Check out Kiva.org. Just saw it today but it's a serious option for micro-lending: a major threat to traditional banking in my opinion. Regardless of you opinions of the company, micro-lending is going to become more common and popular around our world as governments and corporations fail to fulfill market needs. Can we use gold? How do we establish bank accounts, especially without a fractional reserve system, where we are the lenders of the money? Gold is a perfect universal currency but it's difficult to send over the internet? Sorry, I know I'm being vague but I had some thoughts floating around in my head and thought I'd see if anyone could connect some dots.
get out
do we get free cheezeburger in socielism?
This has already been tried and failed. Competing currencies are essentially illegal.
The Liberty Dollar was raided by the FBI/IRS.
The founders of E-Gold went to jail for "facilitating money laundering".
Anybody who has tried to start a gold or silver based alternate monetary system winds up in trouble with the FBI or IRS.
If you're serious about starting an alternate monetary system based on gold and silver, it *HAS* to be 100% off the books.
Also, the Federal Reserve credit monopoly makes it stupid to borrow at a gold-denominated or silver-denominated loan. The price of gold has been increasing at a rate of 20%-30% per year. If you make a gold-denominated loan, you're borrowing at an extortionate implied interest rate of 20%-30% or more. You'd be better off maxing out your credit cards, than borrowing in a gold-denominated loan.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
FSK,
I definitely understand this isn't a currently feasible system. And it maybe to abstract to really make sense. I'm not even confident in my wording. But say the US government failed and banks could no longer rely on a fractional reserve system. And also say that micro-lending was a truly viable option for personal investing. How could a system be created that would allow for electronic transfer of funds when the accepted currency was gold. Any ideas? Am I being ridiculous?
Why would you accept electronic gold when you can accept physical gold or silver?
Suppose I'm buying goods from you, and we agree on a price of 1 ounce of gold. Why can't I just pay you with an ounce of actual physical gold? Why make things unnecessarily complicated?
For smaller transactions, use silver or copper.
One problem with electronic gold is that the gold has to be physically stored somewhere. Then, all the bad guys have to do is raid the warehouse, and that's the end of the electronic monetary system.
Given the choice "1 ounce of electronic gold" or "1 ounce of physical gold", I'd *ALWAYS* prefer physical metal.
Right, this is the dilemma I'm struggling with, you've helped me vocalize it. You would be a fool to choose electronic gold stored somewhere as opposed to the physical gold itself. But how do you develop an international market without electronic exchange. It would not be efficient if one had to be physically present with their goods at every transaction, thus the need for electronic transfer of gold. This becomes an issue with a limited, non-renewable resource. Not only that but it's impossible to believe that competition would easily thrive in the "banking market" in this situation. If both parties subscribed to the same bank the transaction is easy, and potentially physical (one vault to another) but in the event that there were banks popping up all the time to provide services etc. can we come up with a functional model for this?
i worked for a bank briefly. didnt get much out of it but i recall discussion about some modificationson clearing-function software that was being installed ormodified with this particular bank.
i cant say for sure but i guess there would be a few gold warehouse branches with software designed to digitally manage a fungible inventory, provide some type of transaction settling/clearing function based on ones proximity the stored physical gold - should redemption demands arise.
so i dont know how foolish it would be to regularly send digital gold payments if there was an adequate mechanism to settle transactions - so an across country trip to redeem physical gold wouldnt be necessary.
Gold is merely a benchmark for determining price. You can have an economy larger than the supply of physical gold.
Suppose A sells grain valued at 10 ounces of gold to B. Then, B sells clothes valued at 10 ounces of gold to A. Then, A ships his grain to B and then B ships his clothes to A. No gold changes hands.
Suppose A sells grain valued at 10 ounces of gold to B. Then, B sells clothes valued at 5 ounces of gold to A. Then, A ships his grain to B and then B ships his clothes to A along with 5 ounces of gold.
At some point, you have to trade physical goods. At the same time you trade physical goods, you trade physical gold. There's no need to have paper credits.
If necessary, a hawala-style system can be used to ship gold and silver large distances. Due to the risk of harassment by State enforcers, it would have to be 100% off-the-books and decentralized.
For example, suppose I live in NYC and I owe 10 ounces of gold to someone in California. If I know someone who's making at trip from NYC to California, I can ask them to carry 10 ounces of gold for me.
