A Dual-Currency Community


Column by Paul Bonneau.

Exclusive to STR

When a fiat currency goes into heavy inflation, the tendency of users of that currency is to convert it into something else that has a more stable value, so their holdings don’t evaporate into thin air. People will either buy gold or silver, or convert to another more stable fiat currency, or if those options aren’t available, will simply buy food or other things they can use in barter.
I was doing a bit of idle speculation about how an anarchist community would deal with this problem, and hit on an idea that might work pretty well and could cushion the community against the economic shocks that are on the horizon. The idea is to use a statist tool, legal tender, to our own advantage.
Imagine in forming the community, that to join, one would have to sign on to a list of contractual agreements (I imagine any anarchist community would have something like this). One item in the list is an agreement that one will always agree to take bitcoins in payment (using at worst the current exchange rate) for any good or service. Thus, the community would have the government-mandated legal tender of the dollar, and the legal tender of bitcoin explicitly agreed to by all members of the community. Either could be used.
What would happen? First, everyone would have to implement a bitcoin infrastructure since they have agreed to take it in payment. They’d get wallets installed in their computers, figure out what exchanges to use, and in general develop the expertise for using it.
At first, however, few bitcoin transactions would take place. The dollar is simply more convenient. When inflation starts to get heavy, though, that convenience will start to disappear as the need to convert dollars into something else becomes important.
At some point people, instead of taking payment in dollars and converting a few into bitcoins now and then, will start demanding payment in bitcoins, and maybe converting a few into dollars when necessary.
“Now wait a minute,” you might say, “isn’t it required that people accept dollars as payment?” Not according to the U.S. Treasury:  This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. One can offer payment of dollars for any debt, but one is not required to receive them.
Notice above I specified “using at worst the current exchange rate”? To demonstrate by example, imagine the current exchange rate is one bitcoin equals 5 dollars. The vendor is selling some object for one bitcoin. He can charge no less than 5 dollars for the object. The point is that as inflation sets in, even the current exchange rate does not compensate for the inconvenience of having to get out of the dollar quickly before its value evaporates. A vendor may want to charge 7 dollars for that one-bitcoin object rather than 5, to compensate for that inconvenience. As inflation kicks into high gear, the premium may rise very high, and some will simply stop taking dollars at all.
Does Gresham's Law cause problems? It states, "Bad money drives out good if their exchange rate is set by law." I don’t think it causes problems; the exchange rate is set by the market. Before inflation, there will be a balance, neither one driving out the other. After inflation, particularly as local vendors add a premium to purchases using dollars, there will actually be a tendency to drive out the bad currency, the dollar. People will spend any dollars they receive within the community for purchases outside the community, where no premium is charged for payment in dollars. But then for hyperinflation, the premium really is charged even if it’s not explicit--vendors everywhere start anticipating inflation and compensating for it.
Keep in mind that bitcoins will likely start deflating at the same time dollars are inflating, since people will be looking a lot harder for alternatives. The demand for bitcoins will go up.
OK, then the question must arise, “Why bother?”
The point is that when inflation starts happening, people start looking around for alternatives, but often it is too late. It takes time to bring an alternative infrastructure online. When the dollar bites the dirt, there likely won’t be any more stable fiat currencies that are widely traded in your community. Even for plain old gold and silver, it will take some time to get used to payment with them. The point is to avoid most of the shocks that people will be experiencing elsewhere--to avoid having empty bellies, to put it bluntly.
Of course, the community agreement might also specify that some percentage of wealth must be in silver and gold (how to enforce that is a question...). Also, there are other possibilities besides bitcoin; you just want a currency not controlled by government or the banks.
So, what to do if we aren’t joining such a community? It’s tougher, because even if you want to get into bitcoins to avoid these shocks, the vendors you interact with are mostly not using them. I don’t know the answer to this question. I just thought I’d kick this idea around, that’s all. If any such communities are currently being formed, this might be a good requirement to consider having for them.

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Paul Bonneau's picture
Columns on STR: 73


Jim Davies's picture

Paul, your revelation that the US Treasury says nobody is compelled to accept government money in settlement of debts is surprising, to say the least. My understanding is that "legal tender" does indeed compel acceptance, not merely permit it.

A quick look shows that Wikipedia's definition of the term seems to support your view. On the other hand some others contradict it:

"A country's currency that must be accepted as payment for a debt."

"Legally valid currency that may be offered in payment of a debt and that a creditor must accept."

"Notice the underhanded change in the meaning as a result of the legal tender laws of 1909. A public convenience was replaced by public coercion. Two governments with the greatest war-making power in the world introduced coercion forcing their subjects to accept and use debt as money. This was a 'first' in history. In particular, the governments were forcing the military, as well as civil servants, to take paper promises as ultimate payment for services rendered."

The last named points to a legal change made in 1909. More surfing required.

A possible resolution may be that Treasury is answering a question about whether creditors are compelled to accept specific units of government money; for example is a vendor of small items compelled to accept a $100 bill, or is one of high-price items forced to accept payment in pennies. (A scene in the movie "The People vs Larry Flint" comes to mind; Flint paid a court-ordered penalty with a sack of $1 bills :-)) That would not imply that a creditor is presently free, as he should be, to specify that he will not accept government fiat money in any form at all.

Suverans2's picture

"Paul, your revelation that the US Treasury says nobody is compelled to accept government money in settlement of debts is surprising, to say the least." ~ Jim Davies

First, evidence seems to indicate that Federal Reserve Notes are not "government money", but rather a "private corporation's money".

