Another Idea for Gold-Backed Money

If you have followed this site or my book for a while, you know that I am an advocate of returning to some semblance of commodity-backed currency. I mentioned that we actually could start trading in silver (and save a lot of money in taxes if we did).

Another idea is to create a standardized way to use gold and silver as collateral for loans. You see, many people own silver and gold, and (understandably) don’t want to spend any of it. However, it seems like a waste to spend so much time, effort, and money collecting silver and gold, but have it put to no purpose whatsoever.

One way that some people have found to put their gold and silver into use, without spending it, is to use it as collateral for a low-interest bank loan. That is, if you have $1,000 worth of silver, you can pledge it to the bank for an $800 loan at a very low interest rate. Then, as long as you pay back the money, you keep your silver, but if you fail to pay it back the bank keeps your silver. Thus, as long as you invest in a productive operation, you are able to use your silver and gold to increase your wealth, rather than have it sit doing nothing (which is Warren Buffet’s primary critique of precious metals).

So, what we could do is create a gold/silver depository. However, instead of just holding your money, you would also be issued a credit card that would be able to have ultra-low-interest credit up to 75% of your holdings. That works out well for the card holder, because they have a secure depository to hold their precious metals, and they can use them to make purchases. It works out well for the investors of the depository because they have guaranteed returns. If a creditor does not pay their monthly fee, you automatically get a payday in gold and silver. This creates two different vehicles for gold/silver investors. By using the facility, you can put your gold and silver into good use. By investing in the facility, you either get (a) a guaranteed small return if the borrower pays, or (b) discounted precious metals if they borrower does not pay – a win/win either way.

If the price of precious metals goes up, then you automatically get a larger credit line for borrowing, and deciding not to pay uses a smaller amount of silver or gold. Therefore, if you think the price of metals is going up, you can purchase something today, and pay for it with a lower value of silver tomorrow.

In addition, such a service could offer services for someone to audit their own silver lock box. It could have allocated vs unallocated accounts, and various other levels of service depending on your needs. Finally, the depository should exist within the state of the borrower, so that the borrower can come and view the holdings at any time.

This appears to have been tried once in 2010, but the site never got off the ground. I found several articles from March and April 2010 (all seem to be rewrites of the same press release), but nothing seemed to come of it. The website mentioned in those articles is now pointing to something else.

Critiques? Suggestions?