Ed,
Our previous exchanges on gold-as-currency seems to have come to an
end and I wasn't intending to prolong it but, by coincidence, a
fascinating article has appeared in your Globe and Mail which, if you
haven't read it, is pertinent to our discussion. I show it below.
This is about the establishment of a different type of bank. (The
journalist, Boyd Erman, has it slightly wrong where he implies that
one can only make a deposit with gold. Normal cash deposits would be
perfectly acceptable.)
The most fascinating aspect of the proposed Continental Bank is that,
in being a no-loan bank, it will be recapitulating how banks started
in the first place in Renaissance times and, in fact, existed in
Europe for hundreds of years before they became what we have today --
lenders of money way beyond the amounts which they actually have in
their premises as reserves. The normal cheque service of today (or
the rapidly developing debit card) is equivalent to the original
promissory notes of Renaissance banks whereby a person could travel
to a distant city without having to physically carry gold, and then
be able to cash the note at another branch of the bank or at an associate bank.
As I see it, the proposed bank won't appeal to the ordinary person --
for a while at least -- but rather to businesses, and particularly
small Internet-dependent businesses which sell around the world. (My
own business, Handlo Music, would save on the outrageous commission
charges on credit card clearances.) But as the bank will be grafted
onto an existing business dealing with foreign exchange, its future
seems assured. "Ordinary" customers who simply want to protect their
incomes or savings from inflation will undoubtedly join once the bank
is given the go-ahead.
Full marks to Canada for showing the way ahead!
Keith
<<<<
SPROTT MAKES A BET ON A DIFFERENT TYPE OF BANK
By Boyd Erman
Tuesday, October 18, 2011
Eric Sprott, one of the most vocal critics of the global financial
system, wants to start a bank. But it won't be like any bank most
people are used to seeing.
Mr. Sprott and the asset management firm he founded, Sprott Inc., are
investing in an Ontario-based currency trading company known as
Continental Currency Exchange Corp. They, along with the current
management of Continental, are applying to federal regulators for
permission to turn the 17-branch operation into the Continental Bank
of Canada. They expect to get a decision early next year.
The bank Mr. Sprott and his partners envisage would seek to address
all the things that Mr. Sprott has warned against in the global
financial system, such as too much leverage and a lack of confidence
in paper currency.
Continental Bank would take deposits, but it would make no loans,
unlike most current banks that are built on a model of lending out
far more money than they actually have on hand.
Taking it a step further, customers who don't trust government-issued
currency may some day be able to keep their deposits in the form of
gold and other precious metals that they could tap for everyday
purchases. That idea is in keeping with Mr. Sprott's musings about
chequing accounts backed by precious metals -- customers could
deposit gold, then make purchases by cheque and have their accounts
debited accordingly.
"Our firm, Sprott Inc., and Eric have taken a very committed view
that the financial system requires a substantial reset," Sprott Inc.
chief executive officer Peter Grosskopf said in an interview. Given
that, "Eric has always thought that offering consumers access to an
unlevered bank is a good idea," he said.
In a levered financial system, relatively small losses by banks on
their loans and investments can push a bank close to collapse. This
bank would have no leverage and instead would make money thanks to
profit margins on services such as selling foreign exchange and
precious metals.
"It's the old commerce model of providing service instead of credit,"
said Scott Penfound, vice-president of operations at Continental Currency.
Mr. Penfound will stay on to manage the business and he and his
family will continue to own 49 per cent of the company. Mr. Sprott
and Sprott Inc. would together control 51 per cent of the bank, with
Mr. Sprott having the larger share. Sprott Inc.'s stake would be a
passive one, Mr. Grosskopf said.
Fear of financial system meltdown and a loss of value in paper
currency as central banks print more and more money drove gold to
record highs approaching $2,000 (U.S.) an ounce before last week's
big sell-off in financial and commodity markets.
Much of the buying has been driven by people who share Mr. Sprott's
concerns about the financial system and who believe that some day
gold and silver may once again be the foundation of commerce. Mr.
Sprott wrote in a July commentary that he believes that "gold and
silver are the ultimate alternative for a chequing account in a
vulnerable banking jurisdiction."
One of the criticisms of gold as an alternative to paper currency has
always been that it is not very practical. Secure storage is an
issue, and it is not easy to take a few ounces to the store to buy
groceries or to pay for the dry cleaning.
Being able to write a cheque against an account at an institution
that actually holds physical gold or silver brings the idea of
precious metals as an everyday currency closer to reality.
To be sure, the gold-based banking idea is a long-term goal. For
Continental, having a stamp of approval from regulators will set it
apart from other companies operating in the foreign exchange and
metal sales businesses, Mr. Penfound said. The company will also have
more capital, thanks to the new investors, to expand and to deal with
regulatory requirements.
Another more immediate benefit of a banking licence is access to the
interbank foreign exchange trading system, which would allow
Continental to offer more services to customers, Mr. Grosskopf said.
For example, instead of simply offering to exchange Canadian dollars
for foreign currency at its branches around Ontario, Continental
could sell its clients pre-paid currency cards that they could take
when travelling to foreign countries.
"We can sleep at night because risk is not something in the model,"
Mr. Penfound said.
>>>>
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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