"While the monetary metals are unique as assets of intrinsic value that cannot default because they are no one's liability, this also has become their crippling weakness. For in being no one's liability, the monetary metals have had -- unlike their competitors, government-issued currencies -- no sovereign defenders."
- Extracted from GATA's Dawson Declaration.
Given that governments benefit enormously from fiat money it may seem strange to expect even a single country to become a 'sovereign defender' of gold. Nevertheless, I think it is worth thinking about how a government may go about defending or sponsoring gold. After all, we optimists believe that bad rulers can be followed by good ones. Here are some ideas:
Initiative One:
The government can part-fund new companies that will focus on infrastructure. Shares can be issued to the private sector with partial payment deferred but payable in gold. When the companies have matured the government’s share can be privatised with the proceeds adding to its stock of gold*.
Initiative Two:
All rent from government properties is either required in gold* or is converted into gold* soon after receipt.
Initiative Three:
Charitable payouts and interest-free loans will be in gold*.
Initiative Four:
Where the government collects monetary payments of zakat it will only accept payments that are made in gold*.
Initiative Five:
Impose an x% ‘fraud tax’ on all purely fiat currencies entering the relevant territory.
Initiative Six:
Educate the people about the realities of fiat money and fractional reserve banking. For example, the government could (after adding appropriate notes) translate and distribute Rothbard’s “The Mystery of Banking.” [Apparently, some of Rothbard’s work has already been translated for the people of Taiwan.]
The main idea here is to help create a perpetual demand for gold*. Fiat currencies currently pervade the global economy; sponsors of gold should take intelligent steps in increasing the use and flow of fair forms of money throughout the world. The market for gold is highly liquid but it needs to be much deeper in order to challenge the current dominance of fiat and fractional reserve money.
[* or other honest forms of money e.g. silver, copper, platinum and palladium coins.]
2 comments:
Why would any government want to sponsor gold? If it educates its people on the follies of fiat money, it would look silly if it perpetuated fiat money as its currency.
Either a country's currency will be linked to gold, or it wont. If it can abuse its citizens wealth when it needs with fiat money but would be unable to with gold, it would have no incentive to make a switch.
On another note; If a country has paper money which is convertible to gold, then wouldn't other countries simply buy up all the gold reserves of the country in question - either as private citizens making purchases of gold and leaving the country, or via money markets?
Thanks for your comment.
I think that a government that would be willing to "sponsor"(1) gold would be a government that seeks to act in the best interests of its citizens. Such a government would not impose its fiat money on its citizens; legal tender laws and the requirement to pay tax in only that country's currency would be adjusted/abolished accordingly.
As for paper money that is convertible to gold a recent article (2) by Martin Armstrong details why it has failed in the past.
In that article he writes:
"The Floating Exchange Rate System is a means for the real forces of the Free Market to correct the absurdity of governments. We just need a neutral Reserve Currency that is a two-tier system providing international settlement, while retaining individual identity."
I think that gold is a good candidate to be that Reserve Currency but the decision should be left to the free market not governmental decree.
(1) http://halalmoney.blogspot.com/2006/04/sponsoring-gold.html
(2) http://www.martinarmstrong.org/files/Creating-the-Floating-Exchange-Rate-System-The-Fate-of-the-Dollar-2010-and-Beyond-1-11-10.pdf
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