[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

SOUND MONEY: PARALLEL CURRENCIES
AND THE ROADMAP TO MONETARY FREEDOM

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON

DOMESTIC MONETARY POLICY

AND TECHNOLOGY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

AUGUST 2, 2012

__________

Printed for the use of the Committee on Financial Services

Serial No. 112-153

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76-124 WASHINGTON : 2012
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HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
KEVIN McCARTHY, California BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia
BILL POSEY, Florida AL GREEN, Texas
MICHAEL G. FITZPATRICK, EMANUEL CLEAVER, Missouri
Pennsylvania GWEN MOORE, Wisconsin
LYNN A. WESTMORELAND, Georgia KEITH ELLISON, Minnesota
BLAINE LUETKEMEYER, Missouri ED PERLMUTTER, Colorado
BILL HUIZENGA, Michigan JOE DONNELLY, Indiana
SEAN P. DUFFY, Wisconsin ANDRE CARSON, Indiana
NAN A. S. HAYWORTH, New York JAMES A. HIMES, Connecticut
JAMES B. RENACCI, Ohio GARY C. PETERS, Michigan
ROBERT HURT, Virginia JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO R. CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
FRANK C. GUINTA, New Hampshire

James H. Clinger, Staff Director and Chief Counsel
Subcommittee on Domestic Monetary Policy and Technology

RON PAUL, Texas, Chairman

WALTER B. JONES, North Carolina, WM. LACY CLAY, Missouri, Ranking
Vice Chairman Member
FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina GREGORY W. MEEKS, New York
BLAINE LUETKEMEYER, Missouri AL GREEN, Texas
BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
DAVID SCHWEIKERT, Arizona

C O N T E N T S

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Page
Hearing held on:
August 2, 2012............................................... 1
Appendix:
August 2, 2012............................................... 23

WITNESSES
Thursday, August 2, 2012

Ebeling, Richard M., Professor of Economics, Northwood University 5
Gray, Robert J., Executive Director, The American Open Currency
Standard....................................................... 7
Lewis, Nathan, Principal, Kiku Capital Management LLC............ 3

APPENDIX

Prepared statements:
Paul, Hon. Ron............................................... 24
Ebeling, Richard M........................................... 26
Gray, Robert J............................................... 41
Lewis, Nathan................................................ 50

Additional Material Submitted for the Record

Paul, Hon. Ron:
Written statement of Edwin Vieira, Jr........................ 62

SOUND MONEY: PARALLEL CURRENCIES
AND THE ROADMAP TO MONETARY FREEDOM

----------

Thursday, August 2, 2012

U.S. House of Representatives,
Subcommittee on Domestic Monetary
Policy and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Ron Paul
[chairman of the subcommittee] presiding.
Members present: Representatives Paul, Luetkemeyer,
Schweikert; and Green.
Chairman Paul. This hearing will come to order. Without
objection, all Members' opening statements will be made a part
of the record.
I also ask for unanimous consent to place in the record a
letter with an attachment from Dr. Edwin Vieira, who could not
appear on this panel today.
Without objection, it is so ordered.
I will now recognize myself for 5 minutes to make an
opening statement. First, I want to welcome our panel today to
discuss a very important issue dealing with monetary policy. We
have had a series of hearings and discussions in this committee
dealing with monetary policy, mostly directed around Federal
Reserve policy and the Federal Reserve.
Today, there will not be that much emphasis on the Federal
Reserve itself, but rather on money: on money, the issue of
what it means; what our history is like on money; whether we
can have parallel currencies; and what the founders might have
thought about parallel currencies.
The world is in the midst of a crisis today, and many of us
believe it is related to a deeply flawed monetary system, a
deeply flawed understanding of what money should be, a
rejection of the notion that money should have real value and
that money originated in the marketplace rather than
originating from a computer over at the Federal Reserve.
And though today the general public, as well as the
financial markets, have a difficult time wanting to accept that
or even understand it, ultimately it is the nature of money
that I believe we will have to come to grips with, and make a
decision about. Because as we speak, they are meeting in Europe
and the ECD's are deciding what to do and manipulating their
money and credit, as well as we here in the United States.
We in this country have been given some benefits,
definitely, by being able to issue the reserve currency of the
world. And because there is no definition to money, and because
we can create money out of thin air, we have had some
advantages.
But the whole world is engulfed in this problem because of
this lack of determination, a lack of desire to understand what
money is all about. So today, we want to discuss that, and get
the testimony from our witnesses to try to further understand
the nature of money and credit, and whether it is necessary to
have a precise definition.
Also, really, we want to talk about parallel currencies,
concurrencies circulate next to each other. And I think the
answer is rather clear. They are doing it all the time
internationally. Currencies are circulating all the time, and
in the computer age, they adjust their values rather quickly.
But the question is, can we have parallel currencies within
the United States? Would it be legal? Does it contradict the
Constitution? What would the States' role be in this? And what
can they do? Under these circumstances, it does raise a lot of
questions, because it raises tax questions and the authorities
on how they are going to respond and what one can do with
currencies without having the wrath of Big Brother and Big
Government coming down on us, and saying, ``No, you can't do
that.''
But today, we have an absolute monopoly control over money
and credit. They are managing a money that they can't even
define. And then they wonder why we have chaos in the
marketplace. I see a time coming where there will be a response
to the problems that we have, a response that I will endorse.
And that is for monetary reform.
But it won't happen because of our hearing today. I know we
are going to have a great hearing and great testimony, and
there will be lots of words of wisdom. But we are not going to
walk away and all of a sudden the world is going to say, ``You
know, that makes a lot of sense. We have to deal with this.''
The one thing that I am convinced of with the current
system that we have, because we don't deal with the issue of
money, is the financial system worldwide is going to get a lot
worse, because they are not admitting the truth of what is
happening. Because the system that we have, we have had for so
many years and so many decades that it has encouraged a system
of horrendous debt.
And not only are many of our companies and banks and States
and countries insolvent, they wonder why we have a problem. But
if they don't admit to it, and think that, well, the solution
is just creating more money. So that is an overwhelming task
for that reform.
But in the meantime, is there anything that we can do to
emphasize and to promote the interests of, and the
understanding of what sound money would be by just permitting
parallel currencies? Why can't we have the freedom to do this?
We claim we live in a free country and a free society, but are
we allowed to have parallel currencies, are we allowed to have
competition, are we allowed to have something in addition to a
cartel and a monopoly that has controlled money and credit and
has created a worldwide monster for which they have no answers?
That is the reason I think this is a very, very important
subject. And once again, I want to welcome our panel. I would
like to know now if any other Members have an opening
statement. No? Okay, thank you.
I will now introduce our guest speakers and the members of
the panel. Our first guest, Mr. Nathan Lewis, is the principal
of Kiku Capital Management, a private investment firm, and
author of ``Gold: the Once and Future Money,'' which is now
published in five languages.
His writings can be found in the Financial Times, Forbes,
and Dow Jones Newswires, among others. He has appeared on
television networks, including Bloomberg TV and CNBC, and has
been featured in several television documentaries.
Dr. Richard Ebeling is a professor of economics at
Northwood University in Midland, Michigan. He is recognized as
one of the leading members of the Austrian School of Economics.
He is the former president of the Foundation for Economic
Education, and author of ``Political Economy, Public Policy,
and Monetary Economics.'' Dr. Ebeling earned his Ph.D. in
economics from Middlesex University in London.
Mr. Robert Gray is founder and executive director of the
American Open Currency Standard. He is responsible for the
creation and successful implementation of more than 150
circulating community currencies and silver-, gold- and copper-
based token fundraising programs.
Mr. Gray helped issue the official currency of the free and
independent Lakota Indian Nation, and also founded the Mulligan
Mint, a full-service mint in Dallas, Texas.
Without objection, your written statements will be made a
part of the record, and you will now be recognized for a 5-
minute summary of your testimony.
I now recognize Mr. Lewis.

