Tuesday, June 30, 2009
From the Publisher
When Washington Shut Down Wall Street unfolds like a mystery story. It traces Treasury Secretary William G. McAdoo's triumph over a monetary crisis at the outbreak of World War I that threatened the United States with financial disaster. The biggest gold outflow in a generation imperiled America's ability to repay its debts abroad. Fear that the United States would abandon the gold standard crushed the value of the dollar on world markets. Without a central bank in the summer of 1914, the United States resembled a headless financial giant.
William G. McAdoo stepped into the breach with bold and courageous action. He shut the New York Stock Exchange for more than four months to prevent Europeans from selling their American securities and demanding gold in return. He smothered the country with emergency currency to prevent a replay of the bank runs that embarrassed America during the Panic of 1907. McAdoo launched the United States as a world monetary power by honoring America's commitment to the gold standard, while every other country, except for Britain (the reigning financial superpower), abandoned it at the outbreak of the Great War. In 1914 the gold standard conferred the monetary stamp of approval. McAdoo also provides a blueprint for crisis control that merits attention today. His recipe for smothering a crisis emphasizes the importance of an exit strategy. An exit plan allows policymakers to bludgeon the crisis with a sledgehammer, while minimizing collateral damage.
Archival material and contemporary newspaper accounts recreate the drama of McAdoo's plan to sustain American financial honor. His accomplishments during 1914 place him alongside Paul Volcker and Alan Greenspan as Great American financial leaders. McAdoo, in fact, nursed the Federal Reserve into existence as the 1914 crisis waned and served as first Chairman of the Federal Reserve Board by virtue of his position as Treasury Secretary.
Comments on the Book
Niall Ferguson, Harvard University, author of Colossus: William Silber has performed two sterling services with this fascinating and original book. He has illuminated the hitherto neglected financial crisis of 1914, an event that deserves to be mentioned in the same breath as the Crash of 1929 in the history of Wall Street. But he has also come up with some bold and compelling answers to two burning questions that are of more than purely historical interest: How should monetary policymakers cope with a really big and unexpected political shock? And how does one international reserve currency come to be overtaken by another? I cannot praise this book too highly. It is rare that one author so skillfully unites the disciplines of finance and history.
Peter L. Bernstein, author of The Power of Gold: Silber tells a compelling tale proving the power of the law of unintended consequences. The financial crisis of 1914 was a major turning point in American economic history, an outcome nobody could have predicted as massive amounts of gold sailed to Europe, banks shook at their foundations, and the nascent Federal Reserve System was only just going into operation. What a story!
Business History Review from Harvard Business School also published a review by Maury Klein.
For further reading:
"Ccompetitive Currencies, Legal Restrictions, and the Origins of the Fed: Some Evidence from the Panic of 1907", Steven Horwitz, 2001
Sunday, June 28, 2009
Wednesday, May 28, 2008
Could digital gold currencies or e-currencies denominated in gold weight be utilized as a tool by terrorist groups? Law enforcement agencies fear the worst may occur.
RENO, NV -- The concept of digital gold currencies (DGC) or e-currency, digital currency or e-money denominated in gold weight is now being offered by such reputable organizations as the London Gold Exchange.
However, digital gold currency has regulators in the United States, Canada and France concerned that it may use a tool favored by ordinary criminal and more sophisticated forms of organized crime to launder money, or utilized in the commission of crime, or even finance terrorism.
In a report originally intended as intelligence for a law enforcement agency, but made public this week by the Globe and Mail through Access to Information requests, Canada's financial regulator, the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC, found Digital Precious Metals Operators "have achieved critical mass on the web."
‘As financial institutions and non-financial businesses increasingly deter money laundering and terrorism financing, adaptable and technology-savvy criminals and terrorist financiers will likely see other unregulated, exploitable avenues to further their nefarious purposes. Digital precious metals may become one of them," FINTRAC warned.
The system works thusly:
1. A user opens an online account with a Digital Precious Metals Operator (DPMO), which are Internet Payment Systems (IPS) providing the user with a digital currency that is allegedly backed by precious metals, which can be used for e-commerce, bill payments, person-to-person payments and other transactions.
2. Most DPMOs often require a username, password and e-mail address to set up a DPM account.
3. Once the account is set up, the user purchases digital currency units via a Digital Currency Exhanger (DCE) to find the user's Digital Precious Metals (DPM) account. DPM accounts are denominated by precious metals weight, rather than cash. The DPM account value fluctuates with the price movements of precious metals.
4. Precious metals e-currencies can be used to purchase goods and services if a merchant will accept them. They can be transferred to another DPM account holder. They can be converted back into national currencies, often paid through wire transfer. And they can be redeemed into physical gold.
"Exploitable weaknesses such as user anonymity and the existence of a network of exchange services-some accepting cash deposits to fund DPM accounts-may facility the placement phase," according to FINTRAC. The anonymity associated with opening the DPM account is maintained through the whole transaction process.
In the layering phase a launderer can ‘cash in' and ‘cash out' his DPM account but does not have to use the same exchange service. Therefore, FINTRAC fears a greater potential exists to "disguise the origin and the destination of funds than with other forms of Internet Payment Systems.
"Moreover, the recent introduction on the market of so called ‘digital gold ATM cards' offers the potential for launderers to re-integrate proceeds into the convention financial system." FINTRAC asserted. The agency fears that the digital gold cards may also allow launderers to "cash out" proceeds, "thereby reintegrating them into the conventional financial system."
G7'S FINANCIAL ACTION TASK FORCE
In October 2006 The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body founded by the G7 nations to combat money laundering and terrorist financing, also raised concern about "new and innovative methods for electronic cross-border funds transfer" which are emerging globally.
The FATF referred to digital precious metals as a relatively new online money transfer value system that involves the exchange of options or the right to purchase an amount of precious metals at a specific price.
"The oldest and best known of the digital precious metals dealers is e-gold Ltd., which claims to have almost 2 million accounts. ...Transactions involving digital precious metals have immediate finality, which may appeal to on-line merchants that must pay high credit card fees due to high fraud rates. Some precious metals dealers also allow users to maintain anonymous accounts. These traits are concerning to U.S. federal law enforcement agencies," FATF noted.
The task force identified the following as potential risk factors for digital precious metals:
· Anonymous accounts
· Anonymous funding and receipt of funds
· High or nonexistent account funding limits
· Offshore service provides may not observe laws in other jurisdictions
However, FATF also suggested several current and potential strategies to mitigate possible DPM risks:
· Identify account holder
· Maintain transaction record with payer and recipient
· Monitor transactions and report suspicious activity
· Limit funding options
· Implement account book
· Limit access to service
U.S. JUSTICE DEPARTMENT INVESTIGATIONS
The U.S. Justice Department has prosecuted several cases where convicted criminals allegedly utilized E-gold accounts and wire transfers reportedly during the commission of their crimes.
An internet investment company founded and established a website at www.ee-bizventures.com (EBV), which claimed to be a Christian-based humanitarian organization that helped individuals to improve their financial situations. The FBI, the Postal Inspection Service and the SEC said participants were required to set up an e-gold account and reportedly transfer their funds from their e-gold account to various EBV and e-gold accounts. The FBI estimated that 26,000 persons throughout the world lost a total of $50 million as a result of the fraud. Two individuals have pleaded guilty.
Six men who administered and operated the Shadowcrew.com website--which the USDOJ said was "one of the largest online centers for trafficking in stolen credit and bank card numbers and identity information"-each pleaded guilty to conspiracy in November 2005. One defendant also pleaded guilty to a second count of unlawful transfer of identification to facilities criminal conduct.
The men said they sent and received payment for illicit merchandise and services via Western Union money transfers and reportedly through digital currencies such as e-gold and Web Money. A moderator for Shadowcrew said site members would send him sums of cash and asserted that he would convert the cash into e-gold electronic currency. He claimed that ‘Shadowcrew members used e-gold to avoid traditional banking systems."
A Mashpee Massachusetts man, David Burgland, told a federal court that he used e-gold to purchase child pornography. The U.S. Department of Justice charged that by June 2006, e-gold "became the only available means of purchasing membership into web sites supplying child pornography."
