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Using Gold As Online Currency
JerkyBoy writes "Salon.com has an interesting story about using gold for online transactions. One company that provides the service (goldmoney.com) describes itself as "an online payment system that combines the world's oldest money, gold, with Internet technology to provide a safe, easy and inexpensive way for anyone to transact business 24 hours a day. Payments are made electronically using GoldGrams(TM), which are grams of gold that circulate world-wide through the Internet." I wonder if I can configure the MIME types on my Apache server to send golden email attachments?" Hehe - this is basically the same thing as people have been trying to do with creating new online currency.
Integrating gold with online fiat-currency transactions is a nice start, but it hardly goes far enough. It's time to go back on the gold standard for good.
When the Founding Fathers wrote the constitution, the fundamental property rights it embodies were rooted in actual intrinsicly valuable commodities. When the Federal government took your land under the 5th amendment, they had to compensate you in gold. Even well into the end of the 19th century, the biggest hotbutton currency debate concerned minting silver instead of gold.
Today, we're off the gold and silver standards altogether. This is truly sad. Instead of being able to predict how much a dollar will be worth tomorrow, we leave that decision up to the whims of international currency daytraders. It's little surprise that inflation rates under the Carter administration crested well over 10% so soon after Nixon pulled us out of Vietnam and took us off the gold standard.
The economy of the twentyfirst century cannot withstand uncertainties. The technological revolutions of the industrial age all occurred under the gold standard. Why should we experiment with a proven thing? Why let politicians pay off their political debts by devaluing our currency? Brazil went down that path, and we needn't follow.
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Yep, and eCash is forever plagued from the ideas from the early 90's, banks. I would love to be able to say to my bank "fork me some untracable electronic currency please" but it aint gunna happen. Banks would like to get rid of cash altogether IMHO, but regardless, banks dont jump on bandwagons and eCash is feeling it. So where does that leave you? As a merchant selling a payment service (ala PayPal) which results in you needing a way of getting money into and out of the system and seeing my money is in my bank that means I need a way of transfering money from my bank account to your bank account. Again we hit banks. Suprising enough PayPal has actually managed to make this happen, I can register a checking account with PayPal (if I'm in the states) and click money between my bank account and my PayPal account, great, but what about that great promise of anonymity? You know, the whole allure of "cash". We're pretty far from zero knowledge by now. The merchant I'm buying from can track who I am (look at the FreeNet donations page ffs), PayPal can browse through all my transactions at will, my bank can see how much money I've put into my PayPal account, the government can monitor my PayPal Bank account transfers and PayPal would probably give up any information they wanted after a few cool threats. Will banks ever get off their ass and give us what we want? Not really, and even if they do we're not going to get "zero knowledge" because I dont trust my bank.
How we know is more important than what we know.
source: Wired Magazine
For those interested in gold, and the government I suggest reading "End of Ordinary Money by Orlin Grabbe, and take a quick look at Jim Bell's case where he created Assassination Politics, which delved slightly into currency which could be used anonymously. Now please don't jump the gun so quick to say it won't happen, if that were the case the government would be quick to assist developing a financial system they thought would improve the economy, business, etc., and they haven't in fact it's been the opposite.
Want Root?
Then I can start looking around the internet for Armour and Swords and maybe a lantern and a sack, and head off to the Sword Coast to find adventure and loot.
(Submitted in the five minutes before heading home from work, brain broken, must sleep...)
"I'll take the red pill, no, blue. AAAHHHHHHHHHHHHHHHH........"
"I'll take the red pill. No! Blue! AAAaaaahhhhhhhhh"
- Monty Python meets the Matrix
The way I understand it, part of the reasons for going off the gold standard was to give the Federal government more control over the economy. When you're tied to only issuing as much money as you have gold in stockpile, then there's a limit to your control over that aspect of the economy. But when you are working in a money-market type situation, you can look at the given value of your currency in the money market, and then decide to either print / issue more money and see how the markets react to you.
Anyone read "Cryptonomicon"? Remember the absurdity of the chinese banks in the first chapter, running about demanding of each other to see the gold? This is another aspect to the money-market situation that makes it advantageous not to use gold. In the case of a serious economic downturn, you can prevent the 'run on the bank' in which everyone dashes to their local bank and demands gold for their money - which can't happen when you're off the gold standard. It also prevents 'goldrush' type phenomena, which is bad when you find rich new gold deposits somewhere and the market is flooded with gold which devalues all currencies around the world.
DeBeers has been artificially controlling the diamond market for years to prevent exactly this sort of thing. They have huge stockpiles of diamonds from south africa and russia, but only release them in small quantities to keep the prices up. Apparently if they released them all then diamonds would be worth about as much as - I don't know really, but not worth much anyway.
This isn't the only example of an artificial market: aluminum ( or aluminium if you prefer ), is actually 'worth' a whole lot more than we normally think. The only way to extract aluminum from other metals is with powerful electric currents, which makes it very costly to produce, but governments subsidize the aluminum industry so heavily that it keeps the consumer price very low. This is why the first thing government wants to get out of a recycling program in any city is lots of aluminum.
As an aside, being off the gold standard is not always a bad thing for all countries. Switzerland for example has had a currency that over the last 100 years or so has been more stable than the gold market - so its actually a better investment ( if you want stability ) to put your money in a swiss bank than to buy gold.