STATEMENT OF NATHAN LEWIS, PRINCIPAL, KIKU CAPITAL MANAGEMENT
LLC

Mr. Lewis. Thank you. The phrase ``parallel currencies''
tends to sound rather novel and experimental to us today,
living in the United States. However, most people in the world
are using parallel currencies today. U.S. dollars or euros are
accepted in trade in goods and services.
In many countries that suffer from low-quality domestic
currencies, the largest corporations finance themselves with
dollar-denominated debt. The governments of such countries
themselves issue dollar-denominated government bonds. By the
end of World War II, the U.S. dollar, which had been considered
an emerging market currency in 1900, had proved to be the most
reliable currency in the world.
In practical terms, this meant that the U.S. dollar
remained on a gold standard system while once-prominent
European currencies were devalued and political situations
became unstable. The dollar thus became the parallel currency
of choice worldwide.
In 1971, the United States abandoned its then-nearly two-
century-old commitment to the gold standard system. At this
point, historically, currencies were often discarded for
whatever the highest quality, most reliable alternative was
which, in practice, meant a gold standard currency from a large
developed country.
Despite the U.S.'s poor currency management since 1971, the
alternatives have been even worse. This why the U.S. dollar
remains the most popular currency in the world, and serves as a
parallel currency in many, if not most, countries today.
Today, there are no particularly onerous barriers against
using a parallel currency in the United States. People are free
to do business in euros or Russian rubles if they so choose.
There are over 150 currencies in the world, all of which could
conceivably be used as parallel currencies within the United
States or other countries.
However, all of them are floating fiat currencies generally
of lower quality than the U.S. dollar or euro. There is hardly
any reason to introduce another. Plus, the most meaningful new
parallel currency to be introduced in the United States or in
another country would be one based on gold.
Although the use of other countries' national currencies is
largely accepted in the United States, the issuance of
alternative currencies within the United States can run afoul
of what are collectively known as ``legal tender laws,'' both
de jure and de facto. The one person who attempted to issue a
gold- and silver-based parallel currency in the United States
was arrested in 2009 and convicted of charges related to
counterfeiting and declared to be a domestic terrorist.
Gold, today, is regarded as a collectible, and subject to a
different system of taxation than if one were to do a similar
transaction using foreign currency such as euros or Canadian
dollars. In addition, purchases or sales of small quantities of
gold are subject to sales taxes in many States.
Thus, in practice, the U.S. Federal Government makes a
powerful effort to suppress the introduction and use of
alternative gold- and silver-based currencies today. This state
of affairs has become intolerable to many. In 2011, the State
of Utah declared that it would consider U.S. Mint gold and
silver coins and monetary instruments based on these coins to
be legal as currency.
This included the removal of all State-level taxes on
transactions in gold and silver bullion. Twelve other State
legislatures have had similar bills proposed. The Utah example
could serve as a template for similar Federal-level legislation
to legalize gold- and silver-based currencies within the United
States. According to a study of 775 floating currencies by Mike
Hewitt, no floating fiat currency has ever maintained its
value.
The average life expectancy of a floating fiat currency was
found to be 27 years. The U.S. dollar, which has been a
floating fiat currency for 41 years now, is thus an unusual
example of longevity. However, today's extreme reliance upon
easy money approaches to deal with economic problems, with the
Federal Reserve promising unprecedented zero percent policy
rates for years, and real interest rates deeply negative,
suggests to many that the floating fiat dollar does not have a
long or successful future.
Governments of China, Russia, Malaysia, Switzerland, the
Gulf States, and others have complained about the potential
consequences of today's aggressive easy money techniques not
only at the Federal Reserve, but also the European Central
Bank, the Bank of England, and the Bank of Japan, and have made
preliminary steps toward a future alternative, including
discussions of new gold-based parallel currencies.
On the international scale, the parallel gold-based
currency, or many such currencies, would help ease this
transition and form the basis of a new monetary order if that
should become necessary. Each individual would be free to make
increasing use of the gold-based alternative as it best suited
their interests.
It would be no great day of transition, but a smooth,
extended process, perhaps over years. The existence of a high-
quality alternative could help people avoid much of the
potentially disastrous consequences if today's floating fiat
currencies meet the same end as the 599 floating currencies
that no longer exist.
Thank you.
[The prepared statement of Mr. Lewis can be found on page
50 of the appendix.]
Chairman Paul. I thank you.
And now, we will go to Dr. Ebeling.