By April 27, 2007, a Washington, D.C. federal grand jury indicted e-gold and sister company Gold & Silver Reserve with one count each of conspiracy to launder monetary instruments; one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.
The indictment alleged that "e-gold has been a highly favored method of payments by operators of investment scams, credit card and identity fraud, and sellers of online child pornography."
E-GOLD REBUTS JUSTICE DEPARTMENT
However, In an April 30, 2007, news release, Douglas Jackson, Chairman and Founder of e-gold, said both companies vigorously denied the charges "taking particular exception to the allegations that either company ever turned a blind eye to payments for child pornography or for the sale of stolen identity and credit card information."
"With regard to child pornography, the government knows full well that their allegations are false, yet they highlight these irresponsible and purposely damaging statements in order to demonize e-gold in the eyes of the public," he declared, adding that e-gold was a founding member of the National Center for Missing and Exploited Children's Financial Coalition to Eliminate Child Pornography.
Jackson insisted that the government has been confronted with overwhelming evidence that the U.S. Secret Service "had made a horrible mistake in its attack on the e-gold system and its repeated defamatory claims in the media that e-gold is anonymous, untraceable, and inaccessible to U.S. law enforcement."
Along with its attempt to knock e-gold and Gold & Silver Reserve, Jackson asserted that the government has also attacked other prominent exchange services that deal in e-gold type systems including IceGold, the Bullion Exchange, Gitgold, Denver Gold Exchange, AnyGoldNow and Gold Pouch Express. "All of the listed exchange services also follow stringent Customer Identification Program congruent with what would be required of a currency exchange business, if the law supported such a classification," Jackson advised.
"As a direct and immediate result of the seizures, these companies, all of who had built a reputation for honoring their obligations, have been disrupted," according to Jackson.
Most recently, on May 8th, Montanan Jimmy Ray Jones was sentenced to home confinement for nine months in connection with his guilty plea to money laundering and importation of steroids. The U.S. Attorney's Office said Jones had used an e-gold account, along with Western Union wires, Money Grams and other methods to receive payments for his steroid sales.Dorothy Kosich is the Americas Bureau Chief for Mineweb.
Saturday, June 27, 2009
Friday, May 2, 2008
We've all seen what happens to countries that make the black list for money laundering...Latvia, Nigeria...etc. A lot of DGC bank accounts, debit cards and a ton of customer DGC money is usually lost overnight.
There is nothing that will get you black listed faster than banks or countries involved with 'terrorist financing' and those related financial crimes. At present, it is believed that just Liberty Reserve banks in Costa Rica.
During an appearance before a special security commission at the Asamblea Legislativa Wednesday, April 16th, Costa Rica's chief prosecutor, Francisco Dall'Anesse issued a warning that Costa Rica could become the world center of terrorism financing and money laundering if lawmakers do not move quickly to pass pending legislation.
Costa Rica is a member of the Egmont Group (see below) which is an 18-year-old informal organization of countries dedicated to fighting money laundering.
However, in order to remain a member of the Egmont Group requires that Costa Rica enact new terrorist financing legislation by May 2008 (this month). This legislation has been bogged down since October of last year and still has not passed.
Considering May is is less than a week away, there appears to be little chance that the financial anti -terrorism measures will be passed in time.
Dall'Anesse also told lawmakers the country is losing the fight against crime because those who enforce the laws lack weapons to confront organized crime. One of these tools needed is the ability to wiretap phones. Today, even in extreme cases of kidnapping, it takes the Costa Rican authorities up to one month to track a call !!
In a March 25th article, Kenneth Rijock who is the Financial Crime Consultant for World-Check (http://www.world-check.com) points out that a lot of illicit Venezuelan and Iranian funds are now flowing into Costa Rica. This is money destined for FARC and other leftist groups seeking to topple democratic Latin American governments. Mr. Rijock has repeatedly made the point that Costa Rica's financial structure is often used for terrorist financing of FARC.
His sources point out that:
- The funds originate in Venezuelan banks that are assisting both the Venezuelan and Iranian governments in achieving their radical political goals, to wit: replacing those remaining democratic Latin American governments with extreme leftist regimes allied with Venezuela.
- The Iranian-owned Venezuelan financial institution, Banco Internacional Desarrollo (BID), has been named as a primary force in several such transfers. This bank received its charter in only one week after its application had been filed, which is extraordinary in and of itself, and it has been extremely active throughout all regions of Latin America.
- From Costa Rica, funds are transferred to the FARC, and are delivered to several radical leftist groups, including other designated global terrorist organizations, There is no indication that Costa Rica law enforcement or regulatory authorities have interdicted or seized any of these inbound or outbound wire transfers, or cash withdrawals, most of which reportedly ends up in the hands of the FARC. Other radical organizations, dedicated to the violent overthrow of their country's lawfully-elected governments, also are recipients of these funds.
The fight against money laundering has been an essential part of the overall struggle to combat illegal narcotics trafficking, the activities of organized crime, and more recently the financing of terrorist activity. It became apparent over the years that banks and other financial institutions were an important source for information about money laundering and other financial crimes being investigated by law enforcement. Concurrently, governments around the world began to recognize the corrosive dangers that unchecked financial crimes posed to their economic and political systems.
To address that threat, a number of specialized governmental agencies were created as countries around the world developed systems to deal with the problem of money laundering. These entities are now commonly referred to as "financial intelligence units" or "FIUs". They offer law enforcement agencies around the world an important avenue for information exchange.
Recognizing the benefits inherent in the development of a FIU network, in 1995, a group of FIUs at the Egmont Arenberg Palace in Brussels decided to establish an informal group for the stimulation of international co-operation. Now known as the Egmont Group, these FIUs meet regularly to find ways to cooperate, especially in the areas of information exchange, training and the sharing of expertise.
There are currently 106 countries with recognized operational FIU units, with others in various stages of development. Countries must go through a formal procedure established by the Egmont Group in order to be recognized as meeting the Egmont Definition of an FIU. The Egmont Group as a whole meets once a year. The five Working Groups and the Egmont Committee are used to conduct common business, along with the Egmont Group Secretariat established in 2007.
FIUs, at a minimum, receive, analyze, and disclose information by financial institutions to competent authorities of suspicious or unusual financial transactions. Although every FIU operates under different guidelines, most FIUs, under certain provisions, can exchange information with foreign counterpart FIUs. In addition, many FIUs can also be of assistance in providing other government administrative data and public record information to their counterparts, which can also be very helpful to investigators. One of the main goals of the Egmont Group is to create a global network by promoting international co-operation between FIUs.
The ongoing development and establishment of FIUs exemplify how countries around the world continue to intensify their efforts to focus on research, analysis and information exchange in order to combat money laundering, terrorist financing and other financial crimes.
Mark Herpel is the editor of Digital Gold Currency Magazine and resides in Panama. This article was also published in DGC Magazine (May 2008).
Friday, June 26, 2009
OVO 18 Money
I originally wrote this in October 2007 and it was first published in OVO 18 Money. It has become increasingly relevant.
Since the colonial period, the United States has been fighting to control currency. In fact, this battle was part of the foundation of the country. Prior to 1764, colonists issued “Bills of Credit” to deal with a shortage of hard currency. Some were issued by “land banks” and backed by the value of land. Others were merely promises of credit.  In 1764 the British Parliament passed the Currency Act, which prohibited the use of these Bills of Credit. This caused significant economic hardship for the colonies, and helped set the stage for the Revolution. 
In an 1883 paper called “Ideas for a Science of Good Government,” Peter Cooper wrote (emphasis mine):
After Franklin had explained this [the use of paper money] to the British Government as the real cause of prosperity, they immediately passed laws, forbidding the payment of taxes in that money. This produced such great inconvenience and misery to the people, that it was the principal cause of the Revolution. A far greater reason for a general uprising, than the Tea and Stamp Act, was the taking away of the paper money. 
Although Cooper was in favor of government issued currency, he saw the British outlawing of the Bills of Credit as a problem. He opposed the use of these local currencies, but saw them arising out of a failure of the government: “Jefferson, the author of the Declaration of Independence, raised his voice against the curse of the local banks, which were allowed to come into being by the neglect of the Government in the performance of its duty.” 
