A Single GLOBAL CURRENCY?
Sure, why not. But, only
if it's Gold and Silver Bullion!
Alex Wallenwein
Jul 9, 2005
Introduction
Reinventing
the Wheel
The
Advantages of Bullion As a Global Currency
The
'Medium and the Message'
No Competition Means Inflation
Human Integrity versus "CYA"
Bullion Is Self-Regulating
Why Fiat Currencies Can
Even Exist
The Bottom Line
Introduction
There is a fledgling organization
at work whose aim it is to foment a new drive among academics
and financiers - and ultimately among politicians and those who
elect them - toward the implementation of a single global currency.
This organization appears to
be a private one, founded by a Maine businessman who once ran
for that state's legislature in 2002 and lost. This organization
holds annual meetings at the Bretton Woods, NH, mountain resort
where the precursor to the current dollar reserve system, originally
under a dollar-led gold exchange standard, was first formed in
1944. The first meeting of this organization was held last year.
The next one is coming up on July 14 and 15.
The plan is to bring about
the institution of a single global currency (SGC) by the year
2024. Last year's meeting had only seven attendees and three
temporary hotel guest spectators who drifted in for a few minutes.
The effort may never amount to anything, of course - but who
knows? Just in case it does, I want to add my two cents worth
to the discussion by bringing up some points that have been largely
sidestepped and ignored, so far, by the vast majority of those
who have seriously considered such a currency.
It is especially important
for free market advocates and gold investors to understand what
the implications will be if such a currency should turn out to
be of the central bank-issued, debt-based fiat variety - which
is probably the most likely scenario. Given the current level
of understanding (or lack thereof) of the majority of people
of what it actually is that they are earning, spending, saving,
and investing every day of their lives, the fact that any future
global currency will be just another fiat is a forgone conclusion.
However, how would you have
liked to be a fly on the wall at the original Bretton Woods conference?
Better yet, what if you could have had a say in what was being
formulated there, right over the heads of everyone, as was to
be expected?
The best way of influencing
an area of public discourse is at its very inception, when organizers,
supporters, and participants aren't quite sure yet in which direction
their project will take off - or whether it will take off. When
human arrogance hasn't made the principals "fat" with
a sense of recognition, achievement, and self-importance, yet.
If - and this is a really big
"if" - this organization should ever rise to the level
of influence it desires, "getting in" to the discussion
now, and contributing to its future direction, can be an invaluable
opportunity - one that is not likely to appear again anytime
soon.
It is an opportunity any self-avowed
free-marketeer should take seriously!
Although two presenters at
the 2004 conference, James Turk and Prof. Choudhoury of the College
of Commerce and Economics, Sultan Qaboos Univ., Muscat, Oman,
have weighed in on the side of gold, I have no idea whether this
organization will post contributions like this one, or submit
them to its participating experts for consideration, or whatever.
But I do know that all those who currently shake their fists
and rail at government interference with the ordinary free market
process had better get up and do something about it. Wringing
your hands but doing nothing are very compatible - but utterly
fruitless endeavors. They get us results like the US supreme
court's recent Kelo decision, the Real ID Act, or the Patriot
Act - the grandfather of all post 9-11 freedom-destroying legislative
coups-d'etat.
Publicly, big-wig economists
and central bankers still profess scepticism toward the utility
or even feasibility of an SGC - but you and I know that they
are working on it in the background. To them, it's better that
way. Too much public attention to this issue early on could be
fatal. According to a Zogby poll conducted by the organization
in question, a majority of individuals are still opposed to the
very idea of it, although the numbers are getting a little too
close for comfort. It is easy to see that in five, ten, or twenty
years this can change dramatically.
The time to weigh in on the
side of free markets and individual property rights is now.
This essay, in order to encourage
everyone to follow and weigh in on the discussion - and not leave
it just to the pointy-headed intellectuals and academics out
there - is written in very common terms and seeks to avoid the
typical ecommunist (I'm sorry, economist) mumbo-jumbo at every
turn.
Reinventing
the Wheel
There is a certain amount of
futility to an undertaking like the "single global currency"
because a global currency that can equalize exchange rates, avoid
exchange related transactional expenses, and that can put the
global economy on a sound and stable footing need not be created
at all. It already exists.