STATEMENT OF RICHARD M. EBELING, PROFESSOR OF ECONOMICS,
NORTHWOOD UNIVERSITY

Mr. Ebeling. Chairman Paul, and members of the
subcommittee, I would like to thank you for this opportunity to
share some ideas on this important theme of sound money,
parallel currencies, and the roadmap to monetary freedom.
To discuss a possible roadmap to monitor a freedom in the
United States requires us to first determine what may be viewed
as sound or unsound money. Through most of the first 150 years
of U.S. history, sound money was considered to be the one based
on a commodity standard, most frequently gold or silver.
In contrast, the history of paper, or fiat, monies were
seen as an account of abuse, mismanagement, and financial
disaster, and therefore were viewed as unsound monies. The
histories of our own American Continental notes during the
Revolution, the assignat during the French Revolution, and the
greenbacks and the Confederate notes during the American Civil
War all warned of the dangers of unrestricted and discretionary
government power over the monetary printing press.
That result was that in the second half of the 19th
Century, all of the major countries of the world moved towards
a monetary standard based upon a commodity, in this case, gold.
The important matter to be emphasized--that while it
assured a degree of monetary stability while governments
basically followed the rules of the gold standard--that is, a
fixed ratio was established between a unit of gold and the
amount of notes or account deposits that were extended after a
deposit was made; the ability to redeem them at that fixed
rate; the monetary authority of the central banks at that time
basically following the rules of the road of limiting the
amount of notes or accounts open to the amount of gold that had
been deposited, withdrawing notes and accounts when gold was
withdrawn, the fact remains that it still was a system of
government-managed money.
And once the ideologies and philosophies of the time
changed and the shift was to a more activist government policy
in the 20th Century of government targeting price levels,
government attempting to influence and manipulate output and
employment or inflation targets and so on, the reins of ability
to manipulate the monetary system were already in the hands of
the authority given responsibility for money and credit in the
economy.
That raises the entire issue as to whether it is desirable
to have government managing a monetary and banking system at
all. The free market case for competition in general and,
therefore, a similar case in the case of money is the fact that
competition in a market does at least two essential things.
First, it decentralizes the impact of errors. If a
businessman makes a mistake in his entrepreneurial judgments,
it may have a negative effect on himself, some of his
employees, or a few suppliers of the good that he produces. But
it is decentralized. It does not affect the entire economy.
When a central bank makes a mistake, its impact is potentially
on the entire economy as a whole, since the monetary authority
influences interest rates in general, affects the supply of
money in the economy in general, distorts relative prices, and
impacts the general rate of inflation in the economy as a
whole.
Second, it is only through competition that we discover
innovative and creative ways to give people the things that
they want. And this, market advocates have argued, is no less
true in the case of money. If government did not monopolize the
control of money, individuals in the market would determine
what commodities such as gold and silver they choose to use as
media of exchange.
What type of financial intermediation and forms of
financial intermediation they found most advantageous and
profitable to use. And a diversity of such forms--as banks
offered different features, issuing their own notes based upon
commodity money deposits--and therefore acting as a check and a
balance on each other to give consumers what they wanted while
restraining their ability to abuse their particular individual
authorities.
So how would one move towards such a system of free banking
and competitive choice in currency? I would like to suggest the
following steps.
First, the repeal of the Federal Reserve Act of 1913 and
all complementary and related legislation giving the Federal
Government authority and control over the monetary and banking
system.
Second, the repeal of the legal tender laws, giving the
government the power to specify the medium of exchange through
which people will transact and enter into contract.
Third, repeal all restrictions and regulations on the free
entry into banking business and the practice of interstate
banking.
Fourth, repeal all restrictions on the right of private
banks to issue their own bank notes and to open accounts
denominated in foreign currencies or in weights of gold and
silver.
Fifth, repeal all Federal and State government rules, laws,
and regulations concerning bank reserve requirements, interest
rates, and capital requirements.
And sixth, abolish the Federal Deposit Insurance
Corporation. Any deposit insurance arrangements and agreements
between banks and their customers and between associations of
banks should be private, voluntary, and market-based. In the
absence of government regulation of this type, we would
naturally move towards a system of competitive currencies and
free banking.
Thank you.
[The prepared statement of Dr. Ebeling can be found on page
26 of the appendix.]
Chairman Paul. I thank the gentleman.
And now, we will go to Mr. Gray.

