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Money: Pegging/backing to Commodities

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agrippa1

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I believe Chile decided not to let their foreign exchange rates float, and instead insisted on pegging the currency at fixed rates to the dollar - an obvious mistake from a free-market economist's point of view.

Not quite sure I understand (and a reference to an article or book would suffice).

Why is pegging the currency to the dollar a mistake from a free-market point of view? Is it only because the dollar was no longer pegged to gold? I mean, if the dollar had still been pegged to gold, would pegging to the dollar have been a good idea? Or is pegging to any standard a mistake, from a free-market point of view.

thx

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Why is pegging the currency to the dollar a mistake from a free-market point of view? Is it only because the dollar was no longer pegged to gold? I mean, if the dollar had still been pegged to gold, would pegging to the dollar have been a good idea? Or is pegging to any standard a mistake, from a free-market point of view.

The key question is not whether one currency is pegged to another or allowed to float, but whether government should issue currency at all. At its most fundamental level, currency is property and should only be issued by private entities. The private issuer can determine the policy that maximizes profits, whether it is to float or peg it to another currency, or to define it as a quantity of a commodity, such as gold. The only way he can maximize profits is if he creates a currency that is valuable enough that people want to use it. Such a currency would have to hold its value; it could not be inflated. Thus, a private currency would most likely be denominated in gold.

If we leave out the possibility of privately issued currency and confine ourselves to the world of fiat currency (which is the world we live in today), the biggest risk of a government-issued fiat currency is inflation. Governments always are tempted to pay for their reckless spending through inflating the money supply. This problem is especially acute in Third World regions such as Latin America. Given the tendency of Latin American countries to inflate, I would argue that the best thing a Latin American government could do is to peg their currency to a far more stable currency, such as the U.S. dollar. The Federal Reserve Bank also inflates and thereby depreciates the value of the U.S. dollar, but it nearly always does so in a far less pernicious manner than do Latin American central banks.

So, I would applaud Chile's decision to peg their currency to the dollar, and be very nervous of any decision to allow it to float. In our mixed economy world, short of abolishing their national currency and allowing private banks to issue currency, the most prudent action Chile can take to foster economic growth would be to peg their currency to the U.S. dollar or the Euro or a basket of highly stable currencies.

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Why is pegging the currency to the dollar a mistake from a free-market point of view? Is it only because the dollar was no longer pegged to gold? I mean, if the dollar had still been pegged to gold, would pegging to the dollar have been a good idea? Or is pegging to any standard a mistake, from a free-market point of view.

Pegging to any standard is a mistake from a free-market point of view.

Any currency has a value in and of itself. A floating exchange-rate is needed so that the currencies trade with one another at their actual true value. It relates to balance of trade. A country with a trade deficit - that is, a country importing more than it is exporting - will have a large outflow of its domestic currency for foreign currencies. This is increased demand for a foreign currency, which should push up the price of the foreign currency in terms of the domestic currency. In a free-market, this mechanism serves to push the trade deficit back down because when the price of the foreign currency rises it makes the price of foreign-made goods less attractive.

When a currency is pegged to another at a fixed-exchange rate, central banks also must buy and sell reserves of foreign currencies in order to maintain the peg. In order to do this, central banks must maintain vast foreign currency reserves. This is obvious governmental intervention with the market. Communist countries such as China just throw the whole "trading currency" thing out the window and make it illegal for any business or consumer to trade currency at any rate other than the "official" pegged rate - in effect, governmental monopoly over all currency conversions. This is unenforcable and leads to currencies trading on underground "black" markets.

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Pegging to any standard is a mistake from a free-market point of view.

Huh? What is the gold standard?

Any currency has a value in and of itself. A floating exchange-rate is needed so that the currencies trade with one another at their actual true value. It relates to balance of trade.

This is intrinsicism. A currency has a value relative to how much of it exists in circulation.

If a country engages in Open Market Operations to keep it's currency pegged to another, this is still the true value of the currency. All they have done is "outsource" their monetary policy to another countries central bank. China is in effect trusting the US with it's monetary policy and those who live by the sword, also die by it.

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This is intrinsicism. A currency has a value relative to how much of it exists in circulation.

If a country engages in Open Market Operations to keep it's currency pegged to another, this is still the true value of the currency.

