Adonis Diaries

Gold-paper currencies? Any alternative to regain confidence in fluctuating paper money?

Note: Re-edit of “For regaining confidence in Capitalism: What is “Gold-paper currencies”? December 1, 2008“

For a sustainable growth: Gold-paper currencies? (October 28, 2008)

For regaining confidence in Capitalism or any financial system.

I have this gut feeling that, if one major superpower does not adopt for a period a gold currency, then confidence in paper money or investment gimmicks is not going to fly for a longer time.

In these uncertain financial crisis and economic deflation, I suggest a psychological incentive for people to recover some sense of value to the currencies they are handling in their trade.

My idea is to issue hard currencies that are an alloy containing the quantity of gold commensurate to the large denominations.

This currency would be almost as thin as paper money and could not be forged, unless the amount of gold is the same as the officially issued currencies.

This project should be feasible: Gold can be made as thin as needed, and if we find a cheap metal or plastic that can add resistance and flexibility to the currency to be folded, and handled as paper money, then everybody would be satisfied.

At first, the gold paper-like money could be distributed at a rate of say 1% higher over its real value to recover the upfront expenses, in addition to the increase in market value of gold, averaged once a week.

These extra expenses would not discourage the use of paper money for those who could not afford the extra cost of gold currencies.

The higher denomination currencies would be large to keep the same thickness as the other smaller denominations.

As the value of gold would certainly keep increasing, the government would, at interval, retrieve the older currencies from the market and replace them with smaller size currencies containing the market value of the amount of gold in the alloy.

This idea is logical because the gold-paper currencies would require less gold as its value increases.

Travelers could then exchange their State own gold-paper money abroad and register them at any bank for Interpol investigations in case of thefts and get exactly the same money value of the respective States.

Obviously, all governments that signed in to this system would have to submit to international control when issuing gold-paper money for credibility and quality reasons.

I believe that with real gold-paper money then the businesses of currency speculations and rate of exchanges should wane and quickly disappear.

What might remain is currency trade or the accumulation of gold in rich sovereign funds.

The governments would quickly learn to issue enough gold-paper currency to satisfy internal commerce.

The superpowers and regional powers would exercise political and military “incentives” on weaker and unstable States to issue more gold-paper currency than needed for inner commerce, but then they would have to deliver real gold and good value products to retrieve the surpluses.

The US Administrations do not have real value money or real value economy to hoard gold and will not be able to do so for many decades to come.

Only China, India, and Russia (large producer of gold) and the rich oil-producing States with small populations would be the major players in currency trade of gold-paper money.

There are several policies that governments would revisit to manage this new system.

Governments might issues a composite “weight/balance” of the amount of gold-paper and regular paper money that should satisfy internal commerce.

Either the gold-paper money would concentrate in the hands of the rich and thus reduce commerce to regular money with industries specialized in high quality and luxury products for the rich and industries focusing on lower quality and basic products for the masses.

Or the little people would not desist from the gold-paper and use them as personal saving account in their homes and thus deflation would hit the economy due to the lack of currency circulation.

Consequently, governments would have choices to either limit the amount of gold-paper in circulation to encourage circulation of money or eliminate regular paper currencies to force the masses into liberating their hoarded gold-paper.

The same pitfalls and recurrences of the present monetary system would be exhibited but the remedies would be more straightforward to comprehend by the common people.

Furthermore, an interesting phenomenon will emerge: cultures where mostly little people horde the gold-papers and cultures where gold-papers are concentrated in the class of the rich.

Well, if there is civilization clashes then this division between the two types of cultures would set the foundations for a new sociology science where the manipulation of hard money is the first principle.

This system would require many fine tuning but the advantages must far exceed the disadvantages for smaller and weaker States. 

Countries with real value-added economies would not be affected by any mischievous financial embezzlement schemes in destabilizing their financial status because the middle classes would have re-learned the value of hard money and desist from speculative schemes for some times.

This re-learning process of the value of real hard money is the fundamental benefit of the new system so that financial history would repeat its cycle of development for the century.

In any case a genuine International Monetary Control and Management Fund would be instituted to focus on the circulation of money within and among States and help in the synchronization of real commerce.

The crux of this gold-paper currency system is to stabilize growth to a sustainable level for human kind.

Since gold is limited on Earth and its production has reached a limit, then wild GNP rate of increases would slow down.

And redundant and irrelevant consumer products would make room for basic products essentials for the survival of mankind.

The new economical strategies would focus on cutting cost, cutting waste, re-cycling and vigorously researching for substitute renewable energies for the benefit of all States.