STATEMENT OF ROBERT J. GRAY, EXECUTIVE DIRECTOR, THE AMERICAN
OPEN CURRENCY STANDARD

Mr. Gray. Thank you, Mr. Chairman, and members of the
subcommittee. My name is Rob Gray, and I was asked to testify
today on the theory of competing currencies and the practical
challenges that make such a theory difficult or impossible to
implement.
For nearly 5 years now, I have successfully directed the
American Open Currency Standard, the standard for private
voluntary silver, copper, and gold currencies that compete with
each other, not against the U.S. dollar. Allow me to clarify.
We do not consider AOCS-approved medallions produced and traded
in our private barter marketplace competition at all to the
U.S. Federal Reserve note.
Because fair competition, as one would find in the free
market, assumes the existence of a level playing field,
existence of a standard set of rules. Those players who wish to
compete honestly do so by simply relying on the merit of the
value that they bring to the market.
Well, no fair challenge can be made between honest men and
thieves. Now let me be clear that when I say, ``thieves,'' I
refer directly to the current private central bank and the men
in government who allow it to exist. It brings us to a critical
point. According to your employee handbook, article one,
section eight says that Congress shall have the power to coin
money and regulate the value thereof.
I would argue that since 1913, Congress has failed to do
the job with which it has been tasked. In the free market,
since our inception, the Open Currency Standard has enjoyed
nearly 5 years of growth and success, and our mission of
issuing a means that allows valuable exchanges among those who
produce.
In the next 5 years, we expect to expand our offerings and
to increase our ability to keep up with the demand for our
private currency. We are doing the job today that Congress
would not. But back to theory. The use of community currencies
here in the United States became popular back in the early
1930s.
At the time, the theory was that a group of the world's
most powerful men were intentionally and systematically
removing currency from circulation, creating artificial
scarcity of money across the country. Small cities and towns
felt it worse than anyone, but life did go on.
Then, during the greatest economic depression the country
had ever seen, individuals across the country developed their
own mediums of exchange. They still needed things like food,
clothing, and daily essentials; they still needed to live. And
they didn't have time to sit around and wait for the government
to fix the problem.
And so, according to historical records, thousands of
community currencies were created, circulated, and traded in
places where the scarcity of dollars was interfering with
humans' desire to live. Individuals took it upon themselves
back then to secure the means for their own survival and
potential prosperity.
More recently, community currencies have sprung up across
Europe, as the euro and other national currencies become
increasingly unavailable and undependable. Today, communities
all across the eurozone trade their own money instead of the
euro. Community currencies today are not simply a good idea in
theory.
Right now, alternative and complementary currencies
circulate widely across the country in many different forms.
Ithaca, New York, has Ithaca Hours that are loosely based on
the value of time. Berkshire, Massachusetts, uses a fiat-backed
fiat system. And many more communities circulate gold, silver,
and copper AOCS-approved barter tokens as a medium of exchange.
As for the practical challenges in the issuance and
circulation of complementary currencies, there are plenty. In a
voluntary system, those that participate in the trading of
private currencies must deal with the possibility of
counterfeiting, fraud, scarcity, acceptance, accounting,
storage, and other issues, all without the luxury of Big
Brother holding a gun to anyone's head to ensure their success.
But even with all these risks, the market still moves on.
As in any free market, good ideas circulate with success and
bad ones eventually fade away. Participants voluntarily choose
to accept and circulate the highest quality currencies in
exchange for their best production.
Merchants accept complementary currencies based on the
premise that someone else is willing to do the same thing
later. Issues arise and are worked out by the market with only
one light to guide them--the mutual exchange of value. No guns,
no laws, nor force, just the willingness to think outside the
box and act on principle.
Complimentary currencies are not new, in theory or in
practice. Private currencies circulated long before governments
erected themselves to interfere. But what is new, however, is
the public's apathy towards the government and the Federal
Reserve, and their policies. You have managed somehow for the
last 100 years to convince the citizens of this country that
you are relevant.
But now, just recently, we are beginning to see the tides
change on this. And once it catches on, you will be rendered
completely obsolete. The greatest hurdle you will face over the
next 100 years is trying to convince We the People that you are
still necessary in spite of your failure to get the job done.
Sure, some will rely on your for handouts. That is what
they have always known their entire lives, and they will be
slaves right up to the point of their own destruction. But they
don't know any better, and I don't blame them for their
ignorance. In the future, you will not have to worry about
Million Man Marches or citizen journalists trying to catch you
on camera.
What you need to fear is no one paying attention to you.
The next American revolution will be fought not with bullets
and bombs, but instead it will be won with the opposite
consciousness. To that end, I am here today to propose a
solution. My understanding of this committee is that you want
to be part of the solution.
You want to believe that you are doing something good for
the country. And so today, the greatest gift that you can offer
to the people that you clearly represent--not to the
legislature, but directly to the public--is what I call ``IR-
1207,'' Individual Resolution 1207, commonly referred to as
``Ignore the Fed.''
Store your wealth in silver, bank with non-fractional banks
that pay real money on deposits, use the card service network
to satisfy dollar obligations, do not try to compete with the
Federal Reserve system; simply ignore them.
I ask you to leave the Fed their Federal Reserve notes and
leave us our gold, silver, and copper. Do not push to redefine
whatever representations we choose for our wealth. Let the Fed
do what it wants with their legal tender, so long as they leave
our money alone. I warn you, honest money legislation is a wolf
in sheep's clothing.
The greatest thing this body can do is exactly what it has
done so far: absolutely nothing. All I ask is that you stay out
of the market's way. The people in our world are very happy to
go right along saving you from your own destruction by
producing value against all odds, regulations, codes, and
challenges that you throw our way, but leave our money alone.
It doesn't belong to you, and it never will. The bottom
line is very simple. Humanity is not going to wait for
permission to survive. Things that cannot go on forever simply
won't. The market will move on with or without you. And based
on your rate of success to date, our preference is certainly
without you.
Thank you for the time.
[The prepared statement of Mr. Gray can be found on page 41
of the appendix.]
Chairman Paul. Thank you. I will now yield myself 5 minutes
for questioning.
First off, I would like to talk about the legal tender laws
a little bit more. I want to pose a question for all three of
you. It was mentioned in your testimony about how important
legal tender laws are and whether or not we can ignore them.
How important are the legal tender laws, and how important
is it that we get rid of the legal tender laws if we really
want to have a parallel currency and be assured that we can do
it? Can we ignore it? Should we work to repeal it? How far can
you go without dealing with this issue?
Because it does provide the monopoly that will not go away
easily. So if each one of you could expand your thoughts on the
importance of legal tender laws and what we should try to do,
and is it absolutely necessary that we do something before we
can advance the cause of competition or parallel currencies?
Mr. Lewis?
Mr. Lewis. Although I think that some communities are using
small-scale metallic currencies, more or less under the radar,
if a large corporation--let us take Ford Motors, for example--
would begin to do business in gold and silver coins or related
currencies, they would immediately come under Federal scrutiny
and basically be prevented from doing so.
What I would like to see is basically for gold and silver,
and currencies based on gold and silver, to be treated as legal
currency within the United States. In practice, this will
require a declaration of some sort to make it effective. And