There are a thousand forms of subversion, but few can equal the convenience and immediacy of a cream pie -Noel Godin
Both systems failed for the same basic reason, there simply was not enough metal to back the amount of money required by a modern economy. If you think about it the idea that the optimum amount of money in circulation should be tied to the amount of a shiny metal that has been taken out of the ground is rather odd.
The US federal government still has ownership of something like 50-60% of the total world gold reserves. Most of that is the payment on war loans made by the British following world war I and II which in turn was the booty of Empire. The total quantity of gold bullion has at most doubled since WWII, in the same time the GDP of the US has in real terms expanded at least ten fold.
There simply is not enough yellow metal to go round. Nixon abandoned the gold standard for the simple fact that even under the system of managed exchange rates there was simply not enough yellow metal to support the economic activity. The supply of gold had become the limiting factor for the economy.
The idea that money should be backed by real value has emotional appeal to many. Back at the turn of the century the Deomcratic party was essentially captured by a monomaniac called Willian Bryans Jennings whose sole speech was 'that man should not be crucified on a cross of gold' - monetary reform by moving to a bimetalic standard.
It is not surprising that people trying to invent their own currencies should attempt to base them on gold. But there is a big difference between having a gold ingot in the hand and having an account with a fly by night operator in St Mcru (pop 5 penguins).
It is now 30 odd years since the US was on the gold standard and the number of people expecting a return is rapidly diminishing. At the same time most other countries have abandoned the gold standard and nobody wants to have a managed exchange rate (although some are forced to). I suspect that the diminishing gold price reflects the fact that gold is loosing its traditional role as a safe haven in troubled times.
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Well, I don't really think he says that they're responsible for all the monetary disasters in history. He certainly regards political meddling in the money supply as a very bad thing, and governments are inflationary creatures. It might be safer to think he'd say that bad monetary policy is the common factor behind monetary disasters, and that fiat currencies make bad monetary policy easy.
A fixed currency would be something of a remedy to this. But he regards an exchange rate, pegged directly to a commodity, to be unworkable... and there have certainly been monetary disasters in partial reserve systems.
Overall I feel safe in saying that he advocates (for large countries) floating exchange rates, at the other end of the spectrum entirely. The common factor is that the role of government is limited.
There's a nice summary in a 1998 interview:
[Friedman]: 'a floating exchange rate is one in which the government does not intervene in the exchange rate market but allows the market to set its own values. [Here you find] one very interesting historical phenomenon. No nation that has had a floating exchange rate has ever had external currency crisis in international finance.'
[...]
'And I have always argued that for a large country, like the U.S., Germany, France, Britain -- none of them are going to be willing to give up their independent central banks, and therefore, the best course for them to follow is to have a freely floating exchange rate determined in the market. But for small countries, they will on the whole do better if they peg their currency, unify their currency with a foreign currency, and avoid having an independent central bank -- provided that they do it with a country which is one of their major trading partners so that a lot of their business is being done in that currency anyway.'
[...]
'The lesson for Asia is; if you have a central bank, have a floating exchange rate; if you want to have a fixed exchange rate, abolish your central bank and adopt a currency board instead. Either extreme; a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble.'
[Gorimek]: I'm sorry that I let myself get dragged down to that level, and I appreciate you correcting it
For my part, I think I was a little harsh. But it wasn't clear from your short reply that you were not a crank yourself, merely invoking a name. No offense intended.
"The best we can hope for concerning the people at large is that they be properly armed." - Alexander Hamilton
They have taken economics 101.
Um... no. Some of us actually have read Milton Friedman. To state Professor Friedman's conclusion first, for the impatient:
'My conclusion is that an automatic commodity standard is neither a feasible nor a desireable solution to the problem of establishing monetary arrangements for a free society.'
The following passages are excerpted from Capitalism and Freedom. It's really an excellent book, if you're into this sort of thing. Keep in mind, though, this was written in 1962, so the 'current situation' isn't very current.
'The fundamenal defect of a commodity standard, from the point of view of the society as a whole, is that it requires the use of real resources to add to the stock of money. People must work hard to dig gold out of the ground in South Africa -- in order to rebury it in Fort Knox or some similar place. The necessity of using real resources for the operation of a commodity standard establishes a strong incentive for people to find ways to achieve the same results without employing these resources.'
[...]
'But, as just noted, such an automatic system has historically never proved feasible.'
[...]
'It should be noted that despite the great amount of talk by many people in favor of the gold standard, almost no one today literally desires an honest-to-goodness, full gold standard. People who say they want a gold standard are almost invariably talking about the present kind of standard, [ed. 1962] or the kind of standard that was maintained in the 1930's; a gold standard managed by a central bank or other governmental bureau, which holds a small amount of gold as "backing" -- to use that very misleading term -- for fiduciary money. Some do go as far as to favor the kind of standard maintained in the 1920's, in which there was literal circulation of gold or gold certificates as hand-to-hand currency -- a gold-coin standard -- but even they favor the co-existence with gold of governmental fiduciary currency plus deposits issued by banks holding fractional reserves in either gold or fiduciary currency. Even during the so-called great days of the gold standard in the nineteenth century, when the Bank of England was supposedly running the gold standard skillfully, the monetary system was far from a fully automatic gold standard.'
-- Milton Friedman, Capitalism and Freedom
"The best we can hope for concerning the people at large is that they be properly armed." - Alexander Hamilton