Question about warehousing fees in full-reserve banking

[z1235]

@scineram

@z1235

A customer deposits 101oz of his gold in the bank and the bank issues him a 100oz “bank bill” redeemable in one year from the date of deposit for par (100oz), or at any date before that at 100oz + “pro-rated carry”. So the bill is redeemable for 101oz at the initial date of deposit, for 100.75oz after three months, for 100.5oz after six months, for 100.25oz after nine months, and finally for 100oz “at expiration” – reflecting the 1%/yr safekeeping fee.

That is some great economic progress. A money with mandatory depreciation over time. Gesell’s dream come true. I wonder why the market has never come up with this.

GLD (ETF) charges an expense of 0.4%/year for storage and administration of the trust that issues the shares. If you buy 100oz worth of shares today, your shares will be worth 99.6oz after one year, 99.2oz after two years, and so on. GLD shares are freely traded on the market today.

Z.

[ClaytonB]

@Chris Pacia

The problem with your example, z1235, is that banknotes are money. If the value of the note your have in your hand changes day by day, it would be a pain in the ass to buy things with it. And you would need to carry around a calculator to figure out how much you have in your pocket.

Like i just said, I think the best solution is to charge a one-time fee at deposit equal to the present value of the storage costs over the expected (or average) length of deposit.

There are other solutions. Digital gold currencies can charge a per-transaction fee because they are an online currency. The Liberty Dollar used (uses? are they still in business despite the harassment from the Feds?) date stamps on the money to cause it to discount over time so they can track the inflation of US dollars. Some DGC’s don’t charge a per-transaction fee, they have a timestamp on each token which expires after one year forcing you to change it out for a new token and that is when you pay the storage fee. There are many possible solutions to the problem, there are probably solutions that no one has yet thought of.

Clayton -

[EternalSanction]

@scineram

@z1235

A customer deposits 101oz of his gold in the bank and the bank issues him a 100oz “bank bill” redeemable in one year from the date of deposit for par (100oz), or at any date before that at 100oz + “pro-rated carry”. So the bill is redeemable for 101oz at the initial date of deposit, for 100.75oz after three months, for 100.5oz after six months, for 100.25oz after nine months, and finally for 100oz “at expiration” – reflecting the 1%/yr safekeeping fee.

That is some great economic progress. A money with mandatory depreciation over time. Gesell’s dream come true. I wonder why the market has never come up with this.

Except the money itself isn’t actually depreciating. It’s a charge incurred by the use of this given bank’s money-substitutes. If the bank receives that money, then it hasn’t “lost” any value.

[cpacia]

My thoughts on the whole digital gold/credit card thing is…while I can see it working, I don’t believe it would be as convienient as paper money. If I want to go to a poker game in my friend’s basement, then I would have to call up my bank and request a $50 transfer into his account. Then at the end of the game he needs to call up his bank and request transfers to the winners accounts. And we know that electronic deposits do not happen immediately. The whole thing would be a pain in the ass. Not to mention, anyone who has run a business knows that the fees for using credit cards kill your margins. At least with paper you have an option to not pay the fees. With that said, proaboly 90% of my transactions are electronics, but my life would be much more difficult if I couldn’t pay cash for the other 10%.

And as Z brought up earlier the storage fees for storing gold for one year are .4%. If you do a PV calculation on that amount in perpetuity, at a 10% discount rate, you could charge a one time fee of 4% upon deposit, then let the bills circulate without depreciation indefinately.

[scineram]

I almost always pay in cash. GLD shares are not goint go help very much.

[Smiling_Dave]

@Chris Pacia

My thoughts on the whole digital gold/credit card thing is…while I can see it working, I don’t believe it would be as convienient as paper money. If I want to go to a poker game in my friend’s basement, then I would have to call up my bank and request a $50 transfer into his account. Then at the end of the game he needs to call up his bank and request transfers to the winners accounts.

There would be other money for that kind of stuff. “The gold standard” on this site is I think a shorthand for “whatever people want to be money will be money.” What will it be? Maybe cigarrettes, maybe marijuana [when it’s legalized], maybe old silver coins, maybe some private company’s mint of coins.