ultimately, at the very least, to be able to treat gold and
silver the same way we treat euros or Canadian dollars today.
We can all do business in them in the United States, even
though they are not necessarily declared as legal tender, and
so on and so forth. It would be better to have a more official
declaration to say, yes, we accept gold and silver as a
legitimate means of monetary transaction and a legitimate
foundation for business.
Chairman Paul. Thank you.
Dr. Ebeling?
Mr. Ebeling. Yes. Anyone who has traveled in a country that
has been experiencing severe, or even hyperinflation knows that
in spite of official legal tender laws--that is, the government
declaring a certain money or its currency the lawful money--
people start using alternative currencies that they view, given
their circumstances, as having more confidence in shorter
certain value.
So in spite of laws and regulations, at the end of the day
what people will choose to use as money, even when it breaks
the law, they will follow what they view as most effective and
self-interested for themselves in the marketplace to secure
their wealth and their transaction opportunities for themselves
and their families.
But the fact remains that while the market, in a sense,
finally supersedes and no longer recognizes government laws
when it becomes serious enough, it is crucially important if we
could eliminate the legal tender restrictions in the United
States. Because basically, it would say that now individuals--
and the law, the government, the courts--will respect the
contracting and the exchanging of any form of medium of
exchange that the individual citizens of the society choose to
use.
That would go a long way. For example, a well-known Nobel
Laureate, Austrian economist Friedrich Hayek, once made the
case for what he called ``choice in currency.'' He was doing
this before the euro in the context of Europe. But he said one
way to tame the inflationary tendencies of government is to
allow citizens within their own country just to use the
currencies of other countries within their domestic exchanges
if they choose.
To be able to say I don't trust, and have confidence in,
the monetary authority to restrain itself in issuing excessive
quantities of that money. Also, if you eliminated the legal
tender laws, then the people themselves would decide do we want
to use dollars, do we want to use alternative to dollars, how
much do we want to use notes, how much do we want to use,
actually, coins of various sorts?
And it would be basically saying consumer sovereignty,
consumer choice. But if we could do that, that would be the
essential roadway, and path, to restoring a system of monetary
freedom. But if, in the United States, we were to ever
experience--and, of course, we hope we never do--a serious and
hyperinflation, the market would basically tell the government
what it thinks of its money because people will choose to use
alternative currencies of choice.
Chairman Paul. Thank you.
Mr. Gray?
Mr. Gray. Mr. Chairman, before addressing or issuing the
answer to that question, can you please summarize for me your
understanding of the legal tender laws as they exist today?
Chairman Paul. Not at this moment. I would like you to
answer the question first.
Mr. Gray. My answer is, very simply, leave them alone. My
understanding of the legal tender laws is that the U.S. dollar,
the Federal Reserve note, can be used to satisfy debt
obligations. We don't need to change that at all. There is no
law that restricts us from privately minting coinage--tokens,
medallions as we refer to them.
There is no law that restricts us from engaging in private
barter transactions with other men. And so, we don't need to
change anything about the legal tender laws in order to do
exactly what we are doing right now.
Chairman Paul. Okay.
I now yield 5 minutes to Mr. Luetkemeyer from Missouri.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
As you talk about the different parallel currencies, I
think we have a parallel currency situation over in Europe
right now that is pretty obvious. How is the euro working over
there, in your judgment, all three of you?
Mr. Ebeling. I will begin by saying I think it is an
unmitigated disaster. The fact is, this was not a choice by the
people either making their demonstrated choice in market
exchanges or even in a political vote or a referendum. This was
basically imposed upon many of the E.U. countries as a
discretionary choice of the politicians.
Some of the more prominent countries wanted to have a
unified currency so as to be able to have the political clout
to look down the dollar in the eye, to be explicit. That is my
view of why the French were pushing it. The result is that this
currency has been imposed upon systems that follow different
regulatory paths, different fiscal paths in terms of debt and
deficits, all of which has created this problem.
A lot of people in Europe are saying, ``Oh, it would be
disastrous if the Greeks pulled out and reestablished the
drachma,'' for example, or ``the Spaniards were to reestablish
a peso,'' for instance. I think that would be the path to
denationalize, or rather deinternationalize this monetary
system because it is not working.
And it is dependent upon a central bank in one location to
make the monetary choices and decisions for all of the hundreds
of millions of people who participate in this system, rather
than allowing even the competition of the national central
banks, as had existed before. Because if you felt that the lira
was being inflated, people escaped into marks.
That was the pattern in the post-war period. Where does an
Italian escape to now as easily as into the market as was
historically the case? So even in terms of competitive national
currencies, the unification under the euro has been a disaster,
and certainly for the freedom of the people there.
Mr. Luetkemeyer. Mr. Lewis?
Mr. Lewis. I would generally agree with Dr. Ebeling. I
don't think the euro is a case of a parallel currency so much
as a shared monopoly currency. With parallel currency, the idea
is having the choice of two highly viable alternatives. For
example, the euros, maybe, in Turkey, where the Turkish lira
has a rather poor history, often people use Deutsch Marks in
the past and now use the euro.
So I think that is probably a bad example of a parallel
currency. Thank you.
Mr. Luetkemeyer. Mr. Gray?
Mr. Gray. I think the key thing to consider with what is
going on right now in Europe, besides the fact that there is
just no confidence whatsoever in the banking system is that
still, in our country here today, we do have confidence in our
currency, we do have confidence, for the most part, in the
banking system, for whatever reason.
And that is very different over in Europe right now. As
soon as money shows up and the banks are unfrozen, the people
make a run on the bank. They pull out as much currency as they
can, they turn it into anything they can get their hands on
that is valuable; whether that is another currency, or hard
goods, or gold and silver.
It is the same thing that we are seeing now that we saw in
hyperinflation just before World War II, where the race was on
to get rid of the currency as quickly as possible. The
advantage we have right now is that we don't have that yet in
our country. And I think the opportunity that lies before us is
to help the people of this country get out of that system,
deleverage the system, so that they don't have to experience
the panics and the fear that are being experienced right now in
Europe today.
Mr. Luetkemeyer. You had a key word there that really
describes all monetary systems and, basically, even economics.
And that is ``confidence.'' If people don't have confidence
that the money that they are exchanging for goods is worth that
amount of money, or whatever it is, there is very little
transaction that takes place.
And so really, even at the highest levels of the biggest
banks, we found in 2008 that it wasn't necessarily the entity
that they were dealing with. It was the confidence in that
entity to be able to transact business.
And so basically, you have a fall-back on confidence, which
leads me to the question with regards to what we are talking
about this morning, sound money and parallel money. If you work
in a different monetary system parallel to another one, where
is the level of confidence going to come from that allows that
business to be transacted in a parallel currency?
Mr. Gray. The simple answer to that question is the
confidence comes from the fact that the currency is not based
on debt. Every national fiat currency is put into circulation
through loans and debt.
And so people today are starting to understand that there
is so much money out there that people owe in loans, mortgages,
credit card bills, all these derivatives out there--trillions
and trillions of dollars--and all that money has to be paid
back eventually.
That is where the lack of confidence comes from. And so
when you start thinking and talking about alternative
currencies, especially those that are issued in gold, silver,
copper, and something real, some sort of commodity, people who
