Returning to the Gold Standard

Returning to the Gold Standard

Thomas Allen

    The following is written for the United States. With minor modifications, it could be applied to most countries.
    Several recommendations have been proposed for returning to a gold standard or a monetary system that incorporates gold. One is returning to the true gold standard. Nearly all of these recommendations require fixing or defining gold at a specific price, generally between $1000 and $10,000 per ounce.
    Because of falsely perceived problems with returning to the true gold standard, several pseudo gold standards have been proposed. One is backing the currency by some arbitrary amount of gold, usually between 5 and 25 percent. Another is to use the price of gold as an index. The central bank expands and contracts the money supply to keep the price of gold within a specific, but arbitrary, range. Related is making gold part of a commodity basket index. Then the central bank expands and contracts the money supply to keep this arbitrary index within an arbitrary range.
    Although the gold exchange standard fell quickly the two times that it was tried, it is still popular in some circles. Presumably, its proponents will make it work this time.
    The following recommendations can return the country to the true gold and silver standards without the problems of the aforementioned recommendations. They take the control of the money from the government and its central banks, the Federal Reserve, and return it to the people where the U.S. constitution originally placed it. These recommendations call for phasing in the gold and silver standards. Many pertain to reforming banking as poor banking practices cause many of today’s economic problems.
    1. All U.S. debt securities held by the Federal Reserve are voided and the Federal Reserve is abolished. The Federal Reserve returns the gold certificates that it holds to the U.S. government. Federal reserve notes are no longer printed unless the U.S. government needs to print more federal reserve notes to pay its existing debts made in terms of federal reserve dollars.
    2. As part of abolishing the Federal Reserve, the U.S. government buys all the stock of the Federal Reserve banks owned by member banks and pays for the stock with federal reserve notes. All member banks receive in federal reserve notes all their reserves held by the Federal Reserve.
    3. All gold held by the U.S. government or the Federal Reserve is distributed equitably among the people who lived in the United States in 1933 or their descendants if they have died. The distribution is in gold coins minted in denominations 5, 10, and 20 pennyweights.
    4. The Federal Deposit Insurance Corporation (FDIC) is phased out. Its coverage could be reduced by one-fifth per year for five years after which it ceases to exist. Any bank could opt out of the FDIC earlier and cease being subject to its regulations.
    5. The U.S. government immediately opens the mint to gratuitous free coinage of gold and silver. Private mints may also coin gold and silver provided the minter and the content of gold and silver of the coin are identified on the coin.
    6. Gold and silver coins replace the federal reserve dollar. The coins are denominated in troy pennyweights of gold or silver. The pennyweight value is stamped on the coin. Also stamped on the coin are the grains of gold or silver that the coin contains. (Also, stamping on the coin the number of grams of gold and silver in the coin is desirable.)
    7. No fixed exchange rate or legal ratio exists between gold and silver. No fixed exchange rate exists between federal reserve dollars and gold or silver.
    8. Legal tender laws are repealed; people are required to accept the type of money (gold, silver, or federal reserve dollars) for which they have contracted.
    9. Sound banking needs to be restored as quickly as possible. Banks issuing banknotes for real bills of exchange need to be physically separated from other types of banking.
    10. Banks issue only gold and silver banknotes and checkbook money to buy real bills. Banks do not issue banknotes or create checkable deposits for any purpose but to buy real bills.
    11. Other banks do not issue banknotes and do not create checkable deposits. They make loans by transferring money from savings and bank capital. Borrowing short and lending long is prohibited.
    12. Banks and others may issue gold and silver certificates provided such certificates are fully backed by gold and silver. The government should not issue certificates.
    13. All banknotes and certificates clearly identify the issuer and whether it is in gold or silver.
    14. The smallest denomination of banknotes and certificates is 50 pennyweights of gold and 100 pennyweights of silver.
    15. The States penalize the issuer of banknotes and certificates that refuses or fails to redeem its banknotes or certificates on demand.
    16. Within 12 months, no new checkable deposits are created in federal reserve dollars; they are in silver or gold. Within 12 months, no new loans are made in federal reserve dollars; they are in silver or gold.
    17. Federal reserve dollars are withdrawn from circulations as debts made with federal reserve dollars are paid off. Debts contracted in federal reserve dollars are paid with federal reserve dollars although the debtor may pay with gold or silver if he so chooses and the creditor willingly accepts.
    18. Banks maintain 100-percent reserves in gold and silver for primary gold and silver demand deposits. Banks that buy real bills maintain 100-percent reserves for derivative demand deposits in real bills and maintain adequate reserves of gold and silver to redeem in gold and silver checks drawn on derivative demand deposits. All other banks maintain 100-percent reserves for derivative demand deposits by transferring money from savings or bank capital to them.
    19. Banks are prohibited from buying government securities, using government securities as reserves, lending money to buy government securities, or accepting government securities as collateral for loans.
    20. Banks do not pay out banknotes or certificates of other banks.
    21. No bank keeps any of its reserves in another bank.
    22. The U.S. government and States keep their money in their own vaults and write checks against money in their vaults. They do not deposit money in banks. The U.S. government and States belong to clearing houses to clear quickly checks, banknotes, and certificates that they receive and checks written on their accounts.
    23. Within 12 months, the U.S. government and States begin paying their employees in physical silver coins and continue to pay them in physical silver coins for at least five years. After five years, they may pay their employees with silver checks or silver transfers to the employees’ checking accounts.
    24. The U.S. governments and the States start collecting taxes in gold and silver within six months. They should continue to collect enough taxes in federal reserve notes to pay their debt obligations made with federal reserve dollars.
    25. Within 30 days, the U.S. government and States cease contracting and issuing securities in terms of federal reserve dollars and start contracting and issuing securities in terms of gold or silver.
    26. All capital gains taxes, sales taxes, and other taxes on the exchange, sell, or purchase of gold and silver in any form that is at least 18 carats or on any other currency are eliminated.
    27. People may make contracts in gold and silver or any other commodity, good, or service, that they choose. Contracts are paid as specified in the contract. If the value of the contract when completed has risen in terms of federal reserve dollars, no taxes are paid on the increase. Tax laws in general are revised so as not to penalize using gold or silver as money.

Copyright © 2014 by Thomas Coley Allen.

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