Copper Standard revisited
Posted by Ivo Cerckel on April 19th, 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.
No related posts.
April 24th, 2009 at 14:29
China Increases Gold Reserves 76% to Fifth-Largest (Update2)
By Eugene Tang and Bob Chen
http://www.bloomberg.com:80/apps/news?pid=20601087&sid=aoLApmbjN47k&refer=home
SNIPS
April 24 (Bloomberg) — China boosted its gold reserves by 76 percent since 2003 and has the world’s fifth-biggest holding by country, the official Xinhua News Agency said, citing Hu Xiaolian, head of the State Administration of Foreign Exchange.
+
“Chinese foreign-exchange reserves have absolutely exploded in the past few years,” said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. “We shouldn’t be surprised that they’re adding a lot of all asset classes. I don’t think they’re shifting away from U.S. dollars into gold.”
April 24th, 2009 at 15:20
China reveals it has 1,054 tons of gold
By Alfred Cang and Lucy Hornby
Reuters
Friday, April 24, 2009; 2:04 AM
http://www.washingtonpost.com/wp-dyn/content/article/2009/04/24/AR2009042400307.html
SNIPS
SHANGHAI/BEIJING (Reuters) – China revealed on Friday that it had quietly raised its gold reserves by three-quarters since 2003, increasing its holdings to 1,054 tons and confirming years of speculation it had been buying.
Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), told Xinhua news agency in an interview that the country’s reserves had risen by 454 tons from 600 tons since 2003, when China last adjusted its state gold reserves figure.
The world gold market has been buzzing with talk about China buying gold for years as the country’s foreign exchange reserves have rocketed, and speculation has picked up since the global economic crisis threatened to weaken the value of those reserves.
+
The European Central Bank recommends its member banks hold 15 percent of their reserves in gold, but among Asian nations the percentage is far smaller, said Albert Cheng, World Gold Council managing director for the far east.
April 24th, 2009 at 19:51
China reveals huge rise in gold reserves
Chris Flood in London
Published: April 24 2009 09:31 | Last updated: April 24 2009 12:32
http://www.ft.com/cms/s/1d23f80c-30aa-11de-bc38-00144feabdc0,s01=1.html
SNIP
China revealed on Friday that it built up its gold reserves by three quarters since 2003, making it the world’s fifth largest holder of bullion.
The move comes as European central banks continue to sell their gold and the International Monetary Fund has discussed selling some of its bullion reserves.
“This is probably the most significant central bank announcement since the Central Bank of Russia announced at the LBMA gold conference in Johannesburg in 2005 that it wanted to hold 10 per cent of its foreign exchange reserves in gold,” said John Reade of UBS.
April 24th, 2009 at 19:55
Final paragraph of the FT article:
“It’s not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis,” said [Hou Huimin, vice general secretary of the China Gold Association]. “The financial crisis means the US dollar’s value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage.”
April 25th, 2009 at 09:25
FT changes its text.
The final paragraph which I quoted is no longer there.
There is however this in the text:
Suki Cooper, a gold analyst at Barclays Capital, said China’s move was “reigniting gold’s relevance as a monetary asset”.
(China reveals big rise in gold reserves
By Jamil Anderlini in Beijing and Javier Blas in London
Published: April 24 2009 09:31 | Last updated: April 24 2009 19:06
http://www.ft.com/cms/s/0/1d23f80c-30aa-11de-bc38-00144feabdc0.html
April 25th, 2009 at 10:10
And then, they even changed the title in the … good direction
News of Chinese buying ‘re-ignites gold’s relevance
By Chris Flood
Published: April 24 2009 23:34 | Last updated: April 24 2009 23:34
http://www.ft.com/cms/s/0/f02eba70-30fa-11de-8196-00144feabdc0.html
SNIP
Gold prices rose modestly on Friday after China said it had become the world’s fifth largest holder of bullion after secretly increasing its reserves by 75 per cent to 1,054 tonnes since 2003.
Gold added 0.9 per cent at $910.20 a troy ounce, taking its gain over the week to 4.9 per cent. There was talk that China’s announcement could prompt a broader reassessment of gold’s role as a reserve asset by other central banks.
“The move does send a positive signal to the market, re-igniting gold’s relevance as a monetary asset,” said Suki Cooper of Barclays Capital.