Bernard von NotHaus' Accomplishment
August 2, 2012
(This item originally appeared in Forbes.com on August 2, 2012.)
When most people think of “gold-based currencies,” they think of
gold coins. But, actually, gold coins themselves are probably the
least important part. In fact, they aren’t necessary at all. From
1933 to 1971, the U.S. had a gold standard system, with the dollar
at the Bretton Woods parity of 1/35th oz. of gold, but there were no
gold coins in the currency system.
Just manufacturing gold coins doesn’t accomplish much. Gold coins
are already easy to acquire, from the U.S. Mint, or from foreign
producers such as Krugerrands, Canadian Maples, Chinese Pandas, and
so forth. This is a good start, but there needs to be two more
steps: first, to introduce small-denomination notes and coins; and
second, to establish bank accounts and other instruments based on
the gold-based currency.
Some recent efforts, such as the gold dinar manufactured by the
state of Kelantan in Malaysia, have stalled because small
denomination notes and coins have not been introduced. Also,
although the Kelantan government declared the coins legal tender in
2010, the central Malaysian government has not yet given them the
status of legal currency.
A U.S. businessman, Bernard von NotHaus, established Liberty
Services which, in 1998, began issuing an alternative currency based
on gold. Although Liberty Services created gold and silver coins, a
far more interesting development was the issuance of small
denomination paper banknotes. These represented warehouse receipts
for gold and silver bullion, held in a vault in Idaho.
The system was problematic on many levels, including the fact that
it was bimetallic at a time when the value of silver and gold varied
wildly. Bimetallic systems became effectively impossible after the
mid-1870s, when silver, for the first time in centuries, began to
vary substantially from the 15-16 ounces of silver per ounce of gold
ratio that had held since the founding of the United States.
Although many have fond feelings for the “silver dollar” – in fact,
the “dollar” was primarily conceived of as silver in the late
18thcentury, with gold in a secondary role – the fact of the matter
is, silver is no longer usable as a basis for monetary systems
today. You could still have silver coins, but they would be in
effect token coins, with a value higher than the contained metal.
Gold is the only remaining metal upon which a monetary system could
be based today, because it is the only metal with the characteristic
we seek above all else: stability of value.
By introducing included small-denomination notes, von NotHaus
created a system with enough utility to conceivably compete with and
displace the existing floating fiat dollar, in some situations. This
apparently scared someone in Washington, because von NotHaus was
harshly persecuted by the federal government. In 2009, he was
arrested and charged with numerous crimes related to counterfeiting,
although the Liberty Dollar notes and coins bore no resemblance to
Federal Reserve Notes. In 2011, he was convicted on several counts,
faced up to 15 years of jail time, and was declared a domestic
terrorist by the FBI.
The fact that the FBI relied upon anti-counterfeiting laws to
persecute von NotHaus illustrates that there are, actually, few
official legal barriers to issuing your own currency. In practice,
people can use currencies from foreign governments quite comfortably
within the United States. Businesses near the Canadian border
commonly accept Canadian dollars, and some stores in New York
apparently accept euros. Until the late 1930s, thousands of U.S.
private commercial banks issued their own currency, all of them
based on gold of course.
The next step, after creating small-denomination notes and coins, is
to establish banking functions denominated in the gold-based
currency. This is not hard to do. In principle it is no different
than having banking functions in euros or British pounds. Some
reports from China indicate that major state-owned Chinese banks
have introduced gold- and silver- denominated bank accounts. Thus,
an account holder could pay another account holder using today’s
common banking tools, such as a debit card, check or clearinghouse
transfer, wire transfer, and so forth. This is a promising step, but
a system of small-denomination notes and coins has not yet appeared
The electronic account system of GoldMoney was designed from the
start to serve as a payment system, denominated in grams of gold.
This is functionally not much different than the system used by
Chinese banks (although the GoldMoney system has strict 100% reserve
coverage). GoldMoney is not easy to use for U.S. citizens, due to
various U.S. restrictions, but apparently it is popular among many
users from more lenient jurisdictions.
Thus, we have to give credit where it is due: to Bernard von
NotHaus, for introducing the first, and apparently only, gold-based
system of small-denomination paper banknotes since the end of the
world gold standard in 1971. He doesn’t seem to be well appreciated
here in the U.S., but perhaps those large Chinese banks will learn
something from his accomplishment, and implement it in China.