David Hillary wrote:

> This makes gold a poor currency for a small open economy to adopt, and
> makes gold a poor unit of account, measure of value and store of value.

Consider what Charles Evans once said about that:

> Subject: 
>            Re: e-gold: The Real euro
>       Date: 
>            Wed, 7 Jul 1999 07:59:41 -0400
>       From: 
>            "Charles W. Evans" <[EMAIL PROTECTED]>
>         To: 
>            [EMAIL PROTECTED]
>        CC: 
>            e-gold list <[EMAIL PROTECTED]>
> References: 
>            1
> Bob Nugent wrote:
> >I could really use the argument on why a country should use e-gold
> >to back a national currency.
> It has been several years since I calculated the estimates, so I don't have
> usable numbers at hand, but there are many countries with national incomes
> smaller than the largest corporations.
> If memory serves, I found two dozen countries with GDPs that were lower
> than the annual income of the New York Times.  Disney Dollars
> notwithstanding, large corporations do not normally have their own
> currencies; it makes no sense for small national economies to have their
> own currencies.  (In fact, the only reason that governments of any size get
> involved with currency issuance is to fund schemes that would be impossible
> otherwise, including social welfare systems, wars, and make-work programs.)
> It makes as much sense for the govenment of a small or poor nation to
> undertake all the steps involved in managing a currency as it does for each
> one to have a steel mill and a national airline.
> Generally, there are two categories of alternatives: "currency boards" and
> "dollarization."
> By "currency boards" I mean, very broadly, any mechanism whereby local
> currency is issued only if there are equivalent reserves (precious metal,
> US$, deutschmarks, etc.) to back it.
> By "dollarization" I mean the official abandonment of the local currency
> for a single foreign currency.  For example, in many Caribbean countries
> the US$ is the official currency and the Swiss franc is the official
> currency in Liechtenstein.
> In a genuinely free place, there would be no official currency.  People
> would use whatever medium of exchange they chose.  However, one expects
> that it would be a relatively hard sell to get any government to abandon
> the notion of its having an "official" currency altogether.  Granted, this
> is possible, and perhaps someone on this list knows of at least one
> real-world example, but it is not the sort of thing that would have
> universal or even wide appeal worldwide.
> So, we have a situation where, for example, Steve Hanke -- who has made his
> name in economic policy advocating and designing currency boards -- is now
> calling for widspread dollarization.  His "dollars" of choice are the US$,
> Japanese yen, and the euro.  Occasionally, he'll mention gold favorably in
> a parenthetical, but then dismiss it gently without further analysis.
> In recent years, we've seen turmoil in the yen, and commentator Deroy
> Murdock has referred to the euro at "the white man's peso" in recent
> articles.  With the massive debt overhang and unfunded obligations on the
> US$, we might be looking at three-out-of-three weak currencies.
> Asking the people of Argentina, Mexico, and Cuba to trust the US Federal
> Reserve more than they trust their own Finance Ministries might make sense
> in incrementally, but it merely pushes the problem out of the living room
> and onto the lawn.  It never really goes away.
> There will never be a perfect money.  This is because markets are chaotic,
> and relative values change constantly.  Asking for a perfect money is like
> asking for a wave-free ocean.  We might want to minimize the incidence of
> tidal waves storm surges, but we will never get rid of the business cycle
> (tides) or the fortunes of individual economic agents (waves).
> Given that there cannot be a perfect money, we must choose among available
> options.  The 'usual suspects' are US$, Japanese yen, euro, and gold.
> (Some people advocate managed baskets of commodities or paper backed by
> market index funds, but these are vulnerable to all the information
> problems of fiat currencies and they subject monetary authorities to higher
> storage and delivery costs than precious metals.)
> In the same way that e-gold is the optimal mechanism for a company to adopt
> precious metal as its money of choice, e-gold can serve small national
> economies more effectively than any other existing system.
> At its root, e-gold is title to precious metal.  In this way, it is
> precisely the same as holding metal in reserve.  However, e-gold is much
> more useful that physical metal in exchange.  For instance, it is very
> difficult to buy a cup of coffee with gold and get correct change.
> Soon, an announcement will be made to this list and to the media at large
> about a product based on e-gold that will have no agio ('storage fee') or
> transaction processing fee.  The government of a small or poor nation would
> be able to hold its reserves in this product completely cost-free.
> If a government opted for outright "dollarization" with e-gold, they would
> be saying, in essence, that everyone would have to have ready access to the
> e-gold servers.  While we would be very happy to see this happen, it would
> entail non-trivial infrastructure costs.
> This leaves us with a "currency board" situation, where a government opens
> an e-gold account, arranges to have it funded, and issues currency backed
> one-to-one with the e-gold.
> Here, people would be able to spend their money directly, through their
> e-gold accounts, or indirectly using whatever system the government had in
> place: paper notes, coins, smartcards, etc.  Of course, with tokens of any
> kind, the issuer faces the problem of counterfeiting, but that is part of
> our day-to-day reality already.
> The key here is that the people with access to the e-gold servers would be
> able to transact using e-gold directly.  This would cut costs
> significantly, since the web browser would replace the pocket full of gold
> coins that people had to carry on their persons in centuries past.
> By adopting e-gold as the low-cost, high-efficiency solution, a small or
> poor nation could find its fortunes changing dramatically.  Imagine what
> would emerge if Burundi, a poor country in central Africa, adopted an
> e-gold-backed currency.  In one swoop, it would go from third-world fiat to
> one of the world's strongest currencies.
> As an intermediate step, a government could issue a bond denominated in
> e-gold and get the e-gold into circulation by spending the proceeds on
> whatever program the bond were to fund.  To do this with gold directly
> would entail the minting coins and the storing of bars, both of which are
> expensive.
> Truly exciting is the prospect of someone's establishing a private,
> tax-deductible e-gold fund to facilitate this bond issuance.  Aside from
> the economic logic, it would be a marketing coup of heroic proportions.  A
> wealthy individual with political aspirations could put up the initial few
> million US$ equivalent and then run for President as the David who took on
> the IMF Goliath.
> We would need only one successful example in very small national economy to
> get the world's attention.  While Citibank worries over how to collect
> credit card debt in Russia and China, we could work the grassroots like
> true revolutionaries and get e-gold into official circulation in Ghana,
> Gabon, or Bolivia.
> Charles W. Evans
> Gold & Silver Reserve
> Executive VP, Business Development


"It can probably be shown by facts and figures that there is no 
 distinctly native American criminal class except Congress." 
   - Mark Twain


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