Ed,
At 13:32 18/10/2011, you wrote:
(EW)Interesting idea Keith, but wouldn't it depend on the value of
gold being fixed?
(KH) To all intents and purposes it would be fixed during the
relatively short periods for those travelling abroad and wanting to
maintain their spending power using foreign currencies, or for
exporting businesses waiting for payment. Whereas, at present, in the
course of their journeys or the duration of their contracts, both
could be hit with sudden changes of foreign currency against the
Canadian dollar, if they had deposits with Continental expressed in
gold (when both currencies gyrate about the value of a constant
weight of gold) then the original value would be maintained right up
to the point when their money (Continental gold certificates or
travellers' cheques, or whatever) was exchanged into the foreign currency.
As for "ordinary" stay-at-home customers who start an account with
Continental in order to maintain the value of their original
deposits against home currency inflation, they'd only be tempted to
start an account with the bank if they thought that there was a
danger of inflation happening. If they thought that the Canadian
dollar was rock solid with prices of goods hardly changing, then they
might as well stay with their existing bank.
(EW) 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.
(KH) I imagine you're talking of the period in the '70s after Nixon
cut the dollar-tie with gold ('71) and when all Western currencies
were affected by high inflation. Gold was seen to be the only safe
haven (even by seriously big investors who normally bought bonds.).
That was a true gold price bubble caused by panic and it was only
brought down because Paul Volcker, the Fed chairman, had the courage
to put interest rates to over 20%. At that time Western governments
were not in serious debt and their economies could bear the
subsequent austerity for a few years (after which they resumed
inflating again!). Today Western economies would be plunged into deep
depression if interest rates were moved up by even as little as 1%
(or even less). Today's 12-year rise of the gold price is not a panic
rise and can only be arrested when currencies are again tied to gold.
(EW) Probably, a bank like the proposed Continental would guarantee
a minimum price so that if gold plunged the bank not the custormer would lose?
(KH) Yes, I imagine that it would be hedged. However, in the present
situation when it is known that central banks are themselves buying
gold as a safe hedge against currencies then Continental hedging
costs (and thus fees charged to the customer) would be miniscule, I'd
guess (at least compared with what banks presently charge customers
for running their accounts and present plans for charging for debit cards).
Let's see where it all goes.
Interesting!
Keith
Ed
----- Original Message -----
From: <mailto:[email protected]>Keith Hudson
To: <mailto:[email protected]>RE-DESIGNING WORK, INCOME
DISTRIBUTION, , EDUCATION ; <mailto:[email protected]>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/
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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