This is not true, operations used by central banks to buy and sell foreign reserves are interventions designed to fix the foreign exchange market at certain prices. I'm sure you wouldn't advocate governmental price fixing in any market, so why would you advocate it in a foreign exchange market? If an exchange rate goes far from the offical pegged rate, a central bank will buy or sell its own currency using reserves of foreign currency, thereby manipulating the value of its own currency by adding to or subtracting from the total supply of that currency. A currency's value is determined by how much of it exists in circulation, which is exactly why floating exchange rates are necessary in a free-market. Let's use Chile as the example why fixed-exchange rates are harmful, since that is where this conversation arose from. I will simply quote from Wikipedia, as there is no point in me retyping it out:

Minister of Finance Sergio de Castro, departing from Friedman's well-known support for flexible exchange rates, decided on a fixed exchange rate of 39 pesos per dollar in June 1979, under the rationale of bringing Chile's rampant inflation to heel. The result, however, was that a serious balance-of-trade problem arose. Since the Chilean pesos inflation outpaced the U.S. dollars inflation, every year the Chilean foreign goods buying power increased, all fueled by foreign loans in dollars. When the bubble finally burst in late 1982, Chile slid into a severe recession that lasted more than two years...

Indeed, up until the very end of the bubble, the fixed exchange rate policy was very popular within Chile, since it allowed consumers to go into debt in dollars and thus purchase foreign goods at discounted prices relative to the Chilean peso. When it became clear that the fixed exchange rate could not be maintained indefinitely, the peso was finally allowed to float in mid 1982. However, this devaluation was done so incompetently and belatedly—and at the exact moment that the United States, Chile's major creditor and trading partner, was going into a major recession—that it led to a fall in Chile's GDP of 20% during 1982 and 1983, resulting in widespread unemployment and the collapse of the financial sector. Unemployment spiked to 30 percent. Around 50 percent of the population fell below the poverty line. Extreme poverty affected 30 percent of the population. In his Memoirs ("Two Lucky People", 1998), Milton Friedman directed blame towards De Castro and the fixed exchange rate, claiming that it was contrary to the free market model.[...]

Edited by adrock3215
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This is not true, operations used by central banks to buy and sell foreign reserves are interventions designed to fix the foreign exchange market at certain prices. I'm sure you wouldn't advocate governmental price fixing in any market, so why would you advocate it in a foreign exchange market?

I'm not advocating it. But that's not what you said. You said "Pegging to any standard is a mistake from a free-market point of view." What is the gold standard?

Pegging a currency to any standard that requires central bank manipulations of a currency is a mistake. Pegging it to ANY STANDARD whatsoever, is not. In fact that is actually what you want : money backed by an objective standard like gold.

Edited by KendallJ
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I'm not advocating it. But that's not what you said. You said "Pegging to any standard is a mistake from a free-market point of view." What is the gold standard?

Pegging a currency to any standard that requires central bank manipulations of a currency is a mistake. Pegging it to ANY STANDARD whatsoever, is not. In fact that is actually what you want : money backed by an objective standard like gold.

I stand by my statement that pegging to any standard is a mistake from a free-market point of view. But the source of our "disagreement" is a misunderstanding over "pegging."

Under a gold standard, it would be wrong for a government to peg the conversion value of its currency to a certain fixed amount of gold. A conversion ratio such as (I'm just making these numbers up) "1 dollar is convertible to 1/100th an ounce of gold" is not a true gold standard, it is a pseudo-gold standard, precisely because the exchange rate is dictated by directive and not by the markets; in this case, the market for the particular currency and the market for gold. A more acceptable government declaration (though still not ideal) would be to declare "1 dollar is worth 1/100th an ounce of gold." In this instance there would not be a pegged conversion ratio between the paper notes and the metal, and regardless of government declaration the markets would decide if 1 dollar is actually worth that much in gold.

This is what "pegging" means: a fixed exchange rate or conversion ratio between two different currencies or forms of money. Having a gold standard would not mean that the currency is pegged to gold, it would mean that the currency is backed by gold. The Bretton-Woods system that Nixon did away with used fixed-exchange rates with respect to gold and that is not acceptable as a true gold standard. The 19th century was not acceptable either because it used bimetallism, which fixed the ratio of gold to silver. Private markets should decide conversion ratios, also known as exchange rates, in all cases.

Edited by adrock3215
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This is what "pegging" means: a fixed exchange rate or conversion ratio between two different currencies or forms of money. Having a gold standard would not mean that the currency is pegged to gold, it would mean that the currency is backed by gold.

