Question: How would you introduce gold and silver as legal tender?

Answer: It you went to your local Safeway and tried to pay in gold and silver - they would just tell you to get lost. The reason they use the existing notes and coins that are printed by the RBA, is that it is declared as legal tender, and that all government agencies and departments (e.g. the ATO) will only accept such notes and coins (or their electronic equivalent) as payment.

The ASP will declare gold and silver as legal tender, and mandate that all government agencies and departments must accept such gold and silver as payment if it is tendered. However, private individuals and private companies can choose or negotiate for themselves whichever form of payment they want (i.e. RBA notes and coins, or gold and silver coins). This will be a private matter.

The consequence is that if people loose faith in the Australian dollar - they have the ability to use gold and silver. Such a move into gold and silver will result in an increase in the dollar price of gold and silver (or more accurately, a devaluation of the dollar) - with a strong message sent to the government that it is doing something wrong. This is democracy at work on a daily basis.

Question: Is a fully gold-backed currency not the real solution?

Answer: Before answering such a question - it is important to understand what the ASP is actually proposing regrading money - so that it can be compared to gold and silver as a practical solution. The ASP Monetary Policy is based on the principles as set out by the American Monetary Institute, and as attached below. The 2 most important principles of our monetary policy are:

1. That government should create money - and spend it into circulation on tangible items (such as hospitals, roads, water works) for the benefit of the people.
2. That gold and silver coin should be accepted as legal tender – concurrent with that of the national currency.

If this is done - then any person who has a dollar in their pocket knows that that dollar exists because it paid for some infrastructure that benefits them. The dollar is therefore "evidence" of real wealth - a hospital, a road etc. Even though it is only a piece of paper - it is limited in number and exists because there is an equivalent "common wealth".

This solution by the ASP is simple, neat and relatively easy to implement. However, when it comes to the re-introduction of a gold backed currency, there are just more questions than answers. The most obvious being:

• Will banks continue with "money creation" - or will this function move to the RBA (which will hold the gold)?
• Since the worldwide stock of gold that is available for sale is limited - what happens when the RBA tries to buy gold from this limited stock and the price soars to unimaginable levels?
• In order to obtain the required gold - will the government nationalise the gold mines and hand them over to the RBA?
• If the price of gold soars - how do you compensate Joe Public who does not own any gold, and the dollars in his bank account are effectively worthless?
• How do you ensure that there are sufficient ounces of gold to go around - since there is only a fraction of an ounce available per capita in the world?
• If the RBA cannot fully back the currency (i.e. with 100% convertibility) due to the soaring gold price or lack of available ounces for purchase - will it still allow convertibility with the risk of a "run on the RBA"?
• How will the government deal with calls for a distribution (or confiscation) of gold from smart gold investors to Joe Public - who missed the boat and now has worthless pieces of paper in his pocket?

The ASP has yet to find a single source with convincing arguments for a fully backed currency. Until such time - the ASP believes that if you give people the right to choose which currency they wish to use (i.e. the dollar, or gold and silver), then people will act in their own best interest and find the best solution. Our Monetary Policy reflects this position.

Attachments:

American Monetary Act

[Background and legislation from the AMI. The ASP Monetary Policy is based in large part on these principles. It is worth reading the background, and examining the legislation to see how easy it is to make the necessary changes.]

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