Today, a host of independent currencies are available: from small and local to big and global, and they are all issued to solve perceived problems with government issued currency. But it appears that the government is none too pleased with this competition.
Activists on both the far left and far right of the political spectrum work to create government independent currency solutions, but it seems that the left tend to prefer local currencies. “Community currency is a tool that can help revitalize local economies by encouraging wealth to stay within a community rather than flowing out,” Susan Meeker-Lowry wrote for Z Magazine. “In many communities around the country people are taking control by creating their own currency. This is completely legal and, as organizers are finding, often very empowering.” 
The Local Exchange Trading System (LETS), developed in British Columbia in the 80s, is one widely used system. LETS does away with the need for a printed money, acting instead as an interest free credit system. Michael Linton, a computer programmer, created LETS to solve a simple problem: community members “had valuable skills they could offer each other yet had no money. He also saw the limitations of a one-on-one barter system. If a plumber wanted the services of an electrician, but the electrician didn’t need plumbing help, the transaction couldn’t take place.” 
LETS solves the problem by issuing credit within the system. In the above example, the plumber would owe a debt to the LETS system, and electrician would be issued credit from the system. The electrician would be able to redeem the credit from another LETS member who is either in debt or wanted credit, and the plumber would be required to make his services available to other LETS members.  Many variations of Linton’s original system have been created, and several “how to” kits and manuals are available for purchase, or to download for free from the Internet. 
Shifting the focus away from the US for a moment: during the Argentine financial crisis, the national currency of Argentina became practically worthless.  To help meet their needs and keep the economy working, many people turned to barter or to local currencies such as the “credito.”  The credito was based, amongst other things, on LETS materials translated into Spanish. Transactions were originally recorded in a notebook, as in LETS, but eventually paper certificates were needed. By 2000, circulation of this currency had reached the equivalent of about $5 million a year. 
Argentina illustrates the usefulness of independent currencies when central banks fail. Local currencies, which tend not to cross state lines, seem not to get much attention from the government. I don’t know of any cases of local currencies being shut down by the government.
Towards a more perfect capitalism
Right wing proponents of alternative currencies, however, tend to favor more global forms of exchange. Advocates of “free banking” propose the dissolution of central banks like the Federal Reserve in favor of private banks issuing competing currencies. 
The founder of the Internet payment solution PayPal, Peter Thiel, envisioned PayPal as a way to create a more free exchange of currency globally. Thiel hoped people in foreign countries with restrictive money export laws could use PayPal to hold their currency in dollars or other more stable foreign currencies, such as the US dollar . But the proprietors of precious metal backed digital currencies like e-Gold and the Liberty Dollar are even more ambitious.
Thinkers ranging from Ron Paul  to Alan Greenspan  advocate a return to the gold standard. But some entrepreneurs act directly by issuing digital currency backed by gold, silver, or other precious metals.
Dr. Douglas Jackson founded e-gold, the first Internet currency backed 100% by precious metals, in 1996. Jackson cites gold’s stability as a currency and the Internet’s natural openness as the reasons for creating an Internet based gold currency. He believes e-gold is currency perfected: stable and market driven. In an interview in Wired in 2002 he called e-gold “probably the greatest benefit to humanity that’s ever been thought of.” 
The Liberty Dollar, backed mostly by silver but by other precious metals, is sold by National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code (NORFED). Founder, and former mint master of the Royal Hawaiian Mint Company, Bernard von NotHaus conceived of the currency to compete head-on with the Federal Reserve:
“For years America was saddled with a slow, poor postal service. Finally, Federal Express brought competition to this heavily subsidized government agency that no one though could change. And it responded and improved noticeably. NORFED emulates this model by bringing a superior product to America’s monetary system, its currency.” 
NORFED offers coins, certificates that look like something like dollar bills, and an Internet backed currency. Coins and certificates are available through “Regional Currency Offices,” and NORFED actively encourages Liberty Dollar enthusiasts to open their own RCOs and recruit others. 
Outside the western left/right political spectrum is the another global cultural force: Islam. While the founders of Pay Pal, e-gold, and NORFED believe themselves to be perfecting capitalism with their digital services, the Islamic founders of e-dinar, who formed a partnership with e-gold and at one point hosted 50% of e-gold’s reserve at their vaults in Dubai, believe they are destroying it. 
The founders of e-dinar are members of the Murabitun movement, a peculiar form of Sufism. Murabitun followers believe that paper money is haram, unlawful, according to Islamic faith. The founder of the Murabitun movement, Sheikh Abdalqadir, says: “A true study of the Qur’an and the Sunna shows us that capitalism will not be abolished on the battlefield but in the marketplace where it is practiced.” 
“Fatwa Concerning the Islamic Prohibition of Using Paper-Money as a Medium of Exchange,” a Murabitun text by Umar Vadillo, states: “After examining all the aspects of paper money, in the Light of the Qur’an and the Sunna, we declare that the use of paper money in any form of exchange is usury and therefore haram” because paper money (and, by extension, credit and debit cards) is “nothing but a pure symbol with no reality attached except the imposition of law.” 
Vidillo says: “You want to be radical? You don’t need to blow up the bank, just burn your bank account. For that you need an alternative. What is the alternative? E-dinar.” 
The current status of e-dinar is a bit mysterious. e-gold used be partners with e-dinar , but according to e-dinar’s web site e-dinar officially split with e-gold in 2004 after being acquired by an unnamed “Large International Corporation” in 2003. 
The state responds
It would seem, though, that the larger reach of global alternatives lead to larger interventions by the government. Of all the major players in independent currency game, e-gold has probably had the worst legal trouble. “In December 2005, the Secret Service and FBI raided the company’s headquarters and seized roughly $800,000 in assets,” according to the Washington Post.  This lead e-gold to beef up their security measures, even creating new software designed to detect e-gold customers committing crimes.  The new security measures didn’t stop a federal indictment from being leveled against the company in April of 2007. The company was served with 4 indictments, including operating an illegal money transfer operation and money laundering. 
Then, on Wednesday May 9th, 2007 the United States government seized the holdings of 58 e-gold accounts, forcing 48 bars of gold to be redeemed for approximately $77 million dollars. As of this writing, all the funds are still in in the US government’s control pending the outcome of lawsuit filed against e-gold’s parent company.  However, e-gold and its subsidiary Omnipay maintain business as of this writing.
In 2006 The United States Mint issued a press release stating that circulating Liberty Dollars is a federal crime. The press release implies that Liberty Dollars are deceptively similar to US currency, and that NORFED intends them to be used as legal tender.  As of this writing, I am unaware of any case against any persons in the United States for using the Liberty Dollar.
NORFED responded with a civil lawsuit. On March 20, 2007 von NotHaus filed against the US Mint, asking “the court to declare that the use of the Liberty Dollar is not a ‘federal crime,’ as claimed by the U.S. Mint. And the organization further asked the court to enter a permanent injunction against the U.S. Mint requiring it to remove any reference that the use of Liberty Dollars is a federal crime from its website.” [21 As of this writing, the case remains unsettled. But on November 14th, 2007 the situation took another turn: the FBI raided Liberty Dollar on charges of circulating illegal currency, mail fraud, wire fraud, and money laundering. The affidavit also described Liberty Dollar as a "multi-level marketing scheme." 
Von NotHaus has described the raid as “a direct assault against the US Constitution and your right to own and use gold and silver in any way you chose” and dismissed the mail fraud, wire fraud and money laundering charges as fantasy. 
Pay Pal, eventually burdened with legal problems, banned the use of PayPal for gambling, pornography, and several other uses in 2004. 
It is important to note that e-gold and NORFED may well be guilty of the crimes it has been charged with, it remains to be seen how they will come out in court. NORFED and e-gold have many competitors, so the international, gold back Internet currency business continues. However, the struggles of these companies, and the fact that they are being held liable for what their customers use their services for, is illustrative of the control the US government exerts over currency. If the Federal Reserve were held accountable every time legal tender were used in criminal transactions, surely the Fed would have been shut down by now. Why are companies like e-gold held to a different standard? Why are they asked to act as de facto law enforcement?
