A funny thing happened yesterday as I sold 1000 shares in my IAU gold ETF to take a pension distribution. Share price was $44. Schwab handled it as 23 separate sales. Quite a few of one share each, one at two shares and four at three shares. Others by tens and twenties, and finally on big one for the remainder.
What do I learn? The smallest retail investors are hot to own gold. Everybody is rushing to buy what they can.
This prompted me to finish the Bartercoin piece below I have been thinking about for a couple of weeks - how somebody might benefit from the coming hyperinflation.
In other news, I delivered my speech on The Indoctrinated Brain at Toastmasters. The book has really taken off, with author Michael Nehls giving a one-hour interview to Tucker Carlson a week ago. Oksana and I are starting once again to try to bring more electricity to the properties we bought three years ago. It is a low-cost but long lead-time exercise, betting on the come that the war will end sooner rather than later.
A speech I may never have the courage to give will be a review of Roger Devlin’s Sexual Utopia in Power. He makes a ton of sense, but in doing so violates just about every taboo. I posted my thoughts here a week ago, without broadcasting the fact via email. There is safety in presenting a small target. I’ll let this thing percolate for a while, perhaps a long while, before going anywhere with it.
That’s the news from Lake WeBeGone, where the girls and I are happily bicycling to school again in the beautiful spring weather.
Bartercoins – a business plan predicated on the coming hyperinflation and central bank digital currencies.
Classically, money serves three functions: (1) A Store of value, (2) A vehicle for transactions, and (3) A unit of account. In a period of hyperinflation, it fails as a store of value. From that one can project that people won't want to use assets of fluctuating value for transactions or as a means of account if they have an alternative.
The coming central bank digital currencies have many disadvantages. There will be no anonymity when your government is your banker. They won't work when the Internet is down. CBDC accounts can be blocked or seized by the government on any pretext. Your money may cease to be exchangeable for other currencies.
What are the alternatives to hyperinflating currencies, whether paper fiat or CBDCs? Cryptocurrencies require the Internet. They have been proven somewhat clumsy for small transactions. Bitcoin Lightning addresses that, and provides more anonymity at the transaction level, but it still requires Internet access. It also requires that one own Bitcoin.
Metals are another alternative. The exchange rates among gold and silver and the government fiat currencies change daily, and salaries and the price of goods and services will continue to be denominated in fiat. Gold cannot be divided finely enough to serve as a substitute. One gram of gold, too small to make into a coin, is now worth $70. Silver, currently about $1 per gram, is better suited. Metallic coins may be of great use in a barter economy. While a loaf of bread can be worth 100 Zimbabwe dollars today and 200 tomorrow, it would be worth a half gram of silver day in and day out. If you had the silver.
Several properties would be needed in a metallic barter coin system.
· It could not be a fiat currency or tied to a fiat currency, and as such, not a threat to the government.
· An ideal medium would be independent of the Internet and electronic communications. Electricity fails, and governments can take down the Internet.
· The medium has intrinsic value. It is not dependent on anything external.
· Can be immediately authenticated by visual inspection backed up by electronic means: embedded RFID tags, electrical properties (resistance, impedance, etc.), weight.
· Fits in a pocket or purse.
· Exists in denominations appropriate for retail purchases – pennies to $100 or so.
We have to assume that most people will continue to do business using fiat currency. Prices will continue to be quoted in fiat currency. Consumers will have whatever the government issues: coins, paper money, or central bank digital currencies whatever the rate of inflation. Alternatives such as Bitcoin, Lightning or Bartercoins will coexist with fiat. Therefore, barter coins don't have to be denominated small enough to handle change. Buyers and sellers can either round to the denominations of their alternative payment vehicle or change can be delivered in fiat currency.
The Bartercoin concept.
The intrinsic value of a barter coin is in its precious metal content, primarily silver, perhaps platinum.
Bartercoins contain standardized metric quantities of metal. For silver, these might be:
50g – heavier than a silver dollar, worth about $43.50 at this writing.
20g $17.40
10g $8.70
5g $4.35
2g $1.75
Platinum coins could be used for higher values. Platinum is a hard metal, durable enough to use in such exchanges. Platinum is worth about $30/gram at this writing. Typical coins might be
10g about $300
5g about $150
2g about $60.
