Real Money ?

Real Money ?

Real Money ?

The Silver Surfer

Updated article on 28 February 2011 (25 Rabiulawwal, 1432H)


The current global uncertainly, coupled with the turmoil in the Middle East has resulted in the price of oil going up , and consequently the price of precious metals such as gold and silver – a global safe haven for those who wants to protect their wealth.

The current wake-up call has been long overdue as the continuous economic oppression widens its tentacles. The age old fraudulent monetary system – the ‘fiat’ money (or paper money) has been designed to enslave the masses is now shaking at its very core as the effects are becoming more apparent. This is inevitable as the ‘promise to pay’ paper money that is not backed up by any intrinsic value – hence is a mortgage on REAL wealth.

Learning from the History of Money

(i) Gold and Silver

Gold and silver were an integral part of business and trade as far back as the early civilizations of Sumer (the land between the rivers Euphrates and Tigris in what is now Iraq) and Egypt. The French historian Fernand Braudel saw these precious metals as the “lifeblood of Mediterranean trade in the 2nd millennium BC”. Initially, however, they were traded simply by weight in the form of ingots or passed as bullions – and not as coins. Consequently, the value of the metal was measured with a pair of scales on each occasion.

The first real coins were not struck until the 6th century BC in Lydia (Western Turkey).

They were made from electrum, natural alloy of gold and silver found in the rivers of the region. Their introduction is attributed to the Lydian king Croesus (561-547 BC). Improvements in refining soon led to the distinct minting of gold and silver coins.

More of relevant history of gold and silver coins and its relevance to present day system of weights and measures is attached as an ongoing research by 24 Qirats Sdn Bhd, especially with reference to proving a sound basis for the Nabawi standard of present day gold dinar and silver dirham.

Gold and silver has been proven in history as a stable means of exchange accepted across countries for global trade. The markets in Makkah and Medina are also proofs of this exchange, which was the practice of the Prophet and all of Islamic society during it first four hundred years, and most of civilized society throughout history.

(ii) The Gold Standard abolished – Many losses , the few gains

Virtually all gold mined during the 19th Century was turned into coins. Sovereigns in Britain and Australia, Eagles in the United States, Marks in Germany, Roubles in Russia, Crowns in Austria, Florins in Hungary and Napoleons in France accounted for over 13,000 tonnes (418 million troy oz) in the classic period of the gold standard prior to World War I. But when the world went to war in 1914, governments started to husband their gold, the minting of gold coinage largely stopped and coins were often called in.

In April 1933, the US Government enacted legislation at that time prohibiting American residents from keeping gold coins, bullion or gold certificates in their possession. Gold coins were demonetized, and were no longer permitted as legal tender. They could not be used as money. If anyone was caught with such gold after a certain date, he could be fined $10,000 and/or be imprisoned for six months. In exchange for the gold coins and bullion, the Federal Reserve Bank, which is a private bank, offered paper currency (i.e., US dollars) with an assigned numerical value of $20 for every one ounce of gold. Most Americans rushed to exchange their gold for paper currency, but those who were aware of the rip off that was about to take place bought gold with their paper currency and then shipped the gold away to Swiss banks.

It is significant that the British government also demonetized gold coins in the same year as the US. They did so through the simple expedient of suspending the redeemability of the sterling paper pound into gold. After all the gold in USA had been exchanged for paper currency, the US Government then proceeded in January 1934 to arbitrarily devalue the US paper dollar by 41% and to then rescind the law of prohibition concerning gold that was previously enacted. The American people rushed back to exchange their paper currency for gold at the new exchange value of $35 per ounce of gold. In the process, they were ROBBED of 41% of their wealth resulting in the legalized theft that takes place when paper currency is devalued. After that, the era of almost universal gold coinage was over.