And all of this raises the question: why is there such a demand for alternative currencies? Shouldn’t the state be spending its time trying to correct the problems the Fed (or shutting it down), instead of trying to shut down those who are trying to solve problems the government is not?
1. ushistory.org “Currency Act,” http://www.ushistory.org/declaration/related/currencyact.htm Retrieved 10/30/07.
2. u-s-history.com “Currency Act,” http://www.u-s-history.com/pages/h1212.html Retrieved 10/30/07.
3. Cooper, Peter. “Ideas for a Science of Good Government,” http://www.u-s-history.com/pages/h1212.html Retrieved 10/30/07.
4. Meeker-Lowry, Susan. “The Potential of Local Currency,” Z Magazine, July 1995. http://www.zmag.org/ZMag/articles/july95lowry.htm Retrieved 10/30/07.
5. Wikipedia. “Local Exchange Trading System,” http://en.wikipedia.org/wiki/Local_Exchange_Trading_System Retrieved 10/30/07.
6. Ballvé, Marcello. “Silent Revolution,” Orion Magazine, July 2006. http://thetake.org/media/The%20Silent%20Revolution.pdf Retrieved 10/30/07.
7. Katel, Peter. “Argentina: the Post Money Economy,” Time, February 2002. http://www.time.com/time/world/article/0,8599,199474,00.html Retrieved 10/30/07.
8. DeMeulenaere, Stephen. “Reinventing the Market: Alternative Currencies and Community Development in Argentina,” International Journal of Community Currency Research, 2000. http://www.uea.ac.uk/env/ijccr/pdfs/IJCCR%20Vol%204%20(2000)%203%20DeMeulenaere.pdf Retrieved 10/30/07.
9. Greaves, Bettina Bien. “Market Money and Free Banking,” The Freeman, October 1999. http://www.fee.org/publications/the-freeman/article.asp?aid=4946 Retrieved 10/30/07.
10. Bodow, Steve. “The Money Shot,” Wired, September 2001. http://www.wired.com/wired/archive/9.09/paypal_pr.html Retrieved 10/30/07.
11. Ludwig von Mises Institute. “The Case for Gold.” http://www.mises.org/store/Case-for-Gold-The-P386C0.aspx?AFID=1 Retrieved 10/30/07.
12. Greenspan, Alan. “Gold and Economic Freedom.” The Objectivist, 1966. http://www.321gold.com/fed/greenspan/1966.html Retrieved 10/30/07.
13. Dibbell, Julien. Wired, January 2002. http://www.wired.com/wired/archive/10.01/egold.html Retrieved 10/30/07.
14. Orzano, Michele. Coin World Magazine, October 1998. http://www.libertydollar.org/news-stories/pdfs/1164902714.pdf Retrieved 10/30/07.
15. Liberty Dollar web site. “Regional Currency Office.” http://www.libertydollar.org/ld/rco/index.htm Retrieved 10/30/07.
16. e-dinar web site. “History.” http://www.e-dinar.com/html/3_4.html Retrieved 10/30/07.
17. Krebs, Brian. washingtonpost.com, “U.S.: Online Payment Network Abetted Fraud, Child Pornography,” May 2007. http://www.washingtonpost.com/wp-dyn/content/article/2007/05/01/AR2007050101291.html Retrieved 10/30/07.
18. Zetter, Kim. Wired News, “E-Gold Gets Tough on Crime,” December 2006. http://www.wired.com/science/discoveries/news/2006/12/72278 Retrieved 10/30/07.
19. “US Government Forces E-gold Redemptions - Seizes Gold,” Money Net News, May 2007. http://www.moneynetnews.com/articles/54/1/US-Government-Forces-E-gold-Redemp Retrieved 10/30/07.
20.US Mint web site. “Liberty Dollars Not Legal Tender, United States Mint Warns Consumers.” http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&id=710 Retrieved 10/30/07.
21. Liberty Dollar web site. “Legal Updates.” http://www.libertydollar.org/ld/legal/updates.htm Retrieved 10/30/07.
22. Taylor, Jeff. Reason Magazine web site,”Your Liberty Dollar Raid Update.” November 2007. http://www.reason.com/blog/show/123553.html Retrieved 7/24/07.
23. Liberty Dollar web site. “FBI Raid on the Liberty Dollar.” November 2007. http://www.libertydollar.org/ld/legal/raid.htm Retrieved 7/24/07.
24.Balko, Radley. Reason Magazine,”Who Killed Pay Pal?” August 2005. http://www.reason.com/news/show/33114.html Retrieved 10/30/07.
Wednesday, June 24, 2009
Friday, February 22, 2008
Digital gold currency systems are closed accounting systems. This means during operation there is a limited or ´set´ amount of digital units circulating. When one account receives a unit another account drops by one. If you have 400 ounces of digital gold circulating within the system and you spend 5 ounces to my personal account and I pay three others one ounce each...there is still only 400 ounces in that closed system. Units travel back and forth between accounts but always within the system.
Closed digital gold systems like e-gold, Pecunix or Goldmoney only give birth to new digital units when additional gold is allocated (deposited) into the vault. Once the gold is on deposit in the vault then the company can create additional digital units. When cash is needed for outexchange to users, a bar is sold and the amount of digital units circulating will fall by that amount. If all users cashed in at the same time, all the bars could be sold to liquidate that value back to the users. We have seen some very large multi-million dollar liquidations in e-gold over the past year, but the value and the money was always available to be distributed back to users.
What is the procedure for creating the digital grams?
The process of creating digital grams is referred to as ´minting´
Of course, each issuer has their own private methods to accomplish this task but we can take a closer look at the Pecunix minting process and gain a good idea of how they all ´mint´ digital grams.
Pecunix is committed to open, transparent operation. Their organization has strict a ´one to one´ rule clearly stating that, "every unit of value present in the Pecunix database has, at all times, a corresponding value of gold stored in an internationally approved vault."
If the value of gold in the Pecunix system is to be altered, four separate agents - the Bullion Agent, the Escrow Agent, the Auditor and the Currency Issuer - must be involved in the following progression to ensure secure transfer.
(1)Approved gold bars arrive at the vault. Representatives from the Escrow Agent and the Bullion Agent witness the actual gold bars secured in the vault.
(2)The Bullion Agent records the weights, marks of the gold bars and allocates them to the account of THE PECUNIX FOUNDATION under the watchful eye of the Escrow Agent.
(3)The auditor examines the entry made by the Bullion Agent to ensure that all details correspond with the actual weight of the gold bars that have been witnessed in storage.
(4)When currency is to be created, the Issuer sends a Mint Request from a secure Pecunix system interface to the Auditor and the Bullion Agent. They each verify the exact amount of gold entered into the system, the exact amount of Pecunix that is to be minted, and the specific account that the Pecunix is to be paid into. They each PGP-sign the request to authorize it. Once all three signatures (Issuer, Auditor, Bullion Agent) are submitted to the system, the secure Pecunix software mints the currency to the relevant account.
(5)When currency is to be destroyed, the same process is repeated in reverse. Once all signatures are in, the correct amount of Pecunix currency is destroyed from the designated account. Only once the currency has been destroyed will the Foundation Council release the relevant gold bars from the vault.
Because their ´minting´ process requires the active participation of independent third parties, Pecunix users can be assured that all reporting on the vaulted gold backing the digital units is accurate. Pecunix, like e-gold and GoldMoney provides an extremely transparent online operation.
Any visitor to the Pecunix web site can view the auditor report on gold stores, the bar count, serial numbers and even the purity of each bar. This ensures the ongoing integrity of the value behind the digital grams. Pecunix currency is calculated at a rate of 31.1034768 per ounce of fine gold. All gold bars are exclusively in the form of London Bullion
Market Association (LBMA) certified "good delivery bars". http://www.lbma.org.uk
To ensure absolute integrity, three of these organizations - the Bullion Agent, the Escrow Agent and the Auditor - are all completely independent third parties with no financial interests in Pecunix.
For more information you can visit these links.
