and how not to run the Fed. It was entertaining watching Dr Paul ask Bernanke if he did his own shopping before launching into a campaign speech focussed on the reckless behaviour of the Federal Reserve.

Dr Paul felt it necessary to remind Mr Bernanke that the Federal Reserve has a responsibility to protect the dollar.

Dr Paul stated that there is no longer a definition of a dollar, is it whatever it buys? He asked. The dollar, a fiat currency, is worth less and less each day. He stated that there is no other measure where one could get away with changing it as the Fed do with the dollar “You can’t have a yardstick which changes value everyday” he exclaimed, “otherwise the whole building would be out of sync!”

Competing currencies

Dr Paul brought up the subject of introducing competing currencies. He asked Mr Bernanke if he would consider making alternative currencies, i.e. gold and silver, legal tender. He demonstrated, whilst holding up a silver coin, silver’s ability to hold its value. When Bernanke came into power in 2006 that ounce of silver bought 4 gallons of gas, today it buys just less than 11.

At the moment nothing, as Mr Bernanke quite rightly pointed out, is stopping individuals from saving in gold and silver. But that’s not what Ron Paul wants; he wants people to be able to pay their bills in silver – their taxes, their legal settlements. He wants silver to circulate alongside the dollar, as two currencies, as currencies do across the world.

Growing concerns

It’s not just Dr Paul who has thought about this in the US. As CNN reported last month:

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

“In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos,” said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

As Dr Paul argued, the single currency of the dollar is stealing from the American people; silver would give individuals the freedom to choose honest money or un-backed paper money.

Silver age

‘The major monetary metal in history is silver, not gold,’ (Friedman, 1993).

Historically, silver was the first metallic standard as it was more accessible to the common man while gold tended to be reserved for royalty or religion. Lips (2001) and Jaitly (2010) both acknowledge that the loss of silver from the monetary system was due to a desire by the government for control. Silver’s vast distribution throughout the population meant that it was harder to control by governments and therefore over time silver was removed and gold became the legal monetary metal and base for the British Pound.

The introduction of silver coins into an economy is not a radical proposal in the modern world. It is as widely discussed as the introduction of the gold standard, but is seen as a more time relevant solution to today’s monetary problem. Lips sees silver’s monetary role as ‘the gold of the “little man”’.

The introduction of a silver coin is an idea proposed by Hugo Salinas-Price, President of the Mexican Civic Association for Silver. He is currently passing a bill through Mexican Congress to monetize the Silver Libertad ounce coin and circulate it alongside the Mexican peso.

As Dr Paul regularly states, inflation has been prevalent since the introduction of paper money, the introduction of silver coins would be ‘an effective instrument to assist in dealing with inflation,’ (Salinas-Price, 2010). The circulation of silver coins would ‘create refuge for popular savings, offering the population an instrument with no devaluation, which is not impacted by inflation, that is not subject to errors due to monetary policies or bank collapses,’ (Salinas-Price, 2011).  There is one caveat however, because inflation is now a global phenomenon, which has affected silver’s price, the monetary value of the coin must be quoted rather than engraved, so as to ensure it will circulate permanently.

Whilst Dr Paul sees the introduction of silver coins as a threat to the dollar and protection against inflation; it will allow people to choose money with real value, for Mr Salinas-Price it can also be seen as a savings vehicle.

This will assist countries which are suffering from inflation. Mr Salinas-Price states that as silver coins are issued and the paper currency of equivalent value is withdrawn, the silver coins will have zero velocity as they will be ‘treasured up’ by the population. Therefore the inflationary effect on the economy will be zero, ‘this is the correct way to fight inflation…saving these coins will amount to voluntary austerity…’ (Salinas-Price, 2010).

Competition to national currency

Dr Paul would like to see the introduction of gold and silver coins as a competing currency. In the UK we have politicians of our own who also recommend competing currencies.

One of them is Douglas Carswell, a Conservative MP, who we interviewed recently. Whilst his proposals do not focus on the introduction of precious metals in the economy, he is interested in idea of legal tender laws being repealed in order to allow competing currencies to circulate.

His argument is simple; at the moment the cost of devaluing the pound, as done by the Bank of England, is a cost not only incurred by the bank and the government but also us, the people of the economy. By removing legal tender laws we would be able to choose which currencies we could spend in and thereby present competition to the British pound (which may make Governor Mervyn King think twice about recommending further rounds of quantitative easing).

The beauty of Mr Carswell’s proposal is that this would operate entirely electronically, there would be no need for you to go to the bureau de change each day if you decided that you wanted to change the currency you were operating in. As Will Bancroft wrote about earlier this month, we know longer need to physically carry money around with us; there is digital money and digital gold and silver. This is currently in development in Utah; the Utah Gold and Silver Depository are hoping to allow customers to spend their gold and silver via a debit card which is linked to your gold and silver coin holdings.

There is little reason why you would have to walk around with a few coins of silver in your pocket. Instead you would spend on a card which is linked to your silver account, as you do now with the national currency. However, in contrast to the national currency, you would be safe in the knowledge that your silver was safe in the bank and would maintain its purchasing power.

For more information about using gold and silver as alternatives to the fiat money system, and for how gold investment fits into this bigger picture, follow us on Twitter and ‘Like’ us on Facebook. You can also watch interviews with politicians, academics, professional investors and traders on our YouTube channel.

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History