I'm sure you'll explain the difference between backed and pegged.

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I just did. Pegged means that the exchange rate between two currencies is fixed by government declaration. Backed means that one currency is exchangable for the other, at a rate that can be set by a private market.

Well, let me see if I understand this correctly. Are you saying that under a "proper" gold standard, that a piece of paper obligates nobody, public or private, to surrender a certain amount of gold in return for the certificate?

That is what a standard is. How exactly is gold a standard in any sense of "backing" paper money? Who issues the money and how do they back it?

Edited by KendallJ
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I just did. Pegged means that the exchange rate between two currencies is fixed by government declaration. Backed means that one currency is exchangable for the other, at a rate that can be set by a private market.
By these terms, every currency in the world -- more or less -- is "backed" by gold. Even if one cannot get gold for dollars from the Fed, if one is going to use a market-price, the identity of the seller is of no importance. Therefore, every currency is effectively "backed" by gold (and also "backed" by any other non-restricted product), using your terms.

That terminology is non-standard. And, as explained, it is also meaningless.

Sometimes the idea "backed by gold" is used to indicate that the Feds will keep a certain amount of Gold on hand, for each unit of currency in circulation, even though they neither exchange it with the public, nor maintain a market-rate equivalent amount.

The proper standard under Capitalism is for the government to set a standard. Just as the government says "1 kilogram is XYZ" for the purposes of any contract about kilograms, similarly the government says that "one dollar" means XYZ. This "XYZ" should be an inflexible standard. To say it means a certain weight of Gold, or Silver, or some other universally fungible commodity (or fixed combination thereof) etc. is the best way to implement a standard.

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By these terms, every currency in the world -- more or less -- is "backed" by gold. Even if one cannot get gold for dollars from the Fed, if one is going to use a market-price, the identity of the seller is of no importance. Therefore, every currency is effectively "backed" by gold (and also "backed" by any other non-restricted product), using your terms.

That terminology is non-standard. And, as explained, it is also meaningless.

Whew, I thought it was just me. :lol: The definition eliminates the entire concept of a standard from the definition of gold standard.

The proper standard under Capitalism is for the government to set a standard. Just as the government says "1 kilogram is XYZ" for the purposes of any contract about kilograms, similarly the government says that "one dollar" means XYZ. This "XYZ" should be an inflexible standard. To say it means a certain weight of Gold, or Silver, or some other universally fungible commodity (or fixed combination thereof) etc. is the best way to implement a standard.

One could even do this with private issuers of money, where banks issued their own currencies backed by gold reserves. What would develop is a secondary market in currencies which would take into account the financial default risk on the promissary. However, for "AAA" gold certificates, the "exchange rate" would be the nominal standard rate. However, the issuing bank (or govt) is still obligated to redeem for the nominal rate regardless of the current exchange rate. Without that standard in place nothing else works. just because it's a private market doesn't mean that even private issuers of money can't inflate their own currencies. It is the promise to pay in tangible objective currency that keeps them from doing so. THat is what backs the money.

Edited by KendallJ
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One could even do this with private issuers of money, where banks issued their own currencies backed by gold reserves.
Yes, I did not mean to imply that the government should issue currency, even though -- personally -- I'm fine with it. I just meant that the government would create a standard: e.g. "1 US dollar means 1/1000 th of a troy ounce of gold of purity ...blah blah..."
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Well, let me see if I understand this correctly. Are you saying that under a "proper" gold standard, that a piece of paper obligates nobody, public or private, to surrender a certain amount of gold in return for the certificate?

No, that isn't what I'm saying at all. The convertability of a bill of credit, or banknote, would be set by the issuer of such note, not by government directive. The issuer would be obligated to convert the bill to gold at the agreed upon terms.

A proper gold standard would use privately produced gold coins as the majority of money changing hands. Bills of credit that are 100% backed by gold, or banknotes, would be privately issued as warehouse receipts for a fixed amount of gold held by the issuing bank. Gresham's Law states that bad money tends to drive good money out of circulation. So, even though people will trust that an issuer's banknotes are backed by gold, they will tend to spend the paper receipts and save the coins. Even the most secure banknote will be undervalued relative to an honest coin because a gold coin is the most secure form of money one can possibly have. This means that gold coins will be valued at a premium relative to banknotes, and so it is important that the exchange rate between the two be able to float freely. This way the evaluation of the value of notes with respect to gold by each participant in the economy is reflected in the exchange rate in the marketplace.

