Of course we haven’t heard of any such demand. I thought we were talking in terms of a totally free-market banking and monetary system, which we don’t have at the moment.
I do think these physical-metal notes may be used as a kind of psychological weapon on the side of sound money in these days of fiat currency. People who are opposed for one reason or another to the prevalence of coins in this system where there are no fiduciary (convertible bank) notes might be more acceptant of using these notes as an object of barter (in getting around legal tender laws).
@yonoid: The trouble is, you’re not just fighting “bad laws” or public ignorance of monetary theory, you’re fighting a flesh-and-blood financial mafia. The people in the top echelons of the banking system understand how the system really works and what brings home the bacon and they’re not about to let anyone get in their way. Look at the raids on the Liberty Dollar, for example. These are the same kind of goons as those at the IRS… the rules are whatever serves their interests.
Also, don’t forget that Mises’s regression theorem applies to dollars as much as it once did to gold. In dollarized countries, any new currency that arises will have to have its value established from its convertibility to dollars, this would be as true of gold or silver (now) as anything else. Only if merchants and private individuals willingly accept the new medium of exchange and recognize its superlative marketability does a new monetary medium of a chance. You are facing a bootstrap problem… how do you get one person to start using your new money unless many people are already using it? And how do you get many people to use it if you can’t get one person to use it? Chicken and egg. The way forward, in my opinion, is to first establish a full-reserve paper dollar bank (physical backing of every “electronic” dollar with a physical, paper dollar). You can plug into the regular bank-wire and EFT systems. Once you’ve attracted a customer base who wants your full-reserve services and established your legitimacy in the banking regulatory framework, then you can offer accounts in alternative currencies, like EUR, YEN, gold and silver, also all full-reserve. This would be a little bit like GoldMoney’s strategy, which has worked, although GoldMoney is just a glorified GLD, IMO. The difference is that, by connecting into the existing regulatory framework, your customers could use their gold or silver as conveniently as they can use their US dollars today (just offer a spot-price sale into USD on each EFT transaction).
Clayton -
Really interesting. Thanks for sharing your thoughts on what might be the best of way of promoting sound money through non-political, market-based means. That’s ultimately what I’d like to find out with all of this anyway. Anyone else have thoughts on this proposition of Clayton’s?
@yonoid: Thanks for the positive feedback! To elaborate on this idea, I’ve also thought of how could you go about establishing a “peer-to-peer” banking system? I’ve seen digital proposals for this (most notably, BitCoin) but these fail to get to the root problem which is not technological, it’s actually a problem of accountability and reliability.
To this end, I’ve though how one could create a distributed network of “micro-banks” which are just individuals holding cash. However, anyone can say they’re holding cash and lie. So, the way it would work is as follows.
There would be two classes of members in the network: depositors and reservists. Depositors are individuals who just want their money safely stored somewhere without the worry of a fractional-reserve banking collapse. Reservists are individuals who want to earn profit from fees charged to depositors.
Part of what makes fractional-reserve banking possible is that depositors, in aggregate, rarely demand the use of more than a small portion of their funds at any one time. A naive “peer-to-peer” banking system would just say, “as long as a reservist is satisfying his depositors’ withdrawal requests, he remains in the network” but we know this wouldn’t work. So, the network would counteract this by constantly stress-testing all reservists who are members of the network. It would do this by basically setting up random “transfer circuits” in the reserve network. In other words, Reserve A must physically send $100 to Reserve B who must physically send $100 to Reserve C and so on in a circuit back to Reserve A. I’m not sure what the right percentage would be, but I would think that the larger the percentage of money “in motion” at all times, the harder it would be for anyone to defraud the network without just walking away with the cash they have on hand.
However, there is a remaining problem and that is that if a reserve began to be popular and you have this anonymous reputation-based banking system, there is no legal recourse if they just walked away with millions of dollars. And it wouldn’t be long before someone did it because it wouldn’t be long before the future discounted revenue stream which they can expect to earn would be less than the pile of cash they’re already sitting on. I’m still working on this problem.
Clayton -
I don’t quite understand. Isn’t that money the legal property of the depositors? And could this problem be solved simply by the reservists offering to sign a contract not to walk away with the large pile of cash?