The e-gold Examiner page provides complete details on the vaults´ contents. Examination Report of Bullion Stored at Repositories
This information is provided on their web through the e-gold Bullion Reserve Special Purpose Trust.
GoldMoney also publishes detailed information on the bars held in Zurich and London.
Mark Herpel is the editor of Digital Gold Currency Magazine and resides in Panama.
Stephanie Roberts is a 33-year-old parks service employee in a Chicago suburb where she lives with her brother and mother; in the winter, she drives the Zamboni at a public skating rink. But she’s also Zania Turner, of glowing skin and impossibly luxuriant black hair, who sashays in silk dresses through the booming virtual world of Second Life, which is run by the San Francisco company Linden Lab. In her life as a 3-D cartoon, Roberts gathers with other avatars to role-play reënactments of obscure Star Trek cartoon episodes, build and buy digital homes and furniture, and hang out on digital beaches.But Second Life is more than a game or a social-networking site; it’s also a venue for financial transactions. The currency used within the virtual world, called Linden dollars, can be converted to U.S. dollars at a rate of roughly 270 to 1. More than $13 million worth of Lindens are in circulation, and 318,742 residents of Second Life–including Roberts–participate in its internal economy. “It’s a fascinating and exciting place, because people are doing business in the absence of a lot of legal and regulatory structures,” says Robert Bloomfield, a Cornell University accounting professor who studies virtual economies–and coined the term “metanomics” to describe the field. But life on the lawless frontier means risks as well as opportunities, as Stephanie Roberts found out last summer. And what happened to her is a bit ominous for those who expect to see 3-D immersive environments become centers for e-commerce.
Trouble started at the Ice Dragon’s Playpen, a recreational island in Second Life. With her movie-star looks–Roberts chose an avatar modeled after Catherine Zeta-Jones–Zania Turner had no trouble landing a job hosting a game of Slingo, which is something like bingo. She made 100 Lindens (37 cents) an hour, plus tips. And while steering Zania through various Second Life venues –such as the Moonshine Casino, where residents gambled, and FurNation, where they frolicked in the guise of animals (she was a white tiger at one stage)–Roberts saw places to deposit her money. “There were these machines. They said ‘Bank,’ ” she says. The machines handed out notes to passing avatars, promoting account signups at something called Ginko Financial, which advertised high interest rates. “With Second Life, you need money to get land and stuff that other people build,” she says. “So I thought, ‘I might as well put something in there, especially with the good interest rate, and pull it out when I need to, and help get me some stuff in-world.’ ” A few mouse clicks later, she was an account holder. She enjoyed watching her money grow. Eventually she had amassed 39,000 Lindens, worth $144.
Ginko–operated by an avatar called Nicholas Portocarrero, whose real identity is not clear–persuaded hundreds of people to deposit their Linden dollars. The reasons for what happened next are murky, but the results were clear enough: the “bank” vanished, and depositors say their money did, too. In July 2007, residents began clustering around machines to try to recover their money after Ginko began restricting withdrawal amounts. Then Ginko announced that deposits were now in “Ginko perpetual bonds” rather than Linden dollars. Those bonds soon plunged in value, and in October, they ceased to exist. The reported losses may have totaled $700,000, according to Ben Duranske, a lawyer based in Idaho who writes a blog on virtual legal issues.
Some Second Lifers have reported losing thousands of dollars in Ginko. Roberts is among the luckier ones: she says she lost only her $144 in savings. But the point isn’t just that somebody other than Roberts ended up with her money. What may be most significant is that nothing happened to whoever may have taken it. Her money disappeared into the 3-D ether.
That is not what we have come to expect from e-commerce. A combination of technical controls, laws, and regulation makes today’s online business fairly safe (or at least as safe as business in the rest of the world), with wrongdoers subject to punishment. “A lot of the legislation over the last 10 years relating to online commercial [transactions] has all been about governments trying to create a level playing field where trust between buyers and sellers is created,” says David Naylor, a partner in the U.K. law firm of Field Fisher Waterhouse, which in April became the first major law firm to establish a presence inside Second Life. As a result, people are now willing to make bank deposits online and enter their credit card numbers to make purchases. “An environment where it is easy and simple to defraud others, with them not having much of a comeback, if any, is not one which is going to lend itself well to significant business development,” he says. “It’s not the only factor, but it is a significant factor in the commercial attractiveness and viability of these environments. If you destroy the trust between a buyer and a seller–which is a fairly tenuous thing to establish in the online environment in the first place, where people lack face-to-face communication–you can quickly and massively impact people’s willingness to transact with each other.”
Although it created and issued the Second Life currency, Linden Lab denies responsibility for transactions, disputes, and losses involving Linden dollars. “People have got to deal with interactions [in virtual worlds] the same way they would deal with them on the Internet generally,” says Ginsu Yoon, Linden’s vice president for business affairs. “Understand what you are doing, understand what the consequences are, use available tools to make sure you are dealing with a trusted party.” The company has now taken steps to identify and suspend accounts where large Linden transfers and cash-outs are taking place–activity that could point to fraud. It’s also advising account holders to engage the services of third parties who provide identify verification. But whether such measures can make virtual economies functional in the absence of real-world prosecution or regulation remains to be seen.
Party Like It’s 1994
Second Life reports more than 10 million subscribers, including inactive or duplicate accounts; about 50,000 are online at any one time. But it is only one booming virtual world among many, including Entropia Universe and There; massively multiplayer online role-playing games like World of Warcraft; and more controlled and narrowly focused sites like the child-oriented Webkinz and Club Penguin, which is owned by Disney. Many corporations have their own virtual worlds–places where they assemble far-flung employees or students to collaborate on projects or attend classes. “Second Life gets a lot of press, but there are hundreds and hundreds of these platforms,” says Sandy Kearney, global director of 3-D Internet and virtual business at IBM. “If you look at all the platforms coming, it feels like 1994, when all of a sudden everybody was building a website.”
In just the past year, reports the trade organization Virtual Worlds Management, companies and venture capitalists have pumped a billion dollars into developing virtual worlds. Many mainstream businesses have presences–simulations, or “sims”–within them. Dell has a sales office in Second Life. Reebok has a store. The studio 20th Century Fox even held a movie premiere there, for X-Men 3: The Last Stand. IBM maintains business centers. In 2006, Sun Microsystems became the first Fortune 500 company to hold a press conference “in-world.” Even the World Bank presented a report in Second Life about business development (20 percent of Second Lifers log on from Latin America, Asia, or Africa). Corporations have taken up residence in other virtual worlds, too; for example, you’ll find Toyota’s Scion brand in There.
With all this blue-chip interest, and continuing increases in processing horsepower and Internet bandwidth, virtual worlds may provide a peek at the future of the Web: instead of jumping from page to page, we could one day navigate 3-D environments to communicate, shop, and do research. Some observers even think that virtual worlds may merge with 3-D representations of the real world, such as Google Earth and Microsoft Live Search Maps (see “Second Earth,” July/August 2007). Many virtual worlds have their own currencies: in addition to Linden dollars, there are Project Entropia dollars, or PEDs (10 to the dollar), in the competing Entropia Universe; Therebucks (1,800 to the dollar) in the teen-focused There; and Webkinz KinzCash that kids use to buy treats for digital Chihuahuas and raccoons.
But big companies like Sun, Reebok, and IBM don’t really do business in virtual worlds; they “tunnel” into them. To close a deal, you need to step out of the “sim” and into the traditional Sun or Reebok or IBM website. These companies deal only in real currency, using established protocols for encryption and authentication. By contrast, people like Stephanie Roberts are actively conducting transactions in virtual worlds, using virtual money to buy virtual clothing, land, animals, surfboards, and art for their avatars. They deposit money in virtual banks and even invest in virtual stocks. And that’s where the problems are arising. The blogosphere is full of complaints about Ginko losses and about deals for land and goods that went wrong. And some fear that these issues will thwart the growth of e-commerce in virtual worlds.
Virtual Upstart: Stephanie Roberts’s avatar, Zania Turner (right), earned money hosting Slingo, a blend of bingo and slots. Roberts (left) now dreams of selling virtual Zamboni machines.