Each Bartercoin can include machine-readable verification. This might be a QR code under a glass window in the middle of the coin. The QR code could be engraved in the metal itself or rendered in some form of ink or dye. There could also be an embedded RFID chip, for passive confirmation by electronic means. Also can be verified by weight. Silver is fairly heavy, gold and platinum very heavy.
Since verification is offline, it cannot be 100 % like Bitcoin. There would not be a real-time record of every Bartercoin in existence. The RFID or QR code validation system would authenticate the nature of the coin but not track ownership. It is easy to envision small electronic scales as smartphone or computer accessories or even built in. It might be that an optical magnifier or hologram reader accessory could be useful as well.
Without being serially numbered, Bartercoins would preserve anonymity. The downside is that coins would not be unique. A persistent counterfeiter could introduce fakes into the system. The defense is that the price of counterfeiting small value tokens is not worth the effort.
Monetary metals held prior to a Bartercoin system could be incorporated.
In Europe ingots of 10, 50, 100, 250, 500 and 1000 grams, among other sizes, are more common than coins. The ingots are usually serially numbered and packed in durable plastic casings. The major gold producers (Credit Suisse, PAMP, Degussa etc.) can provide lists of valid serial numbers. This is not foolproof, but a non-existent or a duplicate serial number would be an indication that something was wrong. Weight and electrical properties could be tested without disturbing the packaging.
Gold currently exists in the form of coins with a weight of fractions or multiples of one-troy ounce (31g), primarily in the Americas. Coins may be wrapped or not but are usually not serially numbered. A barter authentication system could verify the weight, electrical properties and physical appearance of coins and ingots. It would not be foolproof – the ultimate risk would be borne by the person accepting the proffered gold. This could be augmented with tracking by manufacturer and serial number. Non-serial numbered gold and silver coins can be identified by their patina – microscopic scratches and irregularities in their surface. While it would be difficult to build a data base of every coin in circulation – akin to building a face-recognition program for a whole population – it should be possible for a merchant to save images of the surface of each coin received and the face of whoever presented it. If a counterfeit shows up, at least the source could be identified.
Junk silver could fill the role of Bartercoins were it to be used as such. A mere smartphone image inspection and weighing could not afford a high level of authentication, but it is probably adequate. There is no reason junk silver coins could not circulate with everything else.
Bartercoins would have to be introduced as a system. The first element would be the coins themselves, carrying a value somewhat above the value of the metal of which they are made. The second would be a smartphone application capable of exchange rate conversion in real time between the Bartercoin and fiat, and capable of managing transactions involving mixtures of multiple Bartercoins and fiat currency coins or bills to handle a transaction denominated in either fiat or Bartercoin. Such a transaction could include change in CBDC or fiat.
Merchants and customers would both need such software. The merchant would need accounting software to handle Bartercoins and fiat. If Bartercoins were manufactured in multiple precious metals the software would need to account for them separately, as the exchange rates are subject to fluctuation. A cash resister would need to have trays for different coins. These would be in addition to the coin trays for fiat currency, in Ukraine currently 10,5, 2 and 1 hryvnya, 50 and 25 kopeks. In Euros,1, 5, 10, 25 and 50 pence, 1, 2 and 5 Euros. A total of about 20 coin trays might be needed.
To summarize, Bartercoins would be used in the same way as metallic coins in today's Euro scheme or the gold coinage era of American money. What will be unique about Bartercoins due to modern technology and circumstance is that:
1) They have intrinsic value through their metal content.
2) They have built-in means of self-authentication, visually, by QR scan and by RFID.
3) They are not fiat currency, and do not have a fixed exchange rate vs. fiat.
4) Precious metals are not subject to arbitrary inflation because the supply is limited by bounded reserves and mine capacity.
Demand for something like Bartercoins would be relatively low at the moment, while inflation is running only about 15%. They could be introduced as an alternative to metallic rounds or ingots. Precious metals could expand their use from being primarily a store of value to once again being a vehicle for transactions, an attractive feature in a period of hyperinflation.
This could be an attractive business new for existing coin dealers, increasing their volume and expanding the customer base. There is no reason that other merchants and banks could not get into their use. The profit would be in 1) Selling the patented equipment to machine-produce bartercoins, 2) Royalties from the premium of Bartercoin value over their cost of manufacture, 3) The smartphone software to support Bartercoins, and 4) Smartphone or computer accessories such as optical enhancers, electrical properties analyzers, and scales.