Investment silver coins

Anything but the dollar

Last week, in a much publicised exchange, Congressman Ron Paul asked Chairman Ben Bernanke if he would consider the circulation of gold and silver coins as legal tender. At The Real Asset Co we often write about how gold and silver are money, as history has repeatedly shown. In this article Jan Skoyles looks at why the introduction of silver coins into an economy is a good idea and a widely held view.

 

‘That’s preservation value!’ exclaimed Congressman Ron Paul at Federal Reserve Chairman Ben Bernanke last week. The Congressman was waving a silver ounce coin at his nemesis. He had just finished giving him a brief lesson on the ability of silver to maintain its value and purchasing power, i.e. the inability of the dollar to do the same.

As many of you will have read by now Dr. Paul’s exchange with Mr Bernanke was the most recent of many lessons for the Chairman in sound economics and how not to run the Fed. It was entertaining watching Dr Paul ask Bernanke if he did his own shopping before launching into a campaign speech focussed on the reckless behaviour of the Federal Reserve.

Dr Paul felt it necessary to remind Mr Bernanke that the Federal Reserve has a responsibility to protect the dollar.

Dr Paul stated that there is no longer a definition of a dollar, is it whatever it buys? He asked. The dollar, a fiat currency, is worth less and less each day. He stated that there is no other measure where one could get away with changing it as the Fed do with the dollar “You can’t have a yardstick which changes value everyday” he exclaimed, “otherwise the whole building would be out of sync!”

Competing currencies

Dr Paul brought up the subject of introducing competing currencies. He asked Mr Bernanke if he would consider making alternative currencies, i.e. gold and silver, legal tender. He demonstrated, whilst holding up a silver coin, silver’s ability to hold its value. When Bernanke came into power in 2006 that ounce of silver bought 4 gallons of gas, today it buys just less than 11.

At the moment nothing, as Mr Bernanke quite rightly pointed out, is stopping individuals from saving in gold and silver. But that’s not what Ron Paul wants; he wants people to be able to pay their bills in silver – their taxes, their legal settlements. He wants silver to circulate alongside the dollar, as two currencies, as currencies do across the world.

Growing concerns

It’s not just Dr Paul who has thought about this in the US. As CNN reported last month:

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

“In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos,” said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

As Dr Paul argued, the single currency of the dollar is stealing from the American people; silver would give individuals the freedom to choose honest money or un-backed paper money.

Silver age

‘The major monetary metal in history is silver, not gold,’ (Friedman, 1993).

Historically, silver was the first metallic standard as it was more accessible to the common man while gold tended to be reserved for royalty or religion. Lips (2001) and Jaitly (2010) both acknowledge that the loss of silver from the monetary system was due to a desire by the government for control. Silver’s vast distribution throughout the population meant that it was harder to control by governments and therefore over time silver was removed and gold became the legal monetary metal and base for the British Pound.

The introduction of silver coins into an economy is not a radical proposal in the modern world. It is as widely discussed as the introduction of the gold standard, but is seen as a more time relevant solution to today’s monetary problem. Lips sees silver’s monetary role as ‘the gold of the “little man”’.

The introduction of a silver coin is an idea proposed by Hugo Salinas-Price, President of the Mexican Civic Association for Silver. He is currently passing a bill through Mexican Congress to monetize the Silver Libertad ounce coin and circulate it alongside the Mexican peso.

As Dr Paul regularly states, inflation has been prevalent since the introduction of paper money, the introduction of silver coins would be ‘an effective instrument to assist in dealing with inflation,’ (Salinas-Price, 2010). The circulation of silver coins would ‘create refuge for popular savings, offering the population an instrument with no devaluation, which is not impacted by inflation, that is not subject to errors due to monetary policies or bank collapses,’ (Salinas-Price, 2011).  There is one caveat however, because inflation is now a global phenomenon, which has affected silver’s price, the monetary value of the coin must be quoted rather than engraved, so as to ensure it will circulate permanently.

Whilst Dr Paul sees the introduction of silver coins as a threat to the dollar and protection against inflation; it will allow people to choose money with real value, for Mr Salinas-Price it can also be seen as a savings vehicle.