After all, back in the day, there were gold and silver coins at the same time, so why not now? I think what doomed the system back then was the insistence that say, 20 silver dollars always be worth a twenty dollar gold piece. This time we’ll be smarter and the gold dollar and silver dollar [and marijuana dollar] will fluctuate freely with respect to each other.

[Libertarian74]

Hi Chris,

the solution is easy. I know White’s argument, but he confuses two ways of gold warehousing, which makes it appear there’s no workable warehouse banking possible. The two are:

1. The owner hands over his gold to the bank, which keeps it in a vault. He receives a reçu, which keeps the gold on his name, without spending this reçu fully or partially (unless informing the bank). The owner pays a yearly fee and never is there any doubt he is the owner. Compare this to placing jewelry in a bank’s vault, or a car in a paid parking.

2. The owner hands over his gold, and the bank adds it to its general goldstock, without personalizing the gold anymore. The owner gets banknotes in return, minus a percentage (say 5 or 10%) the bank keeps for storing and other banking costs. (Note that the money supply grows, but fully covered by the gold, not fractional.) The owner may spend his notes partially or fully, and any receiver gets a claim to a part of gold in the goldstock. The fact that the bank added the gold to its own stock is not an objection against this practice, because the owner already planned to spend the banknotes and with them the gold itself to other people in fact. As long as he has notes from his bank, he can claim gold back. The same for receiving notes from other banks. I guess central banks under a gold standard worked the same and you can easily imagine this way of working for a free banking market.

Lawrence White mixes both options, with initially the gold on one’s name and then spending it and making it just as personal for others as for himself. Of course that’s not workable; no one can inform his bank, after every transaction, who received the notes. The economy would come to a standstill.

[scineram]

Paying 5 or 10% for banknotes will never outcompete free banknotes.

[nirgrahamUK]

sure they could

[scineram]

I would rather pay 10 pounds for 10 pounds than 11.

[nirgrahamUK]

in order to connect that thought to your previous though you will have to expose lots more thoughts.

I know that you don’t like writing more than one-liners so I don’t put any pressure on you to do so other than the pressure that you may feel on yourself to be understood by your peers and to make what might possibly hope to be a convincing argument.

[MMMark]

Sun. 10/03/21 18:20 EDT
.post #14

@Chris Pacia

Can someone else take a crack at refuting this and providing an explanation of how warehousing fees would be paid in the case where the bank takes gold for deposit and issues free-circulating banknotes?

How about this:

Storage costs would be paid at the time of deposit, and the note would indicate both the amount of gold on deposit PLUS the prepaid cost and date of expiry. Notes would trade a premium, depreciating to the value of the deposit on the expiry date.

Example:

I deposit 100 g, pay a one year storage fee of 1 g, and receive, say, 100 notes, each entitling the holder to claim 1.01 g today, 1 + 3.64/365 g tomorrow, 1 + 3.63/365 g the next day, …, 1 + .01/365 g on the day before expiry, and 1 + 0/365 g on the day of expiry. Notes redeemed after the expiry date would be depreciated using the same scale.

Seems too cumbersome to work, but I guess it’s possible, theoretically.

[scineram]

Nothing to add. You just feel free to keep deluding yourselves how never existent practices will somehow emerge instead of what obviously works.

[nirgrahamUK]

lol. thanks.

[MMMark]

Sun. 10/03/21 19:15 EDT
.post #16

@scineram

You just feel free to keep deluding yourselves how never existent practices will somehow emerge instead of what obviously works.

While my scheme seems too cumbersome to be workable “back then,” it doesn’t seem at all cumbersome given computers, cash cards, and a world-wide network of instantaneous data transmission.

I think one of the theories White advances is that fractional-reserve banking emerged as a solution to the problem posed by warehouse storage notes…but White doesn’t really know, either.

Perhaps the advent of this technology will allow full-reserve banking to successfully compete with fractional-reserve banking.