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Adrock, As you have illustrated in your example, the fundamental basis is that there is a fixed exchange ratio underlying the note. Legally, whoever issued the note will be held to this fixed ratio. Separately, as you also say, other third parties may discount this, and may be willing only to pay less gold for the given note (i.e. less than the face value promised by the issuer). All the discussion about "pegging" and "backing" refers the the first ratio -- the fixed ratio promised by the primary issuer. So, perhaps much of the dicussion above was at cross-purposes.

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There is a need for standards in economics for the same reason there is a need for standards in any form of weights and measures, and it is a legitimate function of government to put certain weights and measure as directed by law to help prevent fraud.

A yard, for example, must be a certain exacting length, or one person's yard will be another person's foot. If one was going to build a house, and one vendor considered "one yard" to mean 36 inches and another thought it meant 20 inches and yet another thought it meant 45 inches...well consider the mess that would be made of one's house.

Similarly, if one went to the gas station and wanted to buy 10 gallons of gas, it would make a difference to you if that gas station sold 2 quarts and charged you for a gallon; after all, there is no need for a standard gallon, it can just float and mean whatever the heck anyone wants it to mean. If one guy wants to sell you 50 yards of masking tape, but he only puts 100 feet on the spool, that's OK, right? I mean, why do we needs standards at all, since in our highly industrialized economy 10 inches is just as good as a foot, right?

I'm being sarcastic, but people tend to realize that there is a need for exacting standards for everything except economics; especially when it comes to currency. If currency is not back by a commodity, one can have the same thing happen with the currency. One day, the currency means 1/300 of an once of gold, and the next it means 1/880 of an ounce of gold. No problem, right? Wrong. The same thing happens in economics as what happens to the house example if one doesn't have an exacting standard for one's currency.

I think one thing that confuses people is the idea that "one dollar" is worth 1/880th of an ounce of gold, instead of realizing that in a proper economic system, "one dollar" would mean 1/880 of an ounce of gold; just as "one yard" means "36 inches".

But this cannot happen so long as the printed dollar is not pegged to gold or some other commodity that doesn't change quantity very much over many, many years. The reason for exchange rates getting out of whack between countries is because they inflate the amount of currency relative to gold. If everyone was on the gold standard and stuck to it so that the ration of gold to their currency was fix and not inflated by printing more currency, the the exchange rates would be as exacting and unchanging as between the inch and the foot, or the inch and the yard, or the yard to the meter, or the meter to the millimeter.

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Yes, I did not mean to imply that the government should issue currency, even though -- personally -- I'm fine with it. I just meant that the government would create a standard: e.g. "1 US dollar means 1/1000 th of a troy ounce of gold of purity ...blah blah..."

I disagree with this. Firstly I don't think a government should issue currency. Secondly, I don't believe government should have authority to prescribe a legal tender by legislative order as you are calling for. Gold has been chosen as a store of value by free men long before governments entered the picture. Indeed, calling for a "gold standard" does not necessarily imply that gold be the only acceptable form of coin. It is possible for silver to play the same role, or for another commodity entirely.

Here is Murray Rothbard from Man, Economy and State:

The transition from gold to fiat money will be greatly smoothed if the State has previously abandoned ounces, grams, grains, and other units of weight in naming its monetary units and substituted unique names, such as dollar, mark, franc, etc. It will then be far easier to eliminate the public's association of monetary units with weight and to teach the public to value the names themselves. Furthermore, if each national government sponsors its own unique name, it will be far easier for each State to control its own fiat issue absolutely.

The point is that "dollar" refers to a coin that has a particular weight, but it is not ultimately a unit of weight like ounce, gram, etc. A proper monetary system should have coins which are denominated in units of weight.

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Firstly I don't think a government should issue currency. Secondly, I don't believe government should have authority to prescribe a legal tender by legislative order as you are calling for.
Just for the record, I said neither of these things.
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As long as governments perform their role in enforcing contracts and punishing fraud, all that is necessary for stable private currencies to emerge is for the government to get out of the way. In the three decades prior to the Civil War in the U.S., many private banks issued their own currencies. These currencies were largely successful. The limiting factor was state restrictions on branch banking that resulted in too many banks issuing the currencies. That made it easier for some unscrupulous operators to issue counterfeit currencies or currencies not properly backed by gold reserves. If national banking had been permitted, in all likelihood a small number of currencies would have been issued by financially secure, dominant national banks, much like a handful of large national banks such as Citibank or Chase issue widely-accepted credit cards today.