Credit: Photograph by Hayley Murphy (left); Courtesy of Stephanie Roberts (right)
To IBM’s Kearney, the situation recalls the formative days of e‑commerce, which were plagued by uncertainty and lack of trust. “If you look at early [Web] days, it was the same,” she says. “You had all the similar issues: ‘I’m not buying anything on the Internet because someone can steal my credit card number.’ ” Linden Lab’s Yoon agrees. “When you first started to see the Internet as more than just education and government, you started seeing all these crap websites thrown up all over the place. It’s sort of like the disorganized user-created content within Second Life,” he says. “We saw that whole cycle in the development of the Internet–the cycle of doubt and fear, and realization that there is economic value, and communication and community value. We are seeing exactly the same thing happening again.”
So far, not many complaints about virtual finance and commerce have surfaced in courtrooms. One–maybe the only one–revolved around a Pennsylvania lawyer named Marc Bragg, whose avatar went by the name Marc Woebegone. In 2005, Bragg signed up with Second Life and started whiling away his off hours amassing and reselling virtual land and selling virtual fireworks to other residents. He was doing quite well until May 2006, when Linden Lab accused him of manipulating an auction to acquire virtual land at a below-market price. The company shut down his account and confiscated all his virtual holdings; in so doing, it seized Linden dollars and property worth about $8,000. As the company saw it, Bragg broke the terms of service on his account, and his account was consequently canceled. Bragg felt he’d been robbed of real assets, not just a Second Life account, and so he took Linden Lab to court. He got his account and some of his belongings back in a recent settlement whose full terms were not disclosed.
The Bragg case–which hinged partly on Second Life’s representations of virtual land as something that can be “owned”–showed that real-world authorities may not automatically dismiss virtual currency as Monopoly money, or in-world contracts as a game. But Ben Duranske says that other complaints, such as those of Ginko customers who say they lost money, have not yet elicited any governmental action. Duranske founded the Second Life Bar Association, an in-world community of real-world legal professionals and scholars, to explore questions of technology and the law. “If I did what the people of Ginko did–only using stamps and envelopes–it would be illegal, and easy to prove to a jury,” he says.
In the summer of 2007, Linden Lab announced that to help make transactions more secure, it was creating a voluntary ID system, so that in-world consumers could verify attributes–such as the age–of the people behind the avatars they were dealing with. Another reason was to keep minors out of certain areas of Second Life; people under 18 are not allowed to sign up for accounts, and Linden has been trying to stamp out virtual sex between “adult” avatars and “child” avatars. The company also introduced algorithms that identify suspicious activity and warned users to be more prudent in their online dealings. “We caution our residents to be wary of anyone offering extremely high interest rates at no risk, either in the real world or in Second Life,” the company’s CFO, John Zdanowski, wrote in the Second Life blog (under the avatar name Zee Linden). “If it sounds too good to be true, it probably is.”
Now users themselves are setting up some quasi-regulatory structures. Some have started the Second Life Exchange Commission, which sets standards for financial disclosure; others have created the Virtual World Business Bureau, which rates businesses, warns residents against scams, and acts as a clearinghouse for complaints. Just as a real-world company will seek affirmation of its credibility from PricewaterhouseCoopers, “the virtual environment absolutely has to be able to say you are a legitimate company doing legitimate business,” IBM’s Kearney says. “If you look at the 3-D Internet as the unformed future of the Internet, it will be very important to solve these problems.”
Dan Miller, one of Capitol Hill’s few experts on the subject of virtual economies (he’s a staff economist with the Congressional Joint Economic Committee, working with the ranking member, Republican representative Jim Saxton of New Jersey), notes that different virtual worlds take different approaches to keeping transactions secure and transparent. Within Entropia Universe, every PED has a unique ID code and is tracked from its creation, through every transaction involving it, to the point at which the user cashes out by exchanging PEDs for real dollars. Linden dollars do not bear such codes, though the company says all transactions are monitored. Differences in transaction-tracking technologies could make it harder or easier for legal authorities to reconstruct alleged incidents of theft or fraud. But it also gives consumers a choice, Miller says: “If one virtual world likes the heavy-handed Big Brother controls to make everybody feel safe, that will appeal to certain people. If someone else is more of a caveat emptor person, they might go more toward another world.” He warns that any government intervention to regulate commerce could be a slippery slope. “If the government starts regulating aspects for criminal purposes, they might start regulating the economic aspects,” he says–by taxing virtual goods and services, for example.
David Naylor of Field Fisher Waterhouse, on the other hand, argues that if virtual worlds are going to attract more participants–and create a lucrative new front for e-commerce–they need real-world intervention. “The issue is that I don’t think the authorities, in any jurisdiction, have really got their heads around Second Life,” he says. “One reason is that it’s brand-new technology. Or if they are familiar with it, they take the view that in terms of the potential damage, or potential losses, they’ve got bigger fish to fry.” Cleaning up the situation “is going to take real-world regulators taking an interest,” he says. “Watchdogs can’t do it on their own. They can alert people to malpractice but can’t provide compensation.”
Cornell’s Robert Bloomfield is an experimental economist who conducts lab research–allowing 20 students to make simulated stock trades using real money, for example, and seeing how regulatory changes affect their behavior. He envisions a day when he can do larger studies by setting up parallel virtual worlds. “I could create two virtual worlds, one with one legal structure, one with another, and compare them,” he says. “I might lower the capital-gains tax rate in one and see how business responds. There are things I can’t do with 20 people in a classroom but I can do with 2,000 or 20,000 people in a virtual world.”
For now, though, he’s studying what’s actually happening among the 318,742 people who are spending money in Second Life. “It’s pretty much the Wild West, and that makes it a fascinating place for study in its own right,” Bloomfield says. “We just have to sort out what the best practices are, and the best practices involve a lot of transparency.” Yoon, meanwhile, says he wouldn’t be surprised if law enforcement was gearing up to prosecute some form of misdeed within virtual worlds, whether a financial scam or virtual pedophilia. “I have no doubt that that is going to be something that people are interested in looking into,” he says. “It’s not any different than Internet chat rooms as a collaboration medium. There are guys whose police beat it is to hang around in an Internet chat room, and to chase spam, and prevent those scams. I don’t see why they wouldn’t do this in virtual worlds.”
To be sure, there are plenty of fleeced avatars who want their money back–and who are already backing away from the experiment that Bloomfield finds so promising. One of them is Rick Jones, a 47-year-old retired navy electronics technician who lives with a roommate in Oceanside, CA. In Second Life, he named his avatar Kiyotei Xi and bought and sold some land. “I had animals and fish and stuff that I would put around the land, for entertainment,” he says. He makes art that he sells at another avatar’s gallery, and he surfs in an area called Chi. But his experience has been marred, he says, by losing $460 in Ginko. He says he’d join a class action suit, though he wouldn’t sue on his own. And has he lost his trust in in-world transactions? “Oh, heck yeah.”
Stephanie Roberts has also lost some of her trust–but not enough to overwhelm her love for the possibilities she finds within Second Life. And certainly not enough for her to overlook the fact that there’s nowhere in the virtual world to buy a digital Zamboni. Roberts is looking for someone to teach her how to design one, so she can start selling them to other residents–and do her own small part to expand the virtual economy. “Nobody else has built one yet,” she says. “I could earn quite a bit off the sale of this thing!”For further reading:
"Second Life Closes Banks", David Talbot, Technology Review, January 10, 2008
"Money Trouble in Second Life", Erica Naone, Technology Review, August 8, 2007
Tuesday, June 23, 2009
Jim Puplava interviews the author on an interesting podcast.
Brian Doherty of Reason magazine also interviews the author in a piece titled "A New Golden Age?" where Lewis suggests re-linking the dollar to gold.
Saturday, June 20, 2009
Tuesday, October 30, 2007
Digital Gold Currencies such as Liberty Reserve, Webmoney(WMG), c-gold, e-gold, Pecunix, GoldMoney, e-dinar facilitate Internet commerce around the globe without the risks of chargebacks, fraud or the high processing fees associated with credit cards. Anyone receiving a payment in digital gold currency has 100% immediate settlement. Get paid, stay paid and no waiting.
