Originally Published 15/10/2011:
First, it is crucial to understand, as more and more people are everyday, that our current money system is dishonest and crooked. We are talking about the fiat fractional reserve system, whereby new money comes into existence when banks extend credit (out of thin air). Fiat can only be exchanged for more fiat (unbacked).
The major differences, then, under a sound money system would be in terms of where new money comes from. Currently private banks get to decide when new money should be created, and hence, business conditions for these private banks will determine the money environment for everybody.
This is the current situation, where banks are so illiquid and insolvent that they plainly refuse to extend credit on reasonable terms. This results in a feedback loop such as the world experienced in 2008 (when credit dried up) as well as what we are experiencing currently.
Under a gold/silver BiMetallic Standard the price of gold and silver would both be fixed. That means your salary of $30,000 would buy as much gold/silver this year as next year. The price of goods would still fluctuate, but over the long-term they would not trend higher, but rather stay flat.
Obviously knowing that your money will retain its purchasing power is a powerful incentive to continue working hard, whereas our current system of nonstop devaluation encourages nothing but speculation.
But how would new money come into circulation, if banks are no longer allowed to create it through keystrokes on computer screens (and then lend out the previously non-existent money at interest)? Its simple, new money comes into circulation as it is mined, milled and minted.
To anyone who tells you that private banks or central banks or ‘the Elite’ will benefit the most from the Gold Standard, this is why they are wrong. Yes, holders of gold would benefit from the initial changeover, from fiat to sound money, but after that it is a system that is more fair (nothing is perfect in this world) for everyone.
An initial one time gain (of perhaps 300%) on the 10 ounces you hold might seem like a big deal, but the real change in the switch to sound money would come from banks losing the ability to create money, and the average person gaining that ability.
How would you feel if your retirement savings increased 66%, but your income decreased to almost zero? Probably mixed emotions! So now you know why private banks (and hence, their employees, analysts, researchers, etc.) will not be supporting a BiMetallic Standard without some, erghm, persuasion.
So how does new money come into circulation, again? The Federal Mint (of America, Canada, etc.) would be obliged to mint bullion into coins, free of charge (a small seignorage for operating costs was historically charged). You mine it, pay someone a nominal fee to mill it, you take the bullion to the mint, and you walk out with money. Notice a key difference, new money comes into existence, and no one is owed interest on that money!
Now there are lots of questions, lots of choices, how to go about something like adopting a BiMetallic Standard. A common one is, where will loans come from, if banks can no longer lend out more money than they have in reserves? Easy, loans will come from savings.
If the bank has made $10,000 on ATM fees it can lend out $10,000. Not $100,000, $10,000. If you have some freshly minted coins, or some saved up, you could lend money. Simple interest would replace compound interest, ideally, as well.
As per all things important in life, always get professional qualified advice.
The editor of Capital Research Institute digest, and pursuer of relatively interesting information. Simon has a Masters Degree in Creative Writing and Journalism from the University of Wales, and is a photo-journalist and writer whose written and photographic work has been represented by the AFP news agency and appeared in newspapers across Europe and Asia.