understand the concept begin to realize that those are debt-
free currencies that don't need to be paid back at some point
to some bank.
Think about all the money that the people of America owe to
the banks. Think about all the people who are in debt, all the
States and the municipalities, the colleges, universities.
Everyone is in debt. The real question is, who owns the other
side of that debt?
And that is where the lack of confidence comes from. The
fact that people are starting to ask that question, and realize
that there is really no money out there to begin with.
Mr. Luetkemeyer. I see my time is up.
Thank you, Mr. Chairman.
Chairman Paul. Thank you.
If the gentleman from Arizona is ready, he could be
recognized. If not, we can wait a couple of minutes. Are you
ready? Okay, thank you. I will go on and have a second round of
questions.
The question of taxation comes up with money, as well,
because we think money is a commodity. And our government tends
to think that any time you have a commodity transaction, you
pay taxes on it. You have sales taxes and you have capital
gains taxes. And that, I think, curtails this development of
parallel currencies.
And I don't know how we could ignore this if we really want
to promote some competition or allowing another currency.
Because if you tax one currency but not another one, it is
hardly a parallel currency. It is at a tremendous disadvantage.
So if a parallel currency really got off the ground,
because of the conditions or the people became knowledgeable
and they thought it was wise to do it, the people in Washington
don't like to have their powers undermined. So they have the
power of the IRS.
Isn't this a significant concern, or do you think we can
just sort of bypass it, and say, ``Well, it's a problem, but
not a big problem. We will just go do our thing, and it can
work.'' What is your opinion about the tax issue when it comes
to a parallel currency, all three of you?
Mr. Lewis. I think there are--just as you can have under-
the-table transactions in U.S. dollars, small-scale that maybe
you don't report to the IRS, you can also do so. And maybe
people are doing so with gold and silver coins or copper coins
today. But as soon as you get the business of any scale, you
can't break the laws that easily.
I think that ultimately, just as you say, we have taxes
that apply to transactions in dollars, capital gains taxes, for
example. We have taxes that apply to transactions in euros and
Canadian dollars and many other currencies. We have many
thousands of corporations doing business in many currencies
worldwide.
I think we should recognize that because gold and silver
and related instruments are not recognized as currencies, they
are under a different system of taxation. Gold, for example,
has a different tax rate because it is a collectible. But I
think more importantly, let's just take a very simple
transaction. I wanted to buy a car from the Ford Motor Company,
I wanted to pay them in gold coins, U.S. Mint American Eagles
produced by the government.
When I give the gold coin to the auto dealer, that would be
considered basically a sale of the coin and you would have to
pay capital gains tax, taxes on what the dollar value of the
coin was when you acquired it and when you dis-acquired and so
on and so forth. Which is very different than if I were to, for
some reason, do the same transaction in euros where that would
not apply.
So I think that at the very minimum, we should endeavor to
treat these the way we would treat other national currencies
today, which we are actually doing business in. Not so much in
the United States, but what American citizens, the American
corporations are doing every day and accountants are very
familiar with how this works.
So I think that there is definitely something for the
Federal Government to do there to legitimize that and treat it
as the same way we treat other national currencies today.
Thank you.
Mr. Ebeling. Yes, I would argue that the parallel way of
thinking about this is, in international trade, what we call
the most favored nation clause. Any agreement that you reached
with country X, you give the same best-favor treatment with
import duties and so on to all other countries with which you
trade.
The parallel argument would be that the government should
recognize that anything that people use as a medium of exchange
in transactions should be viewed as anything that they have
historically viewed as a transaction. Basically, that there
shouldn't be these extra taxes. That was just pointed out.
So that if people are now using gold and silver coins, the
transaction should be more taxed or treated in a different way
than any transaction with the Federal Reserve's own note. That
gives a level playing field with neither an advantage nor
disadvantage for the use of one currency versus the other.
Because otherwise, the government creates stumbling blocks
and hurdles to give people those fair and level playing field
choices. So the parallel should be some taxing of media of
exchange along this notion of the most favored nation clause.
Chairman Paul. Mr. Gray?
Mr. Gray. First of all, Mr. Chairman, I want to clarify
that we are not tax experts and we are not allowed to give tax
advice, nor do we give tax advice to anyone who participates in
our system. Our job is, very simply, to issue the currency and
make sure we guarantee the weight and the purity. So we are
just keeping an eye on what is going out there.
But tax applications vary from State to State, municipality
to municipality. Some States, some cities and towns, allow you
to barter. They say, well, you can do 100 barter transactions
per month or per year, and they don't look at is as being under
the table or underhanded. They look at it as just being private
trade that is not a taxable event.
Certainly, my understanding is that the Federal Government
would like us to report the profit or gain from any
transaction. That is kind of strange because in a barter
transaction, there is not really any profit or gain on either
side of it. But in our voluntary system, we encourage the
participants to explore and decide for themselves based on
their own morals and values what their tax obligation is, and
to report and to remit accordingly.
Chairman Paul. Thank you.
Now, I recognize Mr. Luetkemeyer from Missouri again.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Following up again on my comments earlier with regards to
the confidence in the system and the ability to protect the
citizens whenever you transact business like this, Dr. Ebeling,
I think in your testimony you abolish the Federal Deposit
Insurance Corporation. While you may not like it, that is also
one of the things that adds confidence to the person who
deposits money in the bank. To realize that if they deposit the
money there, they are going to be able to get it back. Without
that, the consumer is going to have to do an awful lot of work.
And as you gentlemen have described this morning, parallel
monetary systems--you are going to put a tremendous onus on the
individual to make sure that they get value back for whatever
they exchange their money for, and that that money will have
value down the road so they will not lose value and business
continue to be transacted in that same form.
And so, I think one of the advantages of the system we have
now is that it takes a lot of the work in trying to find ways
for the money to be able to be secured and have confidence in
away from the consumer. Am I wrong in that, or do you agree
with that statement?
Mr. Ebeling. I think that the problem with deposit
insurance is that it creates a degree of confidence, but a
false sense of security. The fact is, is that the impression is
made that the bank is serving as a depository for your money
and that it is always guaranteed to be gotten back.
The fact is, you put money into a bank to earn interest.
The bank can pay you interest only through one way, and that is
extending it and pooling your savings with others to worthy
borrowers. They pay interest for the loan, the bank receives
that loan. They take what they view as their service charge for
financial intermediation, and then you as the depositor receive
your interest, whether it be a savings account or most forms of
checking accounts which pay interest now.
The fact is, you are putting your money at risk. You are
lending it to others through the bank's good services. Federal
Deposit Insurance has created this impression as if there is no
risk with your money. And the fact is, I think the people would
be more cautious and more attentive to the nature of the bank
that they are doing business with, what the track record of the
bank is in managing your funds, along with those of other
depositors.
And on that basis, seeing what private insurance or
guarantees or other forms of assurances bank competitively
would establish. We take for granted that when you go in and
buy, for example, a microwave or an oven or a refrigerator,
what if it doesn't work?
Most large companies, for brand name reputation, give you
various warranties and guarantees. And it is important for the
