Large scale PM Monetisation in a FIAT based economy

Hypothetically, let's say you were to privately mint a Sterling coin (For durability) in varying denominations according to purchasing requirements. You approach a supermarket cartel with this proposal:

This is a 1oz silver coin, it's value is determined by the PM market. Currently it is worth $32 against the AUD. We manufacture and sell these coins to your customers who then use them to trade goods with you the value based upon the silver price of the day. As the value of silver rises against the dollar you then capitilise on the upside.

How could this work ?

#1 Sheeples purchase coins at todays rate, increase in PM value increases purchasing power.

#2 Supermarket chain maintains customer loyalty via an exclusive trading system.

#3 Supermarket chain affects volume of silver market trading. No more market manipulation.

#4 Sheeple awareness drives the price of silver upwards.

#5 Silver Stackers rejoice.

There must be other advantages I haven't even considered. I was watching the vid Auspm posted & thought, well if it can work on the macro scale surely there's potential for it in the mainstream.

He can be the production Manager. GP & Intel on the admin side, Auspm accounting, Julie could look after marketing, hobo & CK distribution. I will front the Maui office.

 

Why can I hear the A-Team theme playing in my head?

 

Can I be the chaplain

 

I heard the Hawaii "Five O" Musac

 

Sorry Thucky, are you expecting bad things already ? We haven't even finished signing the documents yet !

 

I think that is more or less what hugo salinas was talking about on that podcast someone put on here it was rad. This video is pretty rad too http://www.youtube.com/watch?v=nNtIsSWVJBI

 

It would work until the big bad govt comes in and bashes the supermarket chain for using something other then *legal tender* ... that is if Sh*t has not hit the fan and the govt are still some form of govt and not in an anarchy state

 

I was thinking that legal tender issue could be a problem. But shops issue vouchers all the time.

I dont know if it would ever take off but.....

If it did, what they need is a SLV backed voucher system where someone holds the physical SLV in a vault, and issue paper notes redeemable at their store. Then its a voucher with a floating cash rate. Sound familiar, like a miny gold standard Problem is silver is waaaay to volatile, GLD would be much better.

 

A number of people have asked me if it could work and I looked into it, but the biggest problem is that any business that relies on using an efficient payment process (i.e. bog standard cash register) is going to struggle trying to accept a whole new type of currency. Since even a 50% threepence is currently worth $0.72 any product you sell has to be divisible by 72c, meaning the minimum amount of change your can give is 72c. If you pay for an item worth $10.40 with a 1966 50c coin (current value $10.88), you're going to lose $0.48 because the seller can't make change. That starts to add up after a while.

Even on a practical basis, you'd have to work out how to fit an extra 10 change slots into a cash register to cope with four denominations of pre-46 predecimal, four denominations of post-46 predecimal, the 1966 50c coin and the $10 states series if people want to use that as well, plus you'd have to examine each individual predecimal coin to work out whether it's pre-46 or post-46. The staff training alone would have an immense cost.

It could work if you're an independent trader and have the time and the knowledge to negotiate payments in alternative currency (and some people out there do), but it couldn't work in a busy retail environment like a supermarket. I know someone who'll accept USD in his shop because he sends it back to his family overseas and I know someone else who'll accept payment in postage stamps (which are legal tender) or pre-paid satchels because she runs a mail order business from home and can use them. In low volume, high margin operations that kind of alternative money can work because the transaction process doesn't need to be as efficient.

The idea of a currency backed by precious metals isn't entirely without merit and indeed those currencies have circulated in the past, but there is only a limited market for them today. GoldMoney in the UK have their GoldGrams electronic payment system which seems to work alright, although as far as I know they've never had their integrity tested by a run on the bank. As always, it comes down to an issue of trust in the issuing authority, but there are also problems with the integrity of the payment system, such as:

- Physical paper notes can be forged. The U.S. is still using their old-skool cotton blend paper and it gets forged on a regular basis, especially by the North Koreans with their "superdollar" premium quality counterfeits. It isn't that hard to knock up counterfeit American currency and you can buy cotton blend paper that is 90%+ similar to that used in U.S. notes for about $20 per A4 ream. Obviously an intaglio printing press is a bit harder to source, but it can be done and getting the notes to "feel right" can be achieved in other ways such as by a applying thin layer of ultra-fine gritted lacquer.