A banknote in pre-Civil War America, or in a future laissez faire America, represented a contract between you and the bank. You had the right to present the note to the bank and demand the immediate quantity of gold it represented. Government's only role was to enforce that contract. Such convertibility on demand, backed by the reputation and balance sheet of the large national bank, ensured that its paper would be good as gold in transactions.

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A banknote in pre-Civil War America, or in a future laissez faire America, represented a contract between you and the bank. You had the right to present the note to the bank and demand the immediate quantity of gold it represented. Government's only role was to enforce that contract.

I basically agree with this. All I'm saying is that if one bank called 1/300 ounce of gold "one dollar" and another bank called 1/880 ounce of gold "one dollar" then it would cause a great deal of confusion. I suppose, however, that they wouldn't even have to call it a dollar -- and I don't even know when that term was coined. It would be possible under completely free capitalism for someone to come up with a new unit -- I don't know, call it the Rand -- that would mean an exacting weight of gold, and stick to it; and thus eventually win over the populace to that standard.

I guess the issue could be resolved in terms of trademarks. If a private bank issued banknotes backed by gold, they could call it whatever they wanted, and no other bank could use that term; just as Ford cannot create a car and call it a Chevy. In the long run, the bank with the notes in demand -- i.e. most transferable and most easily transferable into gold (or some other non-fluctuating commodity) and most accepted as the standard in economic transactions would win out. That was the way we were heading, but the idea of central banking et al came in and screwed it all up.

However, the banks would not be permitted to change the standard, so that one day the Rand would be 1/300 ounce of gold and the next day it would be 1/880 ounce of gold. And that could come under strictly private contracts, but I do think that eventually a standard would arise that would require government enforcement -- as in one foot mean 12 inches, no more and no less, to help prevent fraud; especially as more and more banks begin to switch to the Rand as opposed to the dollar, for those banks not directly affiliated with the bank that first coined the Rand.

However, if we were to have capitalism overnight, then it would be better to stick to the nomenclature of "one dollar" and come up with an exacting standard in terms of weight for that unit. Of course, that isn't going to happen, so when we do eventually get complete capitalism, who knows what they are going to call the most accepted unit of economic measurement.

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I suppose, however, that they wouldn't even have to call it a dollar -- and I don't even know when that term was coined.

"Coined?" Pun not intended I hope.

"Dollar" is a corruption of "Taler" which in turn comes from "Joachimsthaler" which was the name given to a large-sized silver coin minted in Joachimsthal, when the local nobleman realized he had a silver deposit on his land. So dollar/taler became a term for a silver coin of that approximate size, including the Spanish piece of eight reales, which was a de-facto standard in the American colonies at the time of the American revolution.

It would be possible under completely free capitalism for someone to come up with a new unit -- I don't know, call it the Rand -- that would mean an exacting weight of gold, and stick to it; and thus eventually win over the populace to that standard.

There is already a Kruggerand with a troy ounce of actual gold content (and quite a bit of other metal added to make the gold more durable. (One bad pun deserves another.)

I noticed you used 1/880th of an ounce, presumably because you thought the price of gold was $880. It's presently about $911, by the time you read this, who knows? (http://www.thebulliondesk.com)

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Or is pegging to any standard a mistake, from a free-market point of view.

Ideally, a currency should not be pegged to any commodity - it should be the commodity. Rather than carry around "ten dollars" we should just carry certificates for "ten gold grams." This eliminates the need for a central authority to establish a standard exchange rate.

Why is pegging the currency to the dollar a mistake from a free-market point of view?

If a country is plagued by hyper-inflation, it may be desirable to peg it to a more stable currency such as the dollar when the political will to establish and maintain an independent central bank is absent. Actually, the only practical reason to establish a state currency when a more stable one exists is to allow the government to increase spending without increasing taxation - that to bypass the democratic/legislative process.

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Ideally, a currency should not be pegged to any commodity - it should be the commodity.