My reason for coming here is
to be an advocate not for the creation of that currency, but
for its widespread adoption and acceptance by people - not by
governments.
The currency I am talking about
is not the dollar, not the euro, not the yen, the renminbi, or
the peso.
It is gold (and silver, to
some degree).
There are an almost endless
number of reasons why gold is the best choice for a global currency,
but all of those can be distilled into only three:
The Advantages
of Gold Bullion As a Global Currency
- The first reason for choosing
gold as the most useful, most stable, and most efficient solution
to the world's currency woes is the fact that its ownership can
now be traded and exchanged and transferred instantly, legally,
and efficiently around the world by the click of a mouse. This
completely avoids the usual charges that gold is "too heavy"
and "too cumbersome" - and "too antiquated of
a relic" to be useful in modern society.
- The second reason is that
the argument that "gold can never play a role as a true
currency again" (because the amount of outstanding paper
currency that would represent claims to gold if it was reintroduced
is just too large these days) is completely misplaced and does
not even enter into consideration, as I will explain below.
- The third reason is that,
with gold, Marshall McLuhan's suggestion that "the medium
is the message" becomes reality - although admittedly in
a sense that he never imagined.
The "Medium
and the Message"
In commercial transaction,
currency is the medium, and the "message" it transfers
is value. So, currency is the medium by which people choose to
transfer value from a buyer to a seller of goods or services.
But in the case of gold, the currency is no longer just the medium
or the conduit of value. It is value itself.
This gives the utility of gold
as currency so high and so lofty an advantage over fiat that
fiat could never hope to rise to that same level.
The trouble with fiats is that
their value must be supplied from the outside. They have none
of their own. That is why they are incapable of effectively and
efficiently holding value over long periods of time. Their value
is always dependent on an expressed or implied "promise,"
and that promise can only be kept by government action of one
sort or another.
If fiat is dependent in its
value (or its utility to individuals and organizations) on governments,
that unfortunately means that governments are in control of its
value. That control opens fiat up to potential government abuse.
To put it bluntly, governments have the ability (and as we will
see the motive) to deceive populations about pretty much everything
that has to do with fiats.
The most important factor in
that equation is that governments can deceive populations about
the amount of fiat outstanding. Since they determine the amount
of fiat to be created over time, the potential of over-issuance
(monetary inflation leading to price inflation) is theoretically
unlimited under any fiat regime.
In current practice, due to
the innate competition between currency-issuing nations, there
are certain practical limits to this threat of over-issuance.
Governments must take care to prevent their populations (and,
in our globalizing world, those in other countries) from completely
losing faith in their respective national fiat. Even though there
may be exchange risks and costs, this natural competition at
least reduces the possibility of utter debauchery.
No Competition
Among Fiats Means
No Limits on Over-Issuance
But when a fiat - any fiat
- becomes the only fiat in the world, with only one institution
backing it up, all natural checks and balances due to international
competition are abandoned. When that happens, the threat of over
issuance "graduates" from a limited theoretical possibility
to an unlimited practical one.
A single global fiat requires
a single central bank that issues it. A global central bank,
in turn, requires the force of law to stand behind it, and that
law can only be enforced by a centralized political entity with
executive powers. A global, centralized, political entity will
by nature require a global "police force" that can
enforce its laws, and that global police force cannot tolerate
competition - lest it lose control.
Such a concentration of power
in one global institution or group of institutions is a recipe
for disaster, because any institution must be manned by humans,
and humans are prone to failure and temptations, as history has
amply shown.
One might argue that Europe
is probably the best example, and proof, that this caution is
overdone, that a single currency used among widely disparate
nations is possible without utter tyranny - but Europe as a political
entity is still young. A drive for an over-arching European military
force is already in progress. There is no telling where this
will lead at this time - but I have a good guess. If that pan-European
military ever comes into existence - and possibly even merges
with Russia's - watch what happens to any country trying to secede
from that "Union." Americans have a perfect historical
example of all the evil that will be unleashed on such a country
or group of countries making such an attempt.
But, however that may be, if
fiat issuance is ever globalized and directed by a single entity,
whether a central bank or a government or (more likely) a combination
of both, there would be no one left with the ability to enforce
an accounting to the people.
