J.

Bradley Jansen
“The Transition to Sound Money”
Austrian Scholars Conference
Mises Institute March 14, 2008
Global Possibilities
 Free Banking for developing
countries
• Scottish example similar to conditions
in many developing countries today:
need competition
 Gold-denominated bonds by gold
producing countries
 End IMF discrimination against gold
Free Banking: The Scottish Experience
as a Model for Emerging Economies

 Randy Kroszner
 World Bank Policy research working paper
No. 1536 (1995)
 In the beginning of the eighteenth century
Scotland was much poorer than England. By the
mid-eighteenth century the GNP per capita in
Scotland was roughly half of that in England. By
the mid-nineteenth century, however, Scotland's
GDP per capita nearly equaled that of England.
Scotland as a Model for LDCs
 The relative poverty
of many emerging
countries is similar to
1700s Scotland
 GDP per capita
disparity wider now
 Proximity and
dependence on larger
financial center in
London
Emerging Law and Economics
 Scotland 1700s  Developing world
 Infancy of contract now
law  Lack of market
 Uncertainty with solutions
new financial  Lack of private
products sector competition
 Development of  Barriers to new
new market entrants in market
solutions with
competition
Brash New Zealand Reforms
 Don Brash, Governor,
Reserve Bank
 “the only thing
monetary policy can
deliver in the long
term is an inflation
rate, and the best
inflation rate is price
stability”
Reserve Bank of New
Zealand Act of 1989
 Bank accountable for delivering price stability--
fire governor for “inadequate performance”
 Need for fundamental change after dramatic
foreign exchange crisis in 1984
 Mandatory transparency of the objective and the
modus operandi of the Bank
 Reduced staff from about 600 in the late '80s to
about 285 in ten years
 Considered remuneration inverse to inflation
 Negotiated seigniorage 5-yr budget income
 NZ Finance Minister Ruth
Richardson to Don Brash
Ruth: "Look there's no way I can agree to a 1 percent
annual increase in resources for the Bank; I'm asking
government departments to live with no increase at all."

Don: "Yes, but in the case of government departments

you're doing that one year at a time. This is a five-year
deal. To fix this in nominal terms for five years is a heck of
a lot to ask and you know a lot of things can happen in five
years. That's pretty aggressive."

Ruth: "Sorry, I'm not willing to agree to any higher

number. You believe in price stability, prove it."
 Reserve Bank Could Spend Only
$56.7 million for Each of Five Years.

“It's a source of embarrassment rather than pride that by

the fifth and final year of that first funding agreement, by
'95, we were underspending that limit by about 38 percent.
The limit for this year, 1998-99, is $40 million, which as you
can see is substantially lower than the limit agreed upon
back in 1990. We will underspend that limit. I'm not sure yet
by how much, but it will be $4 million or $5 million under
$40 million. So the inflation rate has no direct bearing on the
budget of the Bank, except that the budget of the Bank is
set on the presumption that prices are stable, so that if
prices are not stable, we are put under some pressure.”
Dispose of Global Tools for
“Discretionary” Monetary Policy
 Abolish the ESF  Gold from IMF
 Withdrawal from
 Exchange International Monetary
Stabilization Fund Fund (Article 26)
was created with  The US would be entitled
1934 gold to buy up to 23.6 million
confiscation ounces of gold from the
IMF at SDR 35, or
 Funded from gold approximately $40, per
revaluation paper ounce, if approved by
profit IMF (as of August 1975)
US Gold Commission
CAN THE U.S. RETURN TO A
GOLD STANDARD?
Wall Street Journal
September 1, 1981

“…after a decade of
destabilizing inflation and
economic stagnation…”
Greenspan’s Gold Bond Proposal
 Problem fixing gold price with market forces
 Make the dollar as good as gold, i.e., stabilize
the general price level
 Convertibility can be instituted gradually by, in
effect, creating a dual currency with a limited
issue of dollars convertible into gold. Initially
they could be deferred claims to gold, for
example, five-year Treasury Notes with interest
and principal payable in grams or ounces of gold
 Each $10 billion in equivalent gold notes
outstanding would, under stable gold prices,
save $1.5 billion per year in interest outlays
US Gold Commission Report

“Several witnesses at the hearings we conducted suggested that
Treasury issue of gold-backed notes or bonds would be a means
of introducing gold into our monetary system. A limited issue,
for example, of five-year Treasury notes with interest and
principal payable in grams or ounces of gold, would provide
deferred claims on gold. Initially, according to the advocates,
the yield spreads between gold and inconvertible dollar
obligations of the same maturities might be wide. Success in
restoring long-term confidence in monetary discipline would
eventually narrow the yield spreads. At that time, full gold
convertibility of all dollar obligations might be contemplated.
These witnesses emphasized the savings on interest payments by
the Treasury, assuming the price of gold remained stable or rose
only moderately, and hence a positive effect on Federal budget
deficits…
Recommendation: oppose issue of
Treasury gold-backed notes/bonds

“In our deliberations, it was noted by opponents of gold-backed
Treasury securities that a gold-backed Treasury note or bond, if
convertible at maturity at the market price of gold at the date of
issue, would in effect be a warehouse certificate for gold. Such an
instrument would provide the owner the same chance of gain or loss as
owning gold, without his incurring the cost of storage and insurance.
No obvious guideline exists for pricing the instrument. A Treasury issue
of gold-backed notes or bonds, paying even a low rate of interest,
would permit speculation on gold with a sweetener of a coupon. Such
issues would be comparable to a bond convertible into the common
stock of a corporation that has a low coupon because of the possibility
of speculative gain. Purchase of Treasury gold-backed issues would
indicate an expectation that the price of gold would rise. The Treasury
would then be betting against the market, with no assurance of gain
and a major risk of Treasury losses. From a debt management
viewpoint, no need exists for gold-backed Treasury issues.”
Trim Fed Functions
 Examination of federal banking regulations concerning
effects on price signaling of money and credit allocation
such as the Community Reinvestment Act
 More transparency especially for the FOMC dealings
 End Federal Reserve’s contradictory dual mission of price
stability and full employment (focus on prices)
 End discrimination in Fed-sponsored research
 List all functions and activities of the Fed, examine each
and determine whether that function, in the current
environment, is best placed to remain with the Fed, the
Congress, the states, U.S. Treasury or the private sector
End Discrimination Against Fiat
Dollar Alternatives

 End Lincoln’s tax on competing currency notes

 End IRS discrimination of businesses using gold
or other precious metals for money
http://www.wethepeoplefoundation.org/UPDATE
/Update2007-09-30.htm
 End federal persecution of non-governmental
monetary alternatives such as The Liberty Dollar
 Sunset the Federal
Reserve Act Every 5 years

Then Federal Reserve Board

Chairman Alan Greenspan has
personally argued this position to
both the U.S. Senate and House
banking committees.
Survey of Congressional Proposals

 Pricing of Fed services

 Interest on reserve requirements/reg burden
 GAO audit of Fed/gold holdings
 Protect privacy/increase transparency
 Set inflation law/long-term price stability
 Shorten Fed board terms/add Treasury Sec.
 Congressional appropriation to fund Fed
 Regulate margin requirements
 Abolish Fed/impeach Chairman Volker
Gold Clauses in Contracts
“Landlord shall have the right to
require rent payments to be made
in cash, money order, by cashier's
or certified check or in gold coin
of the United States of or
equal to the standard of
weight and fineness existing
on the date of this contract.”
Bjansen@financialprivacy.org
www.financialprivacy.org