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    Archive for April 19th, 2009

    Copper Standard revisited

    Posted by Ivo Cerckel on 19th April 2009

    firewall with gold reserves

    In order to restore confidence and prosperity, while preventing inflation, Jean-Claude Trichet, president of the European Central Bank, will divulge his non-standard measures (mesures non-conventionnelles – not agreed upon?) on 07 May 2009.

    What does that mean “non-standard”?

    One possible interpretation is derived from the fact that under a gold standard, gold is standard money, fiduciary media are non-standard money.  (1)

    Gold is the inflation hedge par excellence.

    FreeGold means that the currency should have a Gold component and a paper component, but should put a “firewall” between the two so that Gold’s valuation as a wealth-preserving asset cannot be pulled lower by the inevitable inflation of the paper component of circulating currencies. It is the marking to market (MTM) of Gold reserves which should provide that wall. (2)

    Yes, Gold is also an industrial metal, but only slightly. Gold is mostly a monetary metal.
    Copper, on the other hand, is just another commodity, like wheat. (3)

    Ambrose Evans-Pritchard has therefore been widely criticised this week for his column in The Daily Telegraph “A ‘Copper Standard’ for the world’s currency system?” in which he was arguing that China is switching its  monetary reserves not into gold, but into copper. (4)

    Perhaps, if “we” have also a copper-based currency, the FreeGold firewall (5) with gold will be even stronger?

    Right, FreeGold means that the currency should have a Gold component and a paper component and a copper component is not a Gold component. The currency would then have three components.

    Is copper a fiduciary medium?

    Just brainstorming …

    Ivo Cerckel
    ivocerckel@siquijor.ws

    NOTES

    (1)
    Fiduciary media are transferable claims to standard money payable by the issuer on demand and accepted in commerce as the equivalent of standard money but for which no standard money actually exists.
    The larger part of our money supply today consists of fiduciary media in the form of CHECKING DEPOSITS.
    VERSUS
    STANDARD MONEY = money that is NOT itself a CLAIM to anything further. It possesses ultimate debt-paying power, in that when it is received, no further claim to be paid is present.
    Under a gold standard, standard money is gold. Any paper money that exists is a claim to it.
    Under a system of irredeemable paper money – fiat money- the irredeemable paper money is standard money.
    (George Reisman, “Capitalism – A Treatise on Economics”, Ottawa, Illinois: Jameson Books, 1998, 3rd rev. ed.,  p. 512)

    (2)
    A Single Currency for the GCC
    http://bphouse.com/honest_money/a-single-currency-for-the-gcc/

    (3)
    Harry Browne, “The Economic Time Bomb”, New York, St Martin’s Press, 1989, p. 188

    (4)
    A ‘Copper Standard’ for the world’s currency system?
    Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.
    By Ambrose Evans-Pritchard
    Last Updated: 6:54PM BST 15 Apr 2009
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html
    SNIPS
    Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the “Bancor,” floated by John Maynard Keynes at Bretton Woods in 1944.
    The Bancor was to be anchored on 30 commodities — a broader base than the gold standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of “credit-based” excess that has brought the global finance to its knees
    +
    Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1 percent, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a copper standard as a gold standard. UNSNIP

    (5)
    Only USD or EUR – oil relationship?
    Thursday, March 13, 2008
    http://knowledgeperson.blogspot.com/2008/03/only-usd-or-eur-oil-relationship.html
    SNIP
    The secret to all of this is in the “Legal Tender laws”. Allowing gold to be used as a Legal Tender,,,, “for the settlement of all debts public and private”,, but changing international law such that no form of debt can force it’s payment in gold! This opens a one way street for gold and a two way street in fiat currencies. No one will lend gold because they cannot force it’s return in the courts, thereby making gold a physical only international currency. Yet, on the other hand, we all must borrow in this modern world and currencies will be the only avenue for this. Creating a demand (and added value) for them in addition to general use demand.
    The first thought many will have is that everyone will just buy gold to make debt payments, driving out fiat currencies. But remember, if you have debts they will be in currency settlement only. One will weigh the cheapest form for repayment! Gold in this atmosphere will be completely free to trade, become extremely expensive and stay that way. Not to mention that it’s sale as a commodity (outside it’s money use) on the private level will be well taxed.

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