Human Integrity
Versus "CYA" (Cover Your Arse)
It matters not how perfect
such an entity may be structured or organized to ensure that
such abuses will never take place. We all know that organizations
are always run by humans, and humans are - well ... fallible.
There is no disputing that fact.
Give a human more power, and
you also give him or her more power to cover up the human's mistakes.
As long as humans will make
decisions in banking or government, mistakes will be made - and
covered up. The bigger the mistakes, the more power is used to
cover them up. History has shown that people in high places develop
an amazing ability to "cooperate" when it comes to
covering up mistakes that could negatively affect the entire
power structure.
That, combined with the fact
that an individual's power to decide for himself how he will
live is directly inversely proportional to the degree of centralization
of political and financial power, counsels heavily against even
trying to establish a global fiat system - at least if you like
your freedom.
Bullion Is Self-Regulating
All of these potential evils
become non-issues, however, when gold or silver specie alone
become the global currency of choice.
In an ideal world, specie and
fiat could peacefully coexist and compete with each other. The
only problem lies in the fact that any national or even international
fiat would be no match at all to a freely circulating specie
currency of the type I am proposing.
In a world where you have the
ability to not only take some of your fiat and buy and own gold
as you do now, but where you can actually get paid in specie
for your work/business activities, where you can go to any store,
online and offline, and buy whatever you want for specie, priced
in nothing but bullion-weight units, who in their right mind
would want to accept and hold shaky and unpredictable fiat instead?
Why Fiat Currencies
Can Even Exist
There are only two fundamental
reasons why fiat has become so all-pervasive:
A. Under the old "classical"
gold standard, people became used to regarding the circulating
paper-proxies for gold as currency themselves, and
B. People were already mentally
conditioned to count and value their wealth in terms of arbitrary
currency units such as "dollars," "guineas,"
"francs," etc.
But more on that later.
Absent the abolition of laws,
regulations, or court decisions that restrict specie-use as a
currency, all that needs to be introduced is (a) a universal
dual pricing system that prices every item or service in specie-weight
units as well as in fiat units, that is (b) combined with an
universal, convenient, facility for acquiring bullion currency.
Once these two conditions are
met,
a. Shoppers will be able to
see every day how the fiat price of something goes up while the
gold price stays the same or even gets deeply discounted (after
all, merchants might prefer to earn stable gold rather than shifty
fiat units, so they might price their wares accordingly).
b. Workers will eventually
demand specie as wages from their employers to reduce their individual
exchange risks.
c. Companies will demand specie
from those they sell to (because specie eliminates all currency
risk) in domestic as well as international trade, and finally
d. Governments will demand
specie from their citizens for tax payments - or they will try
to outlaw bullion currency. But as long as there are sovereign,
independent nations, this can be minimized or avoided altogether.
The Bottom
Line:
The bottom line is:
I. Accepting and holding fiat
is only an option when the free acquisition and circulation of
specie as currency is somehow restricted, either by law, by custom,
or by the fact that everything in the world is priced in fiat
units rather than bullion-weight units.
II. The fact that people have
"learned" (were trained?) to think of all commercial
value in terms of arbitrary fiat units is the sine qua non that
has allowed a pure fiat system to exist for as long as the current
system has.
III. It is this very fact that
- if changed - can usher in a period of worldwide prosperity,
individual security, stability, and quality of life for individuals
in all nations that will be without equal in world history.
As a result, a global bullion
weight system has the following advantages:
- It can exist on its own, without
government "management" (i.e., deception as to its
alleged value and coercion as to its use).
- It cannot be artificially
inflated.
- It cannot be (effectively)
counterfeited.
- It cannot be dominated or
claimed by one country or group of countries to the detriment
of another.
- It cannot be totally controlled
by any political entity to the detriment of individual human
freedom.
Yes, gold can be stolen - but
so can fiat. (Let's not talk about such Orwellian theft-prevention
measures as implanted RFID chips, etc., for the moment. Yes,
they can be used to transfer ownership of gold as well as fiat,
but the fallibility of human nature that leads to government
abuses in fiat issuance counsels strongly against the introduction
of such devices, even if they were to facilitate a gold currency
instead of fiat. Transfers of physical gold units must never
be limited or outlawed in any form, for any reason.)
(To read the rest of this long
essay and the footnotes, please follow this
link.)
321gold Inc
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