home » One (of two) currency alternatives available right now

One (of two) currency alternatives available right now

by Paula | 28 October 2008 | permalink | comments
Tags: currency, recession
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Yesterday I wrote about some of the problems I see with local currency models currently popular here in the States and elsewhere. However, I neglected to list the most obvious issue: if you don’t live someplace that has instituted an alternative currency, you can’t use any of them.

Fortunately there are alternative currencies available that any small business can start utilizing immediately to shore up customers’ purchasing power and even to help mitigate credit problems. These are two with which I am familiar; I’m sure there are lots of others.

Preserving purchasing power: digital gold and digital silver

I should note right off the bat that I have no experience with any digital gold currency (DGC) or digital silver currency (DSC) other than GoldMoney, so that’s what I’ll be talking about here. I just adore GoldMoney and its founder, James Turk.

DGCs and DSCs can preserve customers’ purchasing power by protecting the value of the money they have to spend with you, particularly during times of inflation. If your customers can transact with you in gold or silver, it means that instead of curtailing their spending as prices rise, they are able to continue buying the same amount of stuff because the values of gold and silver increase right along with whatever you’re selling. If you’re a grocer, for example, a customer who transacts with you in gold will discover that his weekly grocery bill costs fewer goldgrams instead of more dollars. That helps you offset the smaller grocery orders of your dollar customers and keep up with rising expenses of your own.

DGCs and DSCs work just how people mistakenly think Fort Knox works: there is a big ol’ pile of actual, physical metal, with currency notes circulating around that each represents some small portion of the pile. The primary differences are that 1) DGCs and DSCs actually do have all the metal in their vaults to back the circulating currency notes (GoldMoney does, at any rate); and 2) the currency notes are digital rather than paper.

GoldMoney’s digital gold currency note is called a “goldgram” and, just as the name implies, it represents one gram of gold. Goldgrams break down into smaller digital increments, with the smallest usable increment being one “mil,” or .001 grams of gold. Digital silver is measured in ounces.

The big drawbacks with GoldMoney and other DGCs are that in order to use them, your customer has to be a signed up for a DGC account somewhere, preferably with the same DGC you use. Also, all your transactions have to take place on the internet, which doesn’t necessarily translate well into a brick-and-mortar situation. But these are problems that can be overcome with a little ingenuity. The purchase of goldgrams may have to take place online; however, there’s nothing to stop anyone from reselling those digital goldgrams in meatspace and issuing paper receipts for the purchase.

Back to the example of the grocer: he could use digital gold to offer his customers “grocery bonds” denominated in goldgrams. A (smart) customer purchases a $100 “grocery bond,” and the grocer issues her a bond worth $100 equivalent in goldgrams — I’ll say 4 goldgrams for illustration purposes. The grocer then purchases $100 worth of gold — 4 goldgrams — through his GoldMoney holding to cover the value of the grocery bond.

Three months later, the price of gold has gone up to $30 per goldgram and the original 4-gram bond is now worth $120. The customer returns to redeem her bond, at which point the grocer sells the original 4 goldgrams through his GoldMoney holding and hands the customer a $120 prepaid store debit card. She can now purchase the same amount of stuff she did before prices went up, and the grocer has been spared the effects of inflation on her purchasing power — this, with almost no up-front investment beyond his time and the cost of having the paperwork printed.

It’s worth pointing out that in the event of a total currency collapse — a real possibility in the foreseeable future — the “grocery bond” scheme could potentially end up being the only means people have of buying anything. The bonds could quickly become the only usable currency in town… and the grocer is the originator of them all.

I see no reason why this model couldn’t be duplicated in any sort of brick-and-mortar retail environment. Moreover, I see no reason why multiple businesses couldn’t join together to honor each other’s bonds, or even issue a single bond redeemable among all participating businesses. For that matter, an enterprising entrepreneur could set up the gold retail bond scheme as a bona-fide business, sparing retailers the hassle of managing a digital gold holding.

I’d hoped to get to the second currency alternative today but this post has gotten much longer than I anticipated. Tomorrow I’ll cover the second, which is potentially useful in addressing credit problems.

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