Of Paper Money, Digital Money and Gold

Tuesday, 4 March 2014

Hugo Salinas Price

The digital “Bitcoin” has bit the dust at Mt. Gox Bitcoin Exchange; over $400 million US has evaporated, or perhaps moved into someone’s pocket. The news is all over the Internet these days.

“Digital money” is accepted world-wide. There exists only a remnant of fiat paper money which is increasingly and deliberately made more difficult to use and transport physically. The reason being, that digital transactions leave a trail of information which governments use to control the behavior of their subjects (we can hardly call them “citizens” any longer) whereas citizens using paper money in their dealings leave no trail.

A bank in Mexico, of which I have personal knowledge, receives millions in dollar bills every week in thousands of individual money-exchange transactions. This presents a problem for the bank. Why? Because not one bank in the US will accept these dollar bills (mostly twenties) for credit to the Mexican bank’s account.

Apparently, it would be necessary to present a lifetime resumé of each of the individuals exchanging their dollar bills for pesos, in order to prove that there is no money-laundering going on. Impossible to do, what with the tens of thousands of transactions.

Only the long-established Mexican banks can remit their dollar bills for credit to the US, and then, only to Bank of America. The bank of which I speak is relatively new – though it has well over 12 million individual account holders - and Bank of America will not receive dollar bills from it. Other Mexican banks of recent creation are in the same fix.

All countries are engaged in hampering the use of paper money. Mexico is engaged in this process; otherwise, the Mexican monetary authority – the Bank of Mexico – would have intervened to assist the Mexican bank of which I speak, to remit its dollar bills to the US for credit to its account.

But, to return to the Bitcoin:

Bitcoin has received a great deal of media attention both in the US and around the world. This is quite suspicious, in my view. Of course, there is no way to prove that the Bitcoin has support in the higher circles of politics.

An interesting point about the Bitcoin is that it is so important for it to have a price in dollars; it has had various prices, all totally speculative.

I should like to point out that when real money – gold – was in use in the world, it had no price. All national currencies were only certain various amounts of gold, with various national names.

The Bitcoin as a “digital currency” is an example of the enormous confusion which reigns in the world, regarding what money is and must be.

Money – authentic money – must be the most marketable of all commodities. This is why gold is money! See here. Silver follows in second place.

The Bitcoin cannot be money because it is digital. Since it is merely a digit, which is as close to nothing as one can get, it cannot settle any debt.

The fact is that the world today is not in the least concerned with settlement. Enormous amounts of digital Bonds which promise to deliver digits, but with an interest rate attached, have accumulated as reserves in Central Banks of exporting countries. The Bonds, which are evidences of debt, are proof that payment – that is to say settlement of trade imbalances – has not taken place.

Settlement of international trade imbalances requires that something be delivered in payment, and that something can only be gold. (Silver has lesser value, but might conceivably be fit into settlement of world trade.)

Suppose that China should come into open conflict with its neighbor, Japan. Japan is an ally of the US. In such a conflict, the US might decide to freeze all Chinese dollar reserve “assets” for the duration.

With a few computer clicks in New York, China would find itself deprived of the use of some $1.3 Trillion dollars of its reserves, which are invested in digital Dollar Bonds.

This is a simple explanation of why the Chinese – among the most intelligent people on the planet – are buying gold hand over fist. Gold in the Chinese Treasury cannot be “frozen” in New York.

On March 4 we read that an advisor to Putin has recommended that Russia dump US Bonds in case of US sanctions against Russia, related to the Ukrainian affair. However, if Russia should attempt to dump US Bonds, it would discover that they had already been “frozen” in New York.

The Bitcoin must have a price, but cannot find it and will not be able to find it, for the following reason:

All digital currencies in use today have derived values. The fiat digital Dollar, for instance, has a value that derives, historically, from the time when the Dollar was 1/20.67th of an ounce of gold, and later 1/35th of an ounce of gold, and from that time to the present, a series of falling values which have each derived from a prior value by a series of devaluations.

The Bitcoin has no history, which is the essential element which makes all digital currencies acceptable, utterly false though they are.

The Bitcoin is simply a childish distraction for a childlike world population incapable of discerning falsity, much to the satisfaction of all the crooks, big and small, who prosper by scamming the public.

I remit to Von Mises, who stated that no fiat currency has ever been successfully introduced into circulation without a monetary value ultimately derived from when that currency was gold or silver money. Bitcoin does not fill the bill; it cannot circulate along with the established fiat currencies of the world because it has no history, no ancestry reaching back to its parent, gold or silver.