Interesting idea Keith, but wouldn't it depend on the value of gold being
fixed? About twenty years ago I was into buying gold. It was going up up up
and then, just after I bought, it plunged and I lost.... I've stayed away from
it since. Probably, a bank like the proposed Continental would guarantee a
minimum price so that if gold plunged the bank not the custormer would lose?
Let's see where it all goes.
Ed
----- Original Message -----
From: Keith Hudson
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION ; Ed Weick
Sent: Tuesday, October 18, 2011 2:37 AM
Subject: Full marks to Canada!
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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