During an interview on March 9, 2002 by Bob Nugent for the planetgold.com (now defunct), Ron Paul discussed some ideas about Digital Gold Currency and free market money. The information and the interview are extremely relevant today as the US dollar drops lower and lower ahead of the coming Presidential Campaign. Here are some clips from the interview:
Bob Nugent for planetgold: Congressman Paul, you’re literally an outstanding member of the US House of Representatives. And, I mean that in the most positive way. And I’d like to thank you for taking the time for a short interview. Ah .. I understand that The Liberty Committee is about 3 years old. What are the sizes of the Liberty Committee’s caucus and membership, currently, and how’s it been doing lately?
Congressman Ron Paul: We have 17 members of congress who belong to, but probably have 60,000 citizens around the country who participate. And the goal is of course to put as much pressure on all the members of Congress to look to the Constitution to find out … to decide on how they’re going to vote. And sometimes it works and sometimes it helps. But we have a long way to go. We need probably a couple hundred thousand people doing that on a regular basis, to put pressure on their members of Congress.
planetgold: Well that’s good to hear and we hope the UN doesn’t get too far at all. In February of this year you introduced the “Monetary Freedom and Accountability Act”. It’s long title being: “To amend title 31, United States Code, to limit the use by the President and the Secretary of the Treasury of the Exchange Stabilization Fund to buy or sell gold without congressional approval, and for other purposes.”. Why did you introduce this bill?
Congressman Ron Paul: There’s a strong suspicion that our government, in the Treasury department and specifically Exchange Stabilization Fund are probably dealing in the gold market with the purpose of keeping the price of gold down. They deny this and maybe they’re getting around it some way. But I wanted to make it explicit that they can’t do it, that it’s illegal, because the interpretation of the law passed in the 1930s did give the Exchange Stabilization Fund some authority to deal in gold. But I want to change that. And I want it to be out in the open. And I want Congress to know about it, if they’re going to loan gold or sell gold. They claim they’re not doing it, but if that’s the case, the Treasury shouldn’t have any objections to a law like this, that just says that Congress is just resuming their responsibilities that they should have had, and should have had never taken away from them.
planetgold: Right. …. I’d like to read a quote supposedly of President John Adams, and then ask you what you think of it. It appears to me, at least partly, that it still holds true today. And, here’s the quote: “All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.” What do you think of this statement?
Congressman Ron Paul: Well I think that he does place the morality of it all. Freedom doesn’t work unless you have a moral people. But I certainly would agree with him on this issue of ignorance about the coinage of the money. There’s so little interest in it and so little knowledge in Washington that it’s … it’s unbelievable. Even the committees that , like the banking committee that deals with it, or the sub-committee, the Domestic Monetary Policy subcommittee, those people that serve on there either get stuck on there, or they want to deal with not true coinage but just making the memorial coins or special coins for special occasions, like that.
As far as monetary policy goes there’s no interest and no knowledge about it and yet I consider that so significant. To me it’s the most important economic issue of the day. It’s the nature of money and the Federal Reserve system. It has a lot to do with ignorance but it’s also, I think, it’s convenient too. Because this way if the Fed is responsible for dealing with this major issue of money and banking, and also they know that the Fed can take care of debt that we can’t sell, and they keep interest rates down, I think it’s very convenient for the politician who likes to spend money. So it’s a lot of ignorance and a lot of convenience. But right now, I don’t know what it’s going to take to wake ‘em up. I think the Congress won’t wake up until the people wake up and realize the currency and the dollar is not a very good currency.
planetgold: Ok. Are you aware of private DGCs, Digital Gold Currencies, like e-gold, GoldMoney, e-Bullion, 3PPay and FastGrams?
Congressman Ron Paul: Yes I’m aware of this.
planetgold: Do you have any opinions on ‘em?
Congressman Ron Paul: I think they’re great. I don’t know any of them in detail. And I can’t compare them and tell which one is more efficient. I don’t have any opinion in that detail, but the the idea that we can have digital money and relate it to gold, I think is very very good. I think everything is vulnerable. Just because gold is a good idea doesn’t mean that everybody that comes up with this digital gold will be efficient and honest and all these other things. So that is required … the markets have to sort all that out.
I’ve been asked so many times about what we should do with the system now. If I don’t like the paper money and I don’t like the Federal Reserve, what would I do. And it generally is I wouldn’t get rid of the Federal Reserve in one day, because it would be very very chaotic. But I would like to fully legalize competition in currencies. And I think some of these currencies have .. or gold has trouble in really developing, getting people to use them, because the tax collectors can still come. If you’re using gold coins and your gold coins go from 300 dollars a coin to 400 dollars a coin, you could be taxed on the appreciation of that if you sell those coins and put it into paper. So, you have to eliminate all taxes. Sales taxes and capital gains taxes on gold coinage if we want to do anything to encourage the use of gold as a competing currency.
planetgold: DGCs are pretty much all offshore, right now, even though much of the action is being driven by Americans. In most cases, the central reason is that while the US might be the best place to do business, the Internet financial world is acutely aware that America has a past reputation of gold seizures, and a current and alarming reputation of asset seizures, all without due respect for normal human measures of property and legal process. What would have to be done to make people think America is a safe place for 100%-reserved gold money systems?
Congressman Ron Paul: Well, we’ve made a lot of progress. When I first went to congress gold wasn’t even legal. So in ‘76 with an effort we were able to restore legal ownership of gold. Technically contracts in gold are legal. We had the gold commission in the early 1980s. Something I was very much involved. We were able to get our government doing something that was constitutional. And, that was to mint gold coins, and that is where the Gold Eagle has come from. The precise one ounce of gold and silver. So in that sense we’ve made a lot of progress, but we have to always be concerned with what our government might do. They may confiscate our gold. They may confiscate our guns as well.
But in the mean time I think we should get as many people as involved … the more people that own a gun .. I don’t think the federal government could take the guns away from the American people. It’s just that .. there would be so much resistance, that it wouldn’t happen. There’s not quite the same resistance with gold. And I think that if we had the same attitude with gold as we have with our guns, … we’re not going to allow our government to overstep and do such a thing. But it lingers out there. I just don’t think that it’s likely to happen. But I wouldn’t bet that it’s impossible. I think it is possible. Of course that’s one of the reasons why I’m in Congress hoping to wake people up. To make sure that enough people know that we should not do that. But the danger still exists.
planetgold: Is the world’s financial system systemically sick?
Congressman Ron Paul: I don’t think there’s any doubt about it. I think it has a disease and is systemically sick but it’s one of those hidden diseases, and nobody quite realizes it. But it will show it’s ugly features probably here in the future.
planetgold: Is it conceivable that there comes a time when we can make a contribution to your campaign; and buy your cook books and bumper stickers with a Digital Gold Currency?
Congressman Ron Paul: Well, I would think so. I think some people may have, but I’m not sure in the practical sense, but if it works I think we would welcome it.
Mark Herpel is the editor of Digital Gold Currency Magazine and resides in Panama.
For further reading:
"Is Digital Currency Viable?", Timothy D. Terrell, March 15, 2001
Thursday, June 18, 2009
Friday, October 12, 2007
A Digital Currency, like Pecunix, is about as-close-to electronic cash as we are going to get in this decade. Just like any cash transaction, it is impossible to regulate ‘who’ uses the currency or what it is used for….
As your local bank teller does not ask you what you are planning to do with your cashed paycheck, its impossible for digital currency operators to police all users, all the time and ask them how they plan to spend their electronic money.
This kind of supervision over a system has always been a big problem for the DGC industry. Many people expect that all DGCs should be operating like the super regulated PayPal or the paperwork intensive Western Union.
Advocates of regulation all say these plans and time tested regulations prevent misuse of the system. However, most experienced users will tell you that while these regulations and restrictive activities definitely help its not a 100% solution. People still misuse the PayPal system and steal from users [phishing] and the crooks still use Western Union to funnel out proceeds of their online crimes.
So digital currency operators are stuck between massive restrictive regulations or turning a blind eye to destructive fraud and criminal activity. This is NOT an easy problem to solve.