Obviously Australia's polymer note technology is superior to that, but using it for a precious metals backed note would require their cooperation. Other providers can make similar products, but again there is the issue of forgery and the notes aren't backed by a government authority so forgers aren't going up against the might of a sovereign government with all the resources they have at their disposal.

- Stored value electronic currency is absolutely not suitable for this application at all. If you try to store a representation of the metal in a vault on an electronic card (as "credits", "ounces", etc.) without that card being linked into a system that can verify the card's balance, it is the biggest target for hackers you could possibly create. If they can work out how to turn a 10 ounce balance into a 10,000 ounce balance the whole system is buggered and nobody will ever know that there is "unauthorised inflation" of the monetary system occurring until word gets out in the hacker community and it filters out and results in a run on the bank as people try to redeem their metal from the vault. In that scenario, there is a 9,990 ounce shortfall, so someone is going to take a massive hit and someone else is going to get sued when they try to recover the lost funds. These types of stored value cards have been hacked in all the places they've been used: London's Oyster cards have been pwned, Hong Kong's Octopus cards have been pwned, the European Union's e-passports have been pwned and so on. Getting an extra grands worth of travel on public transport is one thing, but getting a redeemable claim on a liquid and untraceable asset like precious metals is something else entirely.

I really don't see many problems with the principle of a metals backed currency, but there are way too many practical issues that would prevent it from working in the real world.

 

Well, that was an awesome response Big AD & thank you for the qualified comments. I guess your right about the logistical complexity. You would need a real time point of sale updating system if you were using silver because of the price volatility. However the retailers could use a system like that to their advantage. If they fixed a daily sale rate value and played the market it could increase profits dramatically. You would have to develop a complex, integrated system if it was to work properly. If you had a corporation in on it & they could see the merit perhaps it could happen. It would require passion & determination for it to succeed.

 

Could you link say a SLV ETF fund to a keycard used on the eftpos network?

 

You could provided you could find a card issuer who'd be willing to operate the scheme. Theoretically, the issuer could use an existing processor like VISA or MasterCard to run the big computers that make it all happen, but they have a number of procedures that card issuers need to follow to use their schemes and that would mean the card issuer would be exposed to Herstatt (counter party) risk and fraud. Obviously they offset that risk by charging a fee to the merchants accepting the payments, but that means the merchant would have to hold an account with some institution that offers XAG accounts in order to avoid being hit with the processing fee and the exchange rate fee for converting XAG back to AUD (or whatever currency they usually use).

TBH, I think the GoldMoney system is the closest we're going to get to a metal backed payment platform.

 

i think busines wouldnt take it up cause u would do ure shopping on the days that pm prices as best which bad for them and youd buy the coins when prices as lowest so they would lose

 

We would in our shop, but then i'd be stacking it all. Our profits would suffer considerably. No money left for buying stock.

However, training staff, forget it. It would have to be fully electronic and automatic. Unless of course the SHTF and we were like the Weimar Republic, and post a note on the counter for todays exchange rate ... silver, gold, copper, tin ...

 

Im not a business owner, but I would currently work for silver... I dont need any more fiat, but I have bulk spare time and I would happily trade that time for silver

 

I think it would rattle the established political regime if a whole bunch of informed / empowered individuals were to propose such an idea in public.

In fact it would make an excellent news story from a public awareness perspective.

Great publicity for the SS Forum too I reckon. EG: Man walks into several establishments with legal tender silver coins, transactions refused etc. The public would love it.

 

Can't you just see a new question appearing on the dole form?

"Have you participated in any activity over the past month for which you received Gold, Silver or other Precious or Fungible commodity as payment?"

 

Interesting CK. Perhaps if you described them officially as tokens you could get around the taxation issues.