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Well ... Here is The way to monetize Gold / Silver... (And the way out of the Triffin’s Dilemma for USA)

 -- Published: Sunday, 12 October 2014 | Print  | Disqus 

What dad... you are so quaint...Now should I start carrying a kilo of silver coins when I go shopping (think a pink iphone)???

So sayeth my My Daughter


- Manish Thatte


This interchange between yours truly and his daughter sets up the background for this short essay.


How the heck can we monetize a gold or silver coin or bullion:


          How do I buy a pink iphone now if all my assets are denominated in gold and silver. Either I carry an iphone worth of silver ( a brick of about 750 grams), (that makes it quite a bulky proposition (doesnt fit in my pocket) or an 8 gm coin of gold. But what will happen with loose change?

          And Normally, I hate credit / debit cards, because, I hate when somebody takes money from me, without me actually paying him or her with my hands.

          And also I dont have “an outstanding credit profile” with my bank, for the bankers to give me and my dependents, big credit cards with huge credit limits. (Actually the banks have every reason to ‘grant’ me a big credit card, but I dont permit them to do it :).

          And I am a difficult parent too...)


Here is how:

Supply side:


Every goods and commodities will be denominated in weights of gold / silver. So, for example, if we buy 12 eggs or a loaf of bread or a shirt (or a pink iphone, for that matter), we can present our debit card to the shopkeeper and he will deduct the quantity of gold / silver equal (in weight) to the MRP of the commodity from our debit card.


Demand side:


Well ...quite simply... we can set up gold/silver banks, which will accept gold/silver deposits and issue passbooks, cheque books and debit cards (denominated in gold or silver weight). That way, there is no need to carry bulky gold / silver coins on our pockets.


In the background:

The shopkeeper will credit his / her supplier chain with the requisite quantity of gold / silver by weight when he receives my payment, who in their turn, will credit their suppliers in the same way.


Going Deeper into the labyrinth of finance:

Iphones are imported. Eggs, bread and the shirt arent.

Quite simple, if I purchase eggs, bread or a shirt with my gold / silver debit card, my gold or silver will be credited to the gold / silver bank account of the suppliers. But if I or my daughter purchases that pink iphone, my gold or silver can be credited to the authorised Indian iphone distributor who will in their turn sell that gold or silver to the RBI, like today he sells USD to the RBI and gets rupees in return to run his operations in India.

On the international scale, when the balance of gold exceeds a certain preordained amount, or at the end of every quarter, the RBI will then send gold bullion to the Central bank of China which will pay the iphone factory. And later on, the central bank of China will remit that gold to the Central Bank of USA, which in turn can pay its own exporters in the same way.


The Triffin’s Dilemma:

          Wikipedia informs that “The Triffin dilemma or paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives when a national currency also serves as a world reserve currency. The dilemma of choosing between these objectives was first identified in the 1960s by Belgian-American economist Robert Triffin. He pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit.


          The use of a national currency, e.g., the U.S. dollar, as global reserve currency leads to tension between its national and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars into the United States.


Specifically, the Triffin dilemma is usually cited to articulate the problems with the role of the U.S. dollar as the reserve currency under the Bretton Woods system.


With gold as the ultimate and easiest means to settle trade imbalances, the need for bancor (Keynes), or Special Drawing Rights by the IMF or Dollars by the USA does not arise.

          As we all know, the American Central Bank will be more than happy to get gold in exchange for that iphone :)


Problem Solved !!!

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 -- Published: Sunday, 12 October 2014 | E-Mail  | Print  | Source:

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