This will assist countries which are suffering from inflation. Mr Salinas-Price states that as silver coins are issued and the paper currency of equivalent value is withdrawn, the silver coins will have zero velocity as they will be ‘treasured up’ by the population. Therefore the inflationary effect on the economy will be zero, ‘this is the correct way to fight inflation…saving these coins will amount to voluntary austerity…’ (Salinas-Price, 2010).

Competition to national currency

Dr Paul would like to see the introduction of gold and silver coins as a competing currency. In the UK we have politicians of our own who also recommend competing currencies.

One of them is Douglas Carswell, a Conservative MP, who we interviewed recently. Whilst his proposals do not focus on the introduction of precious metals in the economy, he is interested in idea of legal tender laws being repealed in order to allow competing currencies to circulate.

His argument is simple; at the moment the cost of devaluing the pound, as done by the Bank of England, is a cost not only incurred by the bank and the government but also us, the people of the economy. By removing legal tender laws we would be able to choose which currencies we could spend in and thereby present competition to the British pound (which may make Governor Mervyn King think twice about recommending further rounds of quantitative easing).

The beauty of Mr Carswell’s proposal is that this would operate entirely electronically, there would be no need for you to go to the bureau de change each day if you decided that you wanted to change the currency you were operating in. As Will Bancroft wrote about earlier this month, we know longer need to physically carry money around with us; there is digital money and digital gold and silver. This is currently in development in Utah; the Utah Gold and Silver Depository are hoping to allow customers to spend their gold and silver via a debit card which is linked to your gold and silver coin holdings.

There is little reason why you would have to walk around with a few coins of silver in your pocket. Instead you would spend on a card which is linked to your silver account, as you do now with the national currency. However, in contrast to the national currency, you would be safe in the knowledge that your silver was safe in the bank and would maintain its purchasing power.

For more information about using gold and silver as alternatives to the fiat money system, and for how gold investment fits into this bigger picture, follow us on Twitter and ‘Like’ us on Facebook. You can also watch interviews with politicians, academics, professional investors and traders on our YouTube channel.

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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.

About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles

  • John Nihau

    “we know [sic] longer need to physically carry money around with us; there is digital money and digital gold and silver.”

    if one cannot physically touch the silver, how can one claim to effectively own the silver?
    Given history, why would one trust the safekeeping of a bank over one’s own control?
    Given current events, why would one wish the government to control access of a person to his or her financial holdings, or to trust that the government will not misuse its fiduciary responsibilities in tracking, recording, and publishing one’s financial history? why would one wish to surrender one of the main valuable features of real (metal-backed) money – that of anonymity? why would citizens rather be traceable by business and government alike, rather than have privacy and security as virtues of their money?

  • Sam

    Mr. Price has the right idea, a coin with a quoted value. This idea is simple and can be easily effected.

    Some people suppose that the government will not increase the value of the coins. But the mint is a government facility and has employees. If they fail to make coins, eventually these people are let go. So the mint must purchase metal in the marketplace and then again sell the coins for a small profit. If inflation in the price of metal makes this impossible, the profitable selling price is increased and this profitable selling price is the legal tender value of the coins.

    So the mint will push the government into to doing the right thing because otherwise their workers will be redundant.

    Others say that the making of coins should be a private matter. But this ignores the problems of the past wherein worn coins circulated and whole coins were retained. In modern times, mints are agents of the government and are charged with exchanging good coins for old worn coins. The cost of this operation is part of the operating cost of the mint and is part of the reason why there should be a higher token value for the coins rather than the coins having just their market value in terms of metal.

    So it is right and proper for the government to make circulating gold and silver coins. To avoid the previous failures that have ended the circulation of every previous coinage, the coins should have a quoted value instead of a marked face value.

  • Robert Middlebrook

    They are already getting in trouble for manipulating prices in the futures markets. The prices are not too sustainable unless people are allowed to gamble on margins. The price correction in 2011 was prompted by margin increases and large unchecked sales paper silver. So having “silver” that you can “demand” is great, but I bet they would have a cray computer figuring out just how far they can push paper silver.