If you look at the way the banking system cleared checks before the Federal Reserve, it functions similar to the system you suggest. However, the Banking Act passed in the Civil War mandated a specific clearinghouse, which meant banks could be SOL in the event of a default.
"The free market would take care of everything" is the correct answer. In a free market, banks would be eager to provide convenient service to their customers, and protect themselves from loss. It would work. The only reason the gold standard failed in the first place was extensive State regulation of the banking industry.
For example, a check from bank X is deposited at bank Y. There is a time delay while the check clears. If Y gets physical gold from X, then the check clears. If X defaults, then the check bounces. It would work. In the present, you don't get immediate access to your money when you deposit a check. The same occurs in a free market system. The clearing delay exists to protect the bank from counter-party risk, the risk that the other bank will default.
A free market would really have no problems with a site that transfers gold electronically, however such a business should at least update worldwide warehouses via ship or whatever to keep the actual gold there. There are already gold ETFs like NYSE:GLD, and most countries will have a gold ETF where the stock certificate is gold and traded in their currency.
There is considerable risk with electronic gold already mentioned. I don't see it happening in any meaningful way any time soon. I've always wanted an electronic paypal.
John Tate:There is considerable risk with electronic gold already mentioned. I don't see it happening in any meaningful way any time soon. I've always wanted an electronic paypal.
The primary risk of electronic gold is "government enforcers could raid the E-Gold vendor's warehouse, citing frivolous violations of stupid laws". There's also the risk of fraud by the E-Gold vendor. For example, the E-Gold vendor could be secretly practicing fractional reserve banking. "Risk of State raid" probably exceeds "risk of dishonesty by site operator".
In a true free market, electronic gold is a workable system.
In the present, why use electronic gold when you can use physical metal?
isnt everything at risk when you start having the 'government enforcers' do whatever it is they do? from garnished fractional reserve accounts to taking fairly purchased land in the mountains somewhere.
it seems to me that the merits of gold money - and its electronic movement should be discussed outside of the 'wont the government enforcers raid' paradigm.
i dont see why physical gold could not be traded or loaned for goods and in fact i havent heard anyone say that shouldnt happen.
but
if i want to buy a sleeping bag insert form new zealand while living in the united states and a method of electronic transferring of title to a small amount gold could facilitate the purchase faster than mailing a gold coin across the globe - i would think that would be of interest to those who desire gold as money.
bank checks have a routing code and account number on them - my guess is that electronic real time gold title tranfers could operate with a similar coding.
as far as the secret fractional reserve practice goes...regular independnent audits or other methods cuold likely put that to an end, unlikely as that would be for those seeking 100 percent reserve holdings. it seems odd that issue was brought up in the first place.
sthomper: isnt everything at risk when you start having the 'government enforcers' do whatever it is they do? from garnished fractional reserve accounts to taking fairly purchased land in the mountains somewhere.
The point is to minimize the risk of confisication. It is useful to factor in state agents and theives.
if i want to buy a sleeping bag insert form new zealand while living in the united states and a method of electronic transferring of title to a small amount gold could facilitate the purchase faster than mailing a gold coin across the globe - i would think that would be of interest to those who desire gold as money. bank checks have a routing code and account number on them - my guess is that electronic real time gold title tranfers could operate with a similar coding. as far as the secret fractional reserve practice goes...regular independnent audits or other methods cuold likely put that to an end, unlikely as that would be for those seeking 100 percent reserve holdings. it seems odd that issue was brought up in the first place.
Some people like me at this point in time, for example, only trust gold in his hand.
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i thought this was the point (of the post) "...micro-lending is going to become more common and popular around our world as governments and corporations fail to fulfill market needs. Can we use gold? How do we establish bank accounts, especially without a fractional reserve system,..."
are the risks of gold (or gold receipt) microlending, over distances, any less safe or subject to more 'government enforcers' than the fractionl reserve banks are now? govts can and have garnished accounts, frozen accounts and who knows what else.
if owned gold can be to some extent far removed from near by authorities to avoid seizure, 'distant' gold holdings (and the receipts for them) may be of some benefit - but sure i guess other issues could arise as well.
if golds performance as market money (whatever those attributes are) is superior to nationalized currencies then it sould make sense to use gold as money and develop similar stratagies to protect it from govt as you would govt currencies.