Monetary scholar Edwin Vieira has observed that every 30 to 40 years the reigning monetary system fails and has to be retooled. He also noted that the average life expectancy for a fiat currency is 27 years and historically seems to flip between currencies that are backed (by gold) and those that are backed by nothing until they become obsolete. Of the 775 fiat currencies that have existed, 599 are no longer in circulation. The British pound sterling is a survivor at over 300 years, however at inception the pound was defined as 12 ounces of silver and there is no longer any silver backing. The pound is now worth less than 0.5% of this original value, meaning that most successful currency in existence in terms of life span has lost more than 99.5% of its value. “Paper money eventually returns to its intrinsic value – zero.” (Voltaire, 1694-1778).
In 1933 President FDR signed Executive Order 6102, which required everyone to deliver all gold coins, bullion and certificates owned by them, to the privately owned federal reserve in exchange for $20.67. Failure to comply resulted in fines of up to USD$10,000 and 5 years in prison. The price of gold for international transactions was then raised to $35 an ounce, creating windfall profits for the federal re- serve. It was illegal for US citizens to own gold until 1974 and as a direct result, jurisdictions like Switzerland began to flourish.
In 1960 President Kennedy was elected on a platform that included killing off the USD$ by having the US Treasury issue their own precious metal backed notes. Kennedy was not able to implement his plan and instead the London Gold Pool was established to manage the price of gold, as nations like France, Germany and Switzerland increasingly were submitting their USD$ (diluted from its backing in order to finance Vietnam) for the gold they had deposited with the US since the Bretton Woods agreement. President Nixon closed the gold window and defaulted in 1971 and the USD$ was only rescued from oblivion by the Saudi’s who agreed to only accept USD$ as payment for their oil. In exchange, the US mili- tary became an armed federal express ensuring the wells kept pumping and the dollars kept flowing.
In 1987, the London Bullion Market Association (LBMA) came into existence to create an implied paper gold back- ing for the USD$. The Saudi’s stated that their oil was worth more in the ground and refused to continue accepting USD$, which they argued were worth less. A 20 year, 10,000 MT bullion loan for Chinese gold was executed and in 2007 this gold loan was defaulted on, sending global financial markets into turmoil.
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Fiat currencies, used as a medium of exchange, are all in a race to the bottom and traditional banking is being bypassed with new intermediaries like ICON offering disruptive technologies like AUREALS™ a decentralized, digital currency fungible with physical gold; a trusted store of value for 6000 years.
In 2014, right on schedule, the paper gold USD$ is coming to the predicable end of its fiat existence. Much has been made of the vast amounts of gold China is buying. In fact, this gold is simply loans being repaid. The price lowering manipulation has become so transparent that even the Central Bank of India has suggested that the LBMA have rehypothecated 93 ounces of paper gold for every 1 ounce of physical gold. President of Germany’s regulator, Bafin, Eike Koenig said gold price manipulation “is worse than the Libor rigging scandal” and now Europe’s largest bank, Deutsche Bank, announced that it would withdraw from the appropriately named gold price “fixing”, as European regulators investigate manipulation by banks.
Brasil, Russia, India, China and South Africa have created a new trade alliance and their new BRICS Devel- opment Bank (BDB) has received a US$100 billion commitment for initially funding infrastructure projects. The BDB has a goal of creating a gold standard bank with a platform for trading, clearing and settling gold backed trades outside of the BIS banking cabal.
Whether you believe the global financial system is accelerating towards a systemic reboot or you simply understand that the disparate systems that make up the backbone of the global payments system are being disrupted, there is no denying that in 2014 we are on the cusp of a transformational pivot that will effect how we value and pay for goods and services for the next 27 years.
Almost 20 years ago, the US. House of Representatives held hearings on “the future of money” at which early versions of virtual currencies and other innovations were discussed. Vice Chairman, Alan Blinder’s testimony at that time made the key point that while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which “they may hold long term promise, par- ticularly if the innovations promote a faster, more secure and more efficient payment system”. These comments were repeated, verbatim, by the Federal Reserve’s Ben Bernanke in a report to Congress in November 2013
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