Quote

Silver Stock Report "There are two ways for a government to issue silver as currency. One relies on force, or government decree. . .The other way is the honest free market way."

ReportGold
Date03/17/2009
Loaded Date03/17/2009
TitleHow Any Government Can Issue Silver as Currency
Quote"There are two ways for a government to issue silver as currency. One relies on force, or government decree, and is easier and more profitable for the government. The other way is the honest free market way.

Let's start with the first way; through government decree. This way, the government buys silver on the open market, mints it into coinage (or contracts that out), and spends that silver into circulation by adding a 50% to 500% fee called seniorage.

The benefits and problems with this method are clear.

So, what about the honest method? How would any government honestly issue silver as honest money? Basically, the government would buy silver on the open market at $13/oz., and not mark any currency value on it. Instead, they would mark it only with what it is, such as the purity and weight, and then offer it, as a payment option, to all who wanted it, at a relative value of no more than the cost of it, and to make it.

Then, people who choose to take silver, can spend or hold it, as they wish. Prices may slowly begin to be quoted in terms of government currency, or silver ounces, or both.

The job of the central bank would be to make silver available to anyone they pay, and even investors who wanted to convert currency to silver. Also, the government would need to accept and take in silver and give out the old paper currency, as needed by the people of the nation. That way, silver would be able to circulate side by side with paper currency, as the market chooses, or not.

If the government were to try to encourage and support silver as money, it could do two things, both of which tend to interfere with the free market, and thus, have slight drawbacks.

First, a government could help narrow, or even eliminate, the spread on trading silver. Thus, if the government noted that the 'free market price' of silver is $15/oz. after minting fees and replacement prices, then that would be the government fixed price, whether a person was buying or selling silver.

Second, a government could help reduce silver's price volatility. If the silver price rose to $50/oz. very quickly, and then dropped, the government could hold silver's price steady for redemptions, so people could still trade silver back to the government always at a floor price that never declined. This is similar to stamping a currency value on the coin itself. When that is done, the value of that silver in trade is never lower than the price on the coin. So, even in a 'free market' changing price for silver, the new silver currency's price should never be allowed to go down in terms of the issuing nation's paper currency. By reducing the price changes, letting price changes only be upwards and always be a new floor price, a government would encourage people to trust and use silver as money."