Consequently, if an operator identifies a grey area, not specifically a crime in progress, but a questionable transaction, what action should a responsible operator take?
- Should they act as judge and jury forcing people to obey their opinion (like the Christian Coalition-we feel its right so you must follow our rules) even though it may not be a disagreeable transaction in the actual users’ jurisdiction?
- Should the digital currency operator ignore the problem and pretend it does not exist, stating they are not responsible for what people do with their money?
What should the DGC operator do to prevent their digital currency from being used by scammers, crooks and con men?
After all, this is currently a self regulated industry and we want to keep it that way. We see that over regulation not only does not work, it spoils the free market.
Its a very tough question, but one that needs to be addressed.
For the last 6 weeks, Pecunix has been ‘piloting an experimental scheme’ and taking a very unique proactive approach to this problem.
They[Sidd & team] deserve some real credit and praise for their solution. Without being judge and jury, Sidd has taken a large step in the right direction and addresses this issue head on… and I like it.
Anyone attempting a payment through the marked account will meet a large warning screen with the following text:
This account has been identified as a likely HYIP Ponzi scheme or SCAM. If you continue there is a strong possibility that you will lose your money!
It is not too late to cancel this payment.
Cancel Payment Button]
If you decide to continue with this payment, you must accept full responsibility. Please carefully read section 6 and 7 of the Pecunix User Agreement before continuing.
Identified HYIP Ponzi accounts and ‘investments’ will now get this warning, and customers trying to send money to them must read and agree, thus accepting full responsibility for their actions if they continue.
You can click the following link which is a payment link to the A3union Pecunix account and see what happens.
I think this is a fantastic move for any digital currency to make towards preventing their system from being used for fraudulent investment schemes. If a user progresses past this warning and spends money, they accept the responsibility in the case of a loss they are 100% responsible and acknowledge that they were warned.
For further reading:
"Pecunix Digital Gold: Top Security and 100% Offshore", Mark Herpel, September 12, 2006
Wednesday, June 17, 2009
Thursday, April 26, 2007
In this modern, post-–Bretton Woods world of "monetary order" and coordinated central-bank inflation, many who are otherwise sympathetic to the arguments against central banks believe that the elimination of central banking is an unattainable, utopian dream.
For a real-world example of how a system of market-chosen monetary policy would work in the absence of a central bank, one need not look to the past; the example exists in present-day Central America, in the Republic of Panama, a country that has lived without a central bank since its independence, with a very successful and stable macroeconomic environment.
The absence of a central bank in Panama has created a completely market-driven money supply. Panama's market has also chosen the US dollar as its de facto currency. The country must buy or obtain their dollars by producing or exporting real goods or services; it cannot create money out of thin air. In this way, at least, the system is similar to the old gold standard. Annual inflation in the past 20 years has averaged 1% and there have been years with price deflation, as well: 1986, 1989, and 2003.
Panamanian inflation is usually between 1 and 3 points lower than US inflation; it is caused mostly by the Federal Reserve's effect on world prices. This market-driven system has created an extremely stable macroeconomic environment. Panama is the only country in Latin America that has not experienced a financial collapse or a currency crisis since its independence.
As with most countries in the Americas, Panama's currency in the 19th century was based on gold and silver, with a variety of silver coins and gold-based currencies in circulation. The Silver Peso was the currency of choice; however, the US greenback had also been partially in circulation, because of the isthmian railroad — the first railroad to connect the Atlantic to the Pacific — that was built by a US company in 1855. Panama originally became independent from Spain in 1826, but integrated with Colombia; however, being a small state, it was not able to immediately secede from Colombia, as Venezuela and Ecuador had done. In 1886 the Colombian government introduced several decrees forcing the acceptance of government fiat paper notes. Panama's open economy, being based on transport and trade, plainly could not benefit from this; an 1886 editorial of its main newspaper read:
"there is no country on the globe, certainly no commercial center, in which the disastrous consequences of the introduction of an irredeemable currency would be felt as in Panama. Everything we consume here is imported. We have no products and can only send money in exchange for what is imported."
In 1903, the country became independent, supported by the United States because of its interest in building a Canal through Panama. The citizens of the new country, in distrust of the 1886 experiment of forced fiat Colombian paper notes, decided to include article 114 in the 1904 constitution, which reads,
"There will be no forced fiat paper currency in the Republic. Thus, any individual can reject any note that he may deem untrustworthy."
With this article, any currency in circulation would be de facto and market driven. In 1904 the Government of Panama signed a monetary agreement to allow the US dollar to become legal tender. At first, Panamanians did not accept the greenback; they viewed it with mistrust, preferring to utilize the silver peso. Gresham's Law, however, drove the silver coins out of circulation. 
In 1971 the government passed a banking law that allowed for a very liberal and open banking system, without any government agency of consolidated banking supervision, and confirmed that no taxes could be exacted from interest or transactions generated in the financial system. The number of banks jumped from 23 in 1970 to 125 in 1983, most of them being international banks. The banking law promoted international lending, and because Panama has a territorial tax system, profits from loans or transactions made offshore are tax free.
Fiscal policy has little room to maneuver since the treasury cannot monetize its deficit. Plus, fiscal policy does not influence the money supply; if the government tries to raise the money supply during a contraction period by obtaining debt in international markets and pumping it into the system, the banks compensate and take the excess money out of circulation by sending it offshore.
Banks cannot coordinate inflation due to ample competition and the fact that (unlike even the United States banking system prior to the Federal Reserve) they do not issue bank notes. The panics and general bank runs that were so common in the US banking system in the 19th century have not occurred in Panama, and bank failures do not spread to other banks. Several banks in trouble have been bought — before any runs ensue — by larger banks, attracted by the profits that can be made from obtaining assets at a discount.
There is no deposit insurance and no lender of last resort, so banks have to act in a responsible manner. Any bad loans will be paid by the stockholders; no one will bail these banks out if they get into trouble.
After several years of accumulation of malinvestments during the booms, banks begin the necessary liquidation of bad credit. Since there is no central bank that can step in to provide cheap credit, the recession begins without any hampering by monetary policy. Banks thus create the necessary contraction by obeying market forces. Panama's recessions commonly create deflation, which mollifies consumers and also facilitates the recovery process by reducing business costs.
Only the fact that the law does not allow for the downward flexibility of wages makes recessions longer than they would otherwise be.
Deflation happens without the terrible consequences that Keynesian economists predict; and the country, now under democratic rule, is experiencing its 4th year of market economic growth well above 7%. So the policy makers who have said that abolition of the central bank is unfeasible need only look to Panama's macroeconomic environment, which has been favorable for over 100 years, to realize that it is, in fact, not only possible, but very beneficial. Clearly no government-forced fiat currency, no central bank, and the absence of high inflation are working quite well in this small country. Who can argue that these policies would not work in larger economies?David Saied is head of National Public Policy for the Government of Panama and also directs the National Competitiveness Program.
 Carlos E. Ramirez, Monetary History of Panama, p. 5.
For further reading:
Playing Monopoly with the Devil: Dollarization and Domestic Currencies in Developing Countries, Manuel Hinds, 2006
"Sovereignty Sinks in Latin America as Dollarization Rises", Caitlin Hicks, Cate Johnston, and Shelliann Powell, July 8, 2005
"Some Theory and History of Dollarization", Kurt Schuler, Winter 2005
"Government, Fiscal Responsibility, and Free Banking", Richard M. Ebeling, November 12, 2004
"Full Dollarization: The Pros and Cons", Andrew Berg and Eduardo Borensztein, December 2000
"One Country, One Currency? Dollarization and the Case for Monetary Outsourcing", Blake LeBaron and Rachel McCulloch, October 2000
"Comments on 'Full Dollarization: The Case of Panama' by Goldfajn and Olivares", Jeffrey Frankel, October 2000
"Full Dollarization: The Case of Panama", Ilan Goldfajn and Gino Olivares, September 2000
"Full Dollarization: Fad or Future?", Zeljko Bogetic, March 2000
"Lessons from the Monetary Experience of Panama: A Dollar Economy with Financial Integration", Juan Luis Moreno-Villalaz, Winter 1999