company's success to stand by and guarantee that warranty and
guarantee. Various banks, for competitive advantage, would
offer various types of, perhaps, guarantees and warranties on
deposits, but with the understanding that nothing is certain.
In a money market mutual fund, you realize that the value
of your account may go up or down depending upon the value of
the portfolio of the company with which you are dealing. The
fact is, that is the case of a bank, too.
Mr. Luetkemeyer. You are mixing apples and oranges here.
You are talking about an investment account, where you know
that the money is going to be invested and it has the ability
to go up and down, versus a deposit where you put the money in
and you are going to write checks on that account.
And I think the deposit insurance takes some of the risk
away. Over the last 4 years, we as a society have been educated
to the fact that banks manage risk. That is what they do.
Before, people thought they just take deposits, make loans, and
turn around and pay out dividends and interest and whatever.
That is not what happens. They manage risk. And so, the
deposit insurance actually minimizes the risk. It doesn't take
it all away, but it minimizes it so that it gives some level of
confidence to that investor. And I don't think you can sit
there and say that somebody who invests in a money market
account or some sort of investment account at the bank, that is
a totally different relationship between the bank and the
individual customer.
I have some concerns about that.
Mr. Ebeling. If I could just sort of follow up on that, the
mistake is that people view their checking accounts--I have a
checking account, as I know you have--you feel as if, well, I
have deposited my paycheck and I can draw that money down by
writing checks or using my debit card, etc.
The fact is, that is not a warehouse deposit or like a
safety deposit box. The fact is, under our current banking
system that money is then taken--which you are viewing as 100
percent accessible to you--and using it as part of their
investment funds to lenders. It is at risk as much as a savings
account is, where you know that during the period of like a
time deposit your money is being lent out to a lender.
The fact is, to a borrower, the same things applies with
our checking accounts. People are given a false sense of
security that this is not an investment account, when it is. It
is as much of a risk as when you put your money in the bank and
a savings account and you more consciously know the bank is
using your money for a period of time with a risky loan.
Checking accounts are, in fact, with our system no
different. And if you didn't have deposit insurance, I would
suggest that people would become more aware of it and be more
cautious, informed and intelligent in what type of banking
institution they did business with.
I am talking about the long-run, institutional incentives
of a system.
Mr. Luetkemeyer. I see my time is up. Thank you, Mr.
Chairman.
Chairman Paul. Thank you.
I now recognize the gentleman from Arizona, Mr. Schweikert.
Mr. Schweikert. Thank you, Mr. Chairman. This may be a
slightly more ethereal question, but I am trying to also
understand how much of this is actually going on around us. And
actually, also, if you have ever looked at the differential in
high transaction cost jurisdictions: high sales tax; the barter
economy; some of these things I now see on the Internet.
What was one of them called? Something ``coin,'' where you
can actually develop--what was it?
Mr. Gray. Big Coin, I believe?
Mr. Schweikert. Yes. And I think there are two or three
versions of that, where, because of certain transactions or
uses of Web sites or these things, you actually build accounts.
How much of this is there already, even though in the scale it
may be very small?
Is there actually, in sort of the barterer of economy, of
this Internet exchange of value that is out there? I remember
there was an explosion of it in the early 1980s, very early
1980s, when inflation--so I would trade something with my
dentist for this. And even though inflation and other things, I
knew I was getting a certain service for a certain service.
What is out there today?
Mr. Gray. It is pretty substantial. The first thing to take
a look at is the gray and black economics of the world which,
right now, are really the only segment of the global
marketplace that is actually growing. A lot of that is done
with barter, direct trade. Some of it is done with alternative
community currency, some of it is done with gold and silver.
So it is happening right now across the globe in a very big
way. In the United States, there are probably 400 to 600
different community currencies in circulation right now. The
total value of the currency in circulation is probably
somewhere between $1 billion and $5 billion, I would estimate.
So it is small, but it is consistently growing.
Mr. Schweikert. I don't think a lot of folks even
understand. My little sister was part of a baby-sitting
exchange. She puts in so many hours, and she gets so many hours
over there. In many ways, that was a barter economy, and folks
don't realize they were basically transacting value for value.
What happens if we wake up tomorrow and a handful of our
trading partners, competitors move to a basket or currencies?
And so China and a couple other countries say, ``We are going
to do this new blended currency.'' Does that actually now
create a new method of exchange?
I have been trying to figure out if that actually creates
an additional value of exchange with which we would have to
deal.
Mr. Gray. I think on the macro level in the global economy,
yes, it does. As far as the micro level and the baby-sitters
and the pet groomers and people in small towns and cities
across the country, I don't think they would notice that any
more than they notice, and are affected by, the international
currency problems we have right now.
So I think, yes, globally sure.
Mr. Schweikert. But where that more comes from, Mr.
Chairman, and to whoever would like to answer this, I don't
know how often you see this, but I used to see it in the old
days. A contract would have a gold clause in it, particularly
contracts that were coming out of the late 1970s, very early
1980s when there was high inflation, saying, ``Hey, we are
going to write the contract denominated in U.S. dollars, but
there will be a gold peg on it so if somehow inflation might--
by the time we are going to do the take-down.''
I am curious if we are seeing any more of that type of
hedging. And that is actually what a blended commodity currency
would do, also. I told you this was going to be a bit ethereal.
Mr. Ebeling. I think what is sometimes being proposed, the
Chinese and the Russians have talked about this instead of the
dollar as an international currency for a lot of transactions.
What this idea of a basket of commodities or series is, is to
try to have an index of what currency A, let us say the U.S.
dollar, is worth as sort of an index, or composite, of these
other currencies to determine some value.
But the fact is that what would still be traded is actually
some currency A for currency B. But the market estimate of what
currency A is worth in relation to currency B would be that the
currency B would, in fact, have its value based upon some
composite index. It is a way of determining the exchange ratio,
not so much that you would be trading the basket of the
currencies for this other good, or this other currency.
Mr. Schweikert. And my fear is, often--and my good friend,
Mr. Luetkemeyer, I think, that was also part of the dialogue of
it--sometimes, it is not only you get back your dollar-for-
dollar invested, but what was the actual ultimate purchasing
power of that dollar when you get it back.
And I think that is actually a much more honest way to look
at the value of a transaction.
Mr. Ebeling. Right. And see, what happens--again, as I
mentioned in an earlier question--is that if you have traveled
in a country that is dealing with a severe or a hyperinflation,
the uncertainty and instability of that nation's own currency
has reached such a point that people no longer either use that
currency, or they calculate its real value in another currency,
whether it be, let us say, a dollar or an ounce of gold.
And they say that based upon this other currency, that is
what we are going to view as the value of my own currency in
buying commodities.
Mr. Schweikert. Mr. Chairman, I know I am way over time.
But if you have done lots of traveling, particularly in the
third world, you will often see, here is the price in the local
and here is the price, as I had an experience in Myanmar. There
was a price for green, which was U.S. currency.
So thank you, Mr. Chairman.
Chairman Paul. Thank you.
We will be having a vote shortly, but I believe we have
time for another round of questions. I have a question for Dr.
Ebeling. And it is a more generalized and philosophic question.
Under the system we have today, it is very unfair to one group,
where another group, I think, benefits.
And if you look at runaway inflation, it is not usually
