“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” – John Maynard Keynes
This quotation is more topical than ever in our current financial crisis. People are losing confidence in our present currency system and scepticism grows about the amount of indebtedness which has never been higher in human history – with good reason.
David Hume already stated in the 18th century that if an angel doubles all the monetary savings of human, nobody is going to be wealthier the next day. The clue to a non-backed monetary system – such as we live in – is the reallocation of existing goods. This leads to the Cantillon-Effect which always occurs in times of inflation and describes the reallocation of money. People with easy access to this ‘new’ money profit the most from it, because a change in price has not taken place while they are dealing with it, whereas people who have a delayed contact with this new money already face a higher price level. As early as then it was obvious where a fiat money system would lead to – a paper money based top-down system determined by politics which causes monetary expansion and, due to that, financial deprivation of the people in such a political system.
So obviously there is a need to develop alternatives to our present currency system and these are already discussed and tested worldwide. Throughout history, religions and cultures gold has always stood apart as a sign of prosperity, freedom and security and now it is being discussed as a safe alternative to our monetary system once more. Gold is a perfect medium of exchange, because it is a limited, valuable commodity and divisible, durable, transportable, recognizable, worldwide accepted as well as appreciated. Today gold trade consists of decorative coins, gold bars and certificates and is not easily accessible for the normal citizen without any special knowledge of the subject.
First steps to change that have already been taken: Alan Greenspan (Chairman of the Fed 1987-2006) recently renewed his claim for a gold backed currency (first stated in his famous essay “gold and economic freedom”, 1966) and Robert Zoellick (president of the World Bank) is also considering the Gold standard.
Gold and silver coins have become a proper medium of exchange in Malaysia, the parliament of Utah (US) passed a law legalizing gold and silver as a legal form of payment and, most importantly, in Switzerland the parliamentary representative Dr. Ulrich Schlüer launched the parliamentary initiatives:
‘The Swiss government creates an official Gold Franc composed of coins with a fixed gold content. It regulates issuing of this tax-free instrument by qualified institutions.”
This is a project with a high prospect of success in Switzerland because of their fierce independence. Swiss people like to see themselves and their country as leaders rather than followers. Switzerland also possesses the required political framework as the folk are able to outvote the government due to their direct election system.
Those circumstances almost have to lead to the idea of a new, additional currency created out of gold– the Swiss Gold Franc. A currency which is not bound to the gold reserves of the Swiss issue bank, but exists due to the interaction of market players. As Gresham’s law says ‘good money drives out bad if their exchange rate is set by the market’. De facto this currency is constitutional backed, but in private production under state control. This means nothing else than the first monetization of gold since 1971.
In practical assumption let us consider that the Gold Franc coins were required to contain 0.1 grams of gold in the centre, surrounded by a metal ring to give it a practical size. Its purchasing power at today’s gold price would be around 6 dollars. The front side of the coin would have a uniform impression – easy recognisable. The back of the coin would be available to the issuing institution to mint their own logo and thereby cover the production cost with this marketing tool.
This would mean a revolution in the trade of gold. For the average consumer gold would be a convenient trade as the Swiss Gold Franc is defined in grams, self-explanatory, cheap and uniform. This currency would also provide an easy access to gold for everyone as it is available like any other foreign currency. This would further cause an additional demand for gold, raising and stabilising the gold price.
The exchange rates relate to the market price of gold, which may sound peculiar because of the volatility of this market, but – as mentioned above – gold in its monetary function will stabilise it. Not only the gold market, also the Swiss Franc market is going to take advantage, because it is often seen as a currency you can escape to, which happens at the moment, for example. Switzerland is already facing the problem especially in terms of export and tourism. The Swiss Gold Franc would be a substitute-currency to escape to and stabilise the Franc at the same time. Switzerland would also increase its financial attraction by being the only country with administration of the Swiss Gold Franc.
A challenge of introduction is that people and even economists are not even considering an alternative to our monetary system which differs from paper money. So it is important to make clear that the Swiss Gold Franc is introduced as a parallel currency and does not threaten the existing monetary system. As long as it remains stable and there is trust in it people have the freedom to choose which currency they prefer. If the present system collapses there is already a back-up system which is available, familiar and – most important – functional. The risk of this project is disinterest and ignorance, so what is required now are visionary entrepreneurs, trusts and sponsors who will commit themselves to the project.
A referendum of this proposal would probably have a positive result, because this project addresses many different ideologies: the nationalists always favour an increase in prestige; the liberals appreciate the possibility of developing new markets and the socialists place value on establishing an easy access to the gold market for everybody.
Summarising, this project could well pass all required legislative processes and be the beginning of an overdue revolution in the currency system.