    A private corporation

    The first thing that must be understood is that the Federal Reserve Corporation is not a government agency, as most people think. It is a private corporation controlled by the Bankers, and therefore it is operated for the financial gain of the Bankers over the people, rather than for the good of the people. Excerpted from The corrupt Federal Reserve Corporation by Melvin Sickler

Second, from the horse's ass, er-r-r-r mouth...

Jim Davies's picture

This matter is settled by reference to the Oxford English Dictionary, the most authoritative source of the meaning of words and phrases in the English language. Mine is the 1934 Concise Edition, whose virtues even include a correct definition of inflation ("abnormal increase of the currency, eg by the issue of inconvertible legal-tender notes") in the nick of time before Keynes wrote his pernicious _General Theory_ and fully eight years after he put out his highly premature _The End of Laissez Faire_ - see http://rebirthofreason.com/Articles/Machan/Keynes_and_his_Ideology_of_Pl...

Of "Legal Tender" the COED says (under "tender"): "currency that cannot be refused in payment of debt."

So what the lie-fabricator at his desk in Mendacity Central (Treasury Division) did was to craft a particularly cunning one: it may be quite true that there's no statute to require acceptance of tendered pennies or $100 bills, or even, in so many words, "dollars" (ie, Federal Reserve Notes) in general; all it needs is the statute that declares those things to be "legal tender." The law compelling their acceptance (in some form) is then achieved by reference to outside sources which define the meaning of the term "legal tender." That statute is 31 USC 5103.

Wikipedia, unfortunately, then picked up his lie and repeated it, and Paul reasonably relied on that normally reliable source. Anyone who knows how to correct Wikipedia entries now has a chance to get to work.

Suverans2's picture

"Of 'Legal Tender' the COED [Concise Oxford English Dictionary (c.1934)] says (under "tender"): 'currency that cannot be refused in payment of debt.'"

That is correct. However, so is this, "There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.".

This definition from A Law Dictionary, [Black's] Second Edition (c.1910), page 1143 will make the necessary distinction clearer.

    —Legal tender. That kind of coin, money, or circulating medium which the law compels a creditor to accept in payment of his debt, when tendered by the debtor in the right amount.—

That statute [31 USC 5103] "compels [only] a creditor", it does not compel a "private business, a person or an organization...[to accept them] for payment for goods and/or services".

So, Paul Bonneau, I believe you are free to create A Dual-Currency Community, if you want to...unless, of course, you are a voluntary member of a subsidiary STATE, that has a law which says otherwise.

Suverans2's picture

Some quotes you might want to remember.

"The modern theory of the perpetuation of debt has drenched the earth with blood, and crushes its inhabitants under burdens ever accumulating. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks. . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. . . the issuing power should be taken from the banks, and restored to the people, to whom it properly belongs." ~ Thomas Jefferson, 3rd President of the United States

"History records that the money-changers have used every form of abuse, intrigue, deceit, and violent plans possible to maintain their control over governments by controlling money, and its issuance." ~ James Madison, 4th President of the United States

"I see in the near future a crisis approaching that unnerves me, and causes me to tremble for the safety of our country. Corporations have been enthroned, an era of corruption will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people, until the wealth is aggregated in a few hands, and the republic is destroyed. The Government should create, issue, and circulate all the currency, and credits needed to satisfy the spending power of the Government, and the buying power of consumers. By the adoption of these principals, the taxpayers will be saving immense sums of interest. Money will cease to be master, and become the servant of humanity." ~ Abraham Lincoln, 16th president of the United States November 21, 1864 (letter to Col. William F. Elkins); about five months later on April 14th 1865, he was assassinated.

"If Congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations." ~ Andrew Jackson, 7th president of the United States

"Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate." ~ James Garfield, 20th president of the United States

"The modern banking system manufactures money out of nothing. The process is perhaps the most astonishing piece of slight of hand ever invented. Banking was conceived in iniquity, and born in sin. Bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them, and all great fortunes like mine will disappear. And, they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be the slaves of the bankers, and pay the cost of your own slavery, then let bankers continue to create money, and control credit." ~ Sir John Stamp (former governor of the Bank of England)

United States Congressional Record, March 17, 1993 Vol. 33, page H-1303 Speaker-Rep. James Traficant, Jr. (Ohio) addressing the House:

    "Mr. Speaker, we are here now in chapter 11. Members of Congress are official trustees presiding over the greatest reorganization of any bankrupt entity in world history, the U.S. government."
AtlasAikido's picture

Hmm...The “central bank” is not a real bank. Everything about it is permeated with government power. At the heart of the financial and monetary system of a nation that is supposed to be an exemplar of free markets is a *government money-bureau*.


Some context: "We Must Have Parallel Currencies"...

Makes sense, but not the collectivist "We" part; AND BITCOIN as Paul Bonneau points out ALREADY solves the above points (and more) by providing a Direct Alternative trading platform---*WITHOUT the need to get caught up convincing and/or waiting for We-ists to get The Following Message*.

*A Message to the Voting Cattle*
Posted by Travis Holte on August 1, 2012 07:57 AM

Paul's picture

"We-ists", I like that!

I have to admit I was surprised when I read about that interpretation of legal tender. It's not just Wikipedia either. However now that I think about it, it may be just like so many other things in government. The "law" or "constitution" may say one thing, but the reality may be something else entirely. It's a house of mirrors...

The alternative platform already exists in several forms (despite some attacks like the 1MDC and e-gold fiasco). The problem is getting people to use it. But I'm guessing what will happen is that most people will go blithely along until the dollar crashes, and THEN start looking for alternatives. Oh, well...