those who have been able to park their money overseas and
escape the harm. Many times it is the average person who had
savings in accounts and they lose everything. I think what we
are dealing with on a monetary system is a reflection of a
bigger philosophy.
And that is the philosophy of government, big government,
and why we spend so much money. And money is not so much a
means of exchange, like it should be. It is the vehicle for
taxation. Because we have big government for various reasons
and there is never enough tax money. But there is also the
printing press and there is the printing of money.
Which is really a tax on the people, the middle class and
the poor. Many people endorse that system because they have
been convinced that the current system is helpful to the poor.
We can have housing programs and we can provide welfare, and
they really like the system. They don't want to give up on it.
Now, we might agree that a sound monetary system would be
more fair and it wouldn't be beneficial to the very, very
wealthy and to the Wall Streets and the bankers. But what about
if we got a little further along on parallel currencies?
Do you see any way this could give a temporary reprieve, or
would it once again been seen oh, this is just another gimmick
to protect the rich, and the poor don't know anything about
this, they can't use this currency, and it is really not a
solution; it doesn't even address the subject of this inequity
in the system that we have today.
Do you have any thoughts on that at all?
Mr. Ebeling. Yes, I think that is an important point. We
can see the problem sort of magnified as one reads about it in
the press, for example, is what has happened in Greece right
now. The fact is, is that for years, decades, the Greek
government promised more than it has turned out it can pay for,
either with taxes or with continuing borrowing.
That is one of the reasons some in Greece want to return to
a drachma so they can just print the money that they need to
cover the promises for which the real resources in the society
are not available. It is the long run versus the short run.
In the short run, if the government can tax, borrow or
print money, it can create the illusion of generating wealth
and benefits and special opportunities for various segments of
the society. But in the longer run, the problem is that
eventually the piper has to be paid. The tax money runs out.
Or it can't borrow anymore, or it becomes very expensive,
as the Spanish and the Italians are now finding, as well as the
Greeks. Or they resort to printing money. But at the end of the
day printing money dilutes the value of every unit of money in
people's pockets. It destroys savings, it undermines the
ability to undertake exchanges. It diminishes the ability for
profit-making decision-making. And therefore, it is most
devastating on the poor.
The analogy is like the kid who goes to the circus and he
eats too much cotton candy. And his Uncle Bob who took him
said, ``Gee, I am sorry that you have a tummy ache, so to make
you feel better here's more cotton candy.'' That is just
exacerbating the problem. At the end of the day, the boy gets
home and he has a big tummy ache.
And that is what has to be emphasized, the illusion--
Chairman Paul. Okay, I want to interrupt for a minute
because I want to know about whether the parallel currencies
affect this in any way, positively or negatively. Or does it
help this inequity and this disadvantage over the kind of
system we have today?
Mr. Ebeling. Yes, I would argue that if people had a choice
in currency--whether they be rich, middle-income or poor--they
would have a way to park their income and wealth in an
alternative medium of exchange, a unit of account, that they
could have greater security of, that its value is more certain
and more stable based upon their fears and expectations about
the trend their own national currency is following.
Chairman Paul. So there is even an advantage to
incrementalism in moving in this direction if it is available
to the people rather than saying, ``Well, we can't do a thing
until we repeal the Federal Reserve Act,'' and that sort of
thing.
Mr. Ebeling. Absolutely.
Chairman Paul. Okay, very good.
Now, I want to go to Mr. Luetkemeyer, if he has another
question.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
To follow up on that, how do you protect the citizen to
make sure that they don't get slipped up on with going to
alternative or parallel currencies? How do they have, how can
they enable--we have a whole group of folks here this morning.
How can each one of them know that if they want to transact
business and each one of them a different currency, it is going
to be something that they will be able to trade down the road?
Mr. Lewis. This relates to your previous comment about
confidence. In practice, it will be a process of some
institution establishing a track record. And also the
institution being sort of visibly considered to be a long-
term--
Mr. Luetkemeyer. So in other words, whether it is a country
or city or a state, whatever entity produces the currency there
will have to be a certain level of confidence in that entity to
be able to--
Mr. Lewis. Right.
Mr. Luetkemeyer. There would--
Mr. Lewis. And it will have to be earned. You can't decree
it. You can't have an advertising campaign. We are kind of
talking about these very small kind of neighborhood currencies.
And on a larger scale, that might be where we would begin.
On a larger scale, it could be Citibank, it could be the
State of Utah. I know some of my colleagues here would be
appalled at the idea of the U.S. Federal Government issuing a
parallel gold currency. But I think it is an interesting idea.
Or it might be the state of Russia. In practice, the one
that has the most confidence will be the one that people use.
The reason that people used the U.S. dollar after World War II
is because it had a long history, over 100 years, of sticking
to the gold standard. It had a stable political system, it was
militarily impervious.
And that is why they used that instead of the currency of
China or what have you. It will be, ultimately, a process of
track record, and probably very large organizations will
dominate.
Mr. Luetkemeyer. Okay, Mr. Lewis, we have before us this
morning your book. I was trying to read the cover and the back
of it here, as well as the inside slips. Can you just briefly
tell me how you would like to see us--or could be enabled to be
able to move over to the gold standard? What are your thoughts
on it?
Mr. Lewis. Ideally, you would all have an epiphany and
understand that this is the best system for all of us. However,
in practice, one of the reasons we are here today, I think, is
that typically, people have these epiphanies after a tremendous
catastrophe. It happened many, many times in the past.
Usually, things go all the way. You don't stop halfway and
say, ``Oh, I think I know where this is going. Let us stop now
and switch to a gold standard system.'' Usually, you end up in
disaster. Whether it be China in 1949; the hyperinflation,
Japan in 1949; hyperinflation, United States in 1784;
hyperinflation, Germany 1923.
Hyperinflation, you tend to end up with some kind of
catastrophe beforehand. One of the nice things about the
parallel currency idea is maybe you can avoid that process,
that political cycle. You could establish something, even by
the Federal Government or by very many means, and you could
have the two options available.
So when people simply decide to do business in one currency
or another--say I am going to write the contract in U.S. gold
dollars, not U.S. Bernanke bucks, they will start to buy and
sell and do business in that way. And then over a period of a
few years, perhaps, people will just naturally decide which
system they like better, the Bernanke system or the gold
system, and they can migrate and, eventually, have a very
smooth, non-disruptive transition between one and the other,
ideally.
Mr. Luetkemeyer. But even in your system of moving over to
the gold standard, there still has to be a level of confidence
and that as the backup, as the standard, would it not?
Mr. Lewis. You would have to have--ultimately every
currency has an issuer. And ideally, that issuer will have a
track record of managing the currency correctly. And will
likely probably be, in my opinion, a large institution, maybe a
national government, maybe a State government, maybe a--maybe a
large bank, maybe some other large institution that emerges.
We are simply not going to have the entire United States do
business in a currency that is issued by something in--a little
storefront in Miami or something of that sort when we get to
that scale. So the institution will earn the confidence.
Mr. Luetkemeyer. All right, thank you.
Thank you, Mr. Chairman.
Chairman Paul. I thank the gentleman.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their responses in the record.
This hearing is now adjourned. I appreciate your appearance
today. Thank you very much.
[Whereupon, at 11:08 a.m., the hearing was adjourned.]

A P P E N D I X

August 2, 2012

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