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Private Currency FAQs

Monday, March 29th, 2010
Posted in Politics by Joel Gross

What is private currency?

The Liberty Dollar is a privately issued currency in America

The Liberty Dollar is a privately issued currency in America

Private currency is money issued by non-governmental organizations (usually banks or companies) to be used as legal tender for all debts and exchanges.  Most private currency’s are backed by gold or silver or some other commodity of material value.

What is government-issued currency?

Government issued currency is used by citizens of a state to pay taxes and complete transactions with other citizens.

The United States Dollars is an example of a currency issued by the government.  Some governments back their money systems with a commodity (usually gold), but most now have moved to “faith-based” systems.  The American currency is backed “by the full faith and credit of the United States”.

How does private currency work?

A bank would collect people’s deposits of gold and give them back contracts stating that the contract was worth a certain weight of gold.  For example, Bank of America could issue its own currency (mini-contracts) that states that each one is redeemable at any branch for 1/100 an ounce of gold (roughly $12 at current gold prices).  People could then use these notes to go to Costco to buy food or to Rite-Aid to buy medicine or to Ikea to buy furniture.  The store owners at Costco could then use these notes to pay for new supplies for their warehouse or to pay their employees.  The parties could keep using the notes to exchange back and forth or could go to Bank of America and redeem it for gold.

Why is their no private currency in the United States?

Two reasons:

  1. It is illegal to issue any sort of currency in America.
  2. Double taxation.  If Todd bought a car from John with 100 “Bank of America dollars”, both Todd & John would have to pay income tax.  Todd would pay it on the car and John would pay it on the “Bank of America dollars”.

What are the benefits of private currency?

  1. Freedom from government control
  2. Competition by currency managers leading to greater efficiency
  3. No monopolies
  4. Currency backed by commodity of your choice

What are the problems with private currency?

  1. Potential bankruptcy/failure of the issuing organization
  2. Change in value of the underlying commodity (including trust)
  3. Many currencis could make some transactions difficult
  4. Little used currencies would be illiquid

Are there any private currencies currently used in America?

Yes, there are several private currencies:

Benefits of government issued currency?

  1. Uniform money system throughout the country that can be used everywhere
  2. Currency is more likely to be stable then if issued by a private organization

Problems with government issued currency

  1. If the government issued currency fails, the entire economy collapses since there is no way to easily place transactions
  2. The government can use it to secretly tax the population by printing more money and spending it.
  3. Governments can use it as a c`rude tool to try to influence the economy (bad idea letting bureaucrats try to play with the free market with a massively powerful lever).

Additional resources on private currency

One thought on “Private Currency FAQs

  1. Hey, What kind of software would a bank need to start its own money? Would it be possible to create a new security (a “Debt Settlement Insturment”), which would begin being unregulated, and have the new security behave just like money

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