The Federal Reserve Bank (not a Central Bank but privately owned) appeared in the above incident to have initiated a ‘trial run’ to test domestically the new monetary system through which a massive and unjust transfer of wealth throughout the unsuspecting world could be achieved. That transfer would take place through the simple device of creating money out of worthless paper and then forcing paper currency for all. Those who control the monetary system would then target certain currencies and force them to be continuously devalued. As such paper currencies lost value the unsuspecting masses would suffer massive loss of wealth, however, their ‘loss’ would result in ‘gain’ for others.

Less than two years earlier, in September 1931, the British pound was devalued by 30% and this gradually increased to 40% by 1934. France then followed with a devaluation of the French Franc by 30%, the Italian Lira was devalued by 41%, and the Swiss Franc by 30%. The same thing subsequently happened in most European countries. Only Greece went beyond the rest of Europe to devalue its currency by a whopping 59%. Currency devaluations  were used to increase the competitiveness of a country’s export products in order to reduce balance of payments deficits — resulted in plummeting national incomes, shrinking demand, mass  unemployment, and an overall decline in world trade that came to be known as the Great Depression. However, it prepared the way for the imposition of an international monetary system that believed to bring order and prevent chaos in the world of money and trade.

The collaboration amongst European countries in devaluation of their currencies went on to establish a ‘paper currency’ international monetary system at Bretton Woods. They used the link between the US dollar and gold in the Bretton Woods Agreement to hide the fact that paper could now be printed and used as money without any requirement that it be redeemable in the market in real money, i.e., money with intrinsic value. The Bretton Woods Agreement paved the way for the International Monetary Fund to be established in 1944 with the explicit function of maintaining an international monetary system of precisely such nonredeemable paper currencies.

(iii) More Recent Past

  • In 1932, Argentina had the eighth largest economy in the world before its currency collapsed. In 1992, Finland, Italy, and Norway had currency shocks that spread through Europe.
  • In 1994, Mexico had the peso tumbling and spread economic hardships throughout Latin America.
  • In 1997, the Thai baht fell through the floor and the effects spread to Malaysia, the Philippines, Hong Kong, and South Korea. Indonesia reduced the rupiah’s value by over 80% in a few months and was a major factor in the overthrow of President Suharto’s government. The rupiah had traded at about 2000-3000 rupiah per 1 USD, but reached a low of 16,800 rupiah per dollar in June 1998. The currency, which had been relatively stable in prior years, had its value destroyed.
  • The Russian ruble was in 1998, after its devaluation brought on economic recession.

(iv) Devaluation of Currency

Devaluation is most often used in situations where a currency has a defined value relative to the baseline. Historically, early currencies were typically coins struck from gold or silver by an issuing authority which certified the weight and purity of the precious metal. A government in need of money and short on precious metal might abruptly lower the weight or purity of the coins without announcing this, or else decree that the new coins had equal value to the old, thus devaluing the currency. This gave rise to CopernicusGresham’s Law, which stated that “bad money drives out good”, i.e., if pure gold coins and false coins are decreed to have equal value, people will use the false coins for currency and hide the good coins or melt them down into gold.

Later, paper currencies were issued, and governments decreed them to be redeemable for gold or silver (a gold standard). Again, a government short on gold or silver might devalue by abruptly decreeing a reduction in the currency’s redemption value, reducing the value of everyone’s holdings.

Learning to Learn …. Again

In the psychology of learning, in order to truly learn, we need to let go of our comfort zone, information and habits…. Relearning and reassessing the current and future scenario is the order of the day. Much have been said about the money and its value in the past, and ‘value-lessness’ of present and future. What is REAL money? Have we learned from lessons of the past? Perhaps , a leaf from an old comedy play by Ancient Greek playwright AristophanesThe Frogs

The course our city runs is the same towards men and money

She has true and worthy sons

She has fine new gold and ancient silver,

Coins untouched with alloys, gold or silver,

Each well minted, tested each and ringing clear.

Yet we never use them!

Others pass from hand to hand,

Sorry brass just struck last week and branded with a wretched brand.

So with men we know for upright, blameless lives and noble names.

These we spurn for men of brass……

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