Yes. It is difficult to imagine because the way things work today is much different. Thomas is saying a need for a standard will arise, and government intervention is going to be deemed necessary to create this standard, as in "12 inches equals 1 foot." The difference here is that inches and feet are both units of length. A paper banknote is not a unit of anything and it is not money, it is a contract which acts as a substitute for money. The contract is enforceable because government enforces contracts made between consenting individuals, as Galileo Blogs stated. There is no "standard." One bank may issue notes convertible into 1/500th an ounce of gold, and the bank next door may issue notes convertible into 1/1,000,000th an ounce of gold. The notes themselves do not need to be called a dollar or anything else other than "Banknote from Bank A" and "Banknote from Bank B."

The point is somewhat moot though, because privately produced coins would likely be used much more often in the future lassiez-faire society. Also likely is that fractional reserve banking would not be in widespread usage, if it is even deemed legal, and therefore there would not be a great demand for or supply of banknotes which change hands often.

Edited by adrock3215
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First, the issue of whether there is a special term (like "dollar") for some unit like "1/1000th ounce of gold" is trivial.

Second, if the government were to print commodity-backed notes that are exchangable and 100% backed by the commodity, it would be a minor issue from an economic, free-market viewpoint, as long as there are no restrictions on private notes, nor on the tender in which private parties may contract. Sure, from a checks-and-balance viewpoint, the actual printing of currency makes it more tempting for the government to push toward a fiat currency; but, checks and balances are secondary question.

Economically, the important fact is that a note should represent value. The rest is gravy. To represent value, it should be a claim to some value. That is all that being "pegged" or being "backed" means. If a private bank issues a note that can be exchanged for 10 grams of platinum, then that note is pegged to platinum, or backed by platinum, or exchangeable into platinum. Whether the note is pegged to something of value is of economic essence, not who printed/issued the note.

Going back to the original post, then, about Chile pegging their currency to the US$, of course nobody here would suggest that the US$ is a sound currency. If Chile wanted to have a sound currency, they would peg it to a commodity, or let it go private and banks would peg their private currencies. Pegging to the US$ is like using the US$ as their own currency, because it means that their own currency represents claims to US$. For many countries, a peg to the US$ is better than the alternative that they would otherwise typically adopt, which is to simply issue whatever amount of currency is politically expedient.

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Thomas is saying a need for a standard will arise, and government intervention is going to be deemed necessary to create this standard, as in "12 inches equals 1 foot." The difference here is that inches and feet are both units of length. A paper banknote is not a unit of anything and it is not money, it is a contract which acts as a substitute for money.

I got your point, but I don't think you got mine. How are merchants supposed to price their goods and services if there are so many good money notes out there? I suppose they could mark it in terms of ounces of gold (or grams of gold) -- i.e. the framing job I am going to do for you is 200/880 ounces of gold (roughly $200 dollars), but that gets cumbersome; and if there are many good gold notes out there with many denominations, in terms of 1/1000 ounce of gold, 1/880 ounce of gold, 1/500 ounce of gold and so forth, it's going to be very cumbersome for transactions to be met at the merchant level. If someone brought in Joe Smith's Gold Certificate, I would have to know how much gold it represents, and I would have to know if Joe Smith's Bank is legitimate or not. So, eventually, there would have to be just a few denominations of bank notes out there in the economy, or merchants are not going to accept them. It would be like accepting out of state checks, which some local merchants won't take the chance on -- such as the gallery where I work. However, we will accept cash, no matter what part of the country it was printed in, so long as it is not counterfeit, because it is a recognized unit of exchange. We don't accept foreign currencies because we don't know anything about conversion rates.

Eventually, that currency that is most widely accepted will be called something Joe's Certificates, for example, so that prices could be put on items by merchants in terms of Joe's; you know, like the price is 3 Joe's. Otherwise you'd have to do everything in terms of gold weights, and there may or may not be a convenient bank note to make that feasible for all transactions -- i.e. does Joe's Bank offer fractions of Joe's as a certificate? If not, how do you make change? etc.

So, it's not an issue of who prints the certificates so long as they are redeemable in terms of some quantity of a commodity, and that overall quantity of the commodity doesn't change much over time -- i.e. gold or silver. Gold is perfect for money, since not only is the worldly quantity of gold more or less unchanging over time, but it also doesn't corrode, etc.

In other words, for everyone to know what everyone else is talking about in terms of the commodity and how much of it we mean, there would be nothing wrong with the government coming up with a standard of weights and measures stating that, for example, "one dollar" means "1/880 ounce of gold." Of course, with the way things are going, looks like Software Nerd was forecasting when he said "one dollar" means "1/1000"ounce of gold -- probably by tomorrow <_<

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