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Intrinsic Value Currency

modern self-backing coins.
 
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Make coins out of pure (or as close to pure as is reasonable given the use) metals, a different metal for each denomination. Each release is made such that the value of the metal in the coin is equal to the denomination at the time of release. Not just for small change, but for large amounts as well.

Since the idea is for large-denominations as well (say up to $100), anti-counterfeiting measures such as etching and holography are used. To keep the coins both user and vending-machine friendly, each denomination's diameter is fixed, as is the rim thickness: only the center portion gets thinner (or theoretically thicker) over time.

Thanks to inflation, each coin issue will generally be lighter than the previous... this almost totally ensures that older coins will be taken out of circulation by individuals, saving the Mint the cost of retrieving them when they wear out.

If each denomination has its own metal, then having a hostile economic power devalue one of the metals, or a natural spike or crevasse in the price due to other reasons, would only affect a small amount of the country's money.

FlyingToaster, Apr 04 2012

Archimedes' principle http://en.wikipedia...imedes%27_principle
A fairly recent development, so you may have missed it ... [8th of 7, Apr 04 2012]

[link]






       Well done for articulating a concept that has never, ever been thought of before in the entire recorded history of your planet.   

       You do realise that even the suggestion of using fixed masses of a purified scarce physical material as a compact and portable medium of commercial exchange is so radical that it could destroy your entire world economy ?
8th of 7, Apr 04 2012
  

       The difference is that modern technology could probably produce a decent authentication method, and these days most cash is stored in electronic form anyways: the idea would just be for the walking around money.
FlyingToaster, Apr 04 2012
  

       Coins would still be minted only by the government. Coinage would have a circulation time period: say after 10 years and any bank that receives the coins has to turn them in.   

       Shops and vending machine companies and maybe some banks would almost certainly save up the coins that are worth more, betting that some day when they're worth quite a bit more it would be worth it to melt them down and sell the metal... so what ?
FlyingToaster, Apr 04 2012
  

       // a decent authentication method //   

       <link>
8th of 7, Apr 04 2012
  

       Duodecimal of course, but that goes without sayin'.   

       [edit: I'm kidding: even though base12 is pretty cool, the idea is for an intrinsic-value coin system]
FlyingToaster, Apr 04 2012
  

       Hang on. So, the weight of each type of coin is constantly adjusted to allow for the increasing metal value in the face of inflation. But then the point of the instrinsic-value coins is to... no, wait, I have to think about this.   

       It's wrong in a way yet to be identified.
MaxwellBuchanan, Apr 04 2012
  

       //It's wrong in a way yet to be identified// [marked-for-tagline]   

       An anally-thrifty person could probably make a few potential cents a day; a business a few potential dollars, but they have to smelt down and resell the metal in order to cash in. And if they do... so what ?
FlyingToaster, Apr 04 2012
  

       Because if significant amounts of money go out of circulation, you get a huge deflationary effect. And money would go out of circulation every time the value of the metal shifted upwards (this is why it's extremely rare to find dimes and quarters pre-dating 1965, since they had silver content).   

       As to why a significant deflation is bad, well, that's pretty much accepted in economic texts, mostly because it removes any incentive to spend money (why buy something when it will cost less tomorrow). It also removes most incentive to manufacture things (since your profit margin is reduced by the deflation between purchase of raw goods and sale of the finished item). This has a tiny little tendency to cause economies to rapidly grind to a halt.
MechE, Apr 05 2012
  

       //money goes out of circulation//   

       and ?   

       The intrinsic value of the cash in the penny-jar would, more or less, increase at the same rate as cost-of-living. Say 3-4% a year, if inflation stays the same (which it wouldn't of course, that's the point).   

       Which is more than the bank gives you on a "savings account", if you were willing to smelt, or sell to somebody who is, the metal down.   

       And the downside is what, exactly ?   

       //Why buy something when it will cost less tomorrow ?//
You mean like an iPad? or like a ham sandwich.
FlyingToaster, Apr 05 2012
  

       I am not an economist, but trust me when I say they mostly agree (and anything economists agree on has to be scary) that deflation is bad. And yes, plenty of people do put off buying an iPad until the price is cut, but it's hard to know when or how much that's going to happen. In a deflationary period you do know it will be cheaper tomorrow. And more to the point banks don't like giving loans (for cars, houses, capital equipment purchases) when the collateral will be worth less after it is purchased.   

       And metals with a practical use don't just fluctuate according to inflation. If bob's rail company announces tomorrow that they're going to build a million miles of track, iron (steel) will jump in price. If they go bankrupt 3 months in, it will drop back down. If the government issues iron coins just before the announcement, they will go off the market right away. If they issue them right before the bankruptcy, no one will accept them after because they aren't worth face value.
MechE, Apr 05 2012
  

       hmmm, Gold does not seem to fluctuate as randomly, and it can't, (yet, I hope) be synthesized.
I haven't ever understood why currency value must inflate as a rule in the first place...
  

       I swear, the price of living has almost doubled in the past ten years or so, but my price per square foot rate hasn't budged one iota with the shops in that same time.   

       What the #*@%'s up with that?   

       [mechE] in your //bob's rail... million miles of track... price of iron goes up// so iron 10credit coins disappear, some members of the population and a few speculators smelt their piggy-banks and get a tiny bit richer and life goes on.   

       Since only 10c coins are affected, it's not that big a deal. The next issue, the coins are issued at a lighter weight if iron is still expensive: if it's so expensive that a proper-sized coin can't be made, and it looks like that trend will continue forever, then a new metal is used.   

       In the opposite scenario where the gov't issued coins while the price of iron was very high then it drops, the coins put into various piggy banks are now worth less intrinsically but are still legal tender. Iron coins continue to be circulated and 10 years down the line they start getting forced out of circulation.   

       So, until they get removed, 10c pieces of that specific vintage aren't worth as much intrinsically, and nobody puts them in the jar. The government is now out the difference in pricing, between the inflated price and the more normal price, of one issue's worth of iron coins... ten years later, which they make back in taxes. Again, if the price is so low that coins can't be produced at a reasonable size (ie: too big) then the metal is changed.   

       Remember that there's going to be plenty of denominations 1c 5c 10c 25c 50c $1 $2 $5 $10 $20 $50 $100, that's 12 different metals, and while it might look that the $100 coin could be a problem with price fluctuations, there won't be that many in circulation at any given time.
FlyingToaster, Apr 05 2012
  

       Something which has always mystified me about non-fiat currency, if that's what it's called: how does the mint get paid without causing inflation? That also applies to this, but then money has never been my strong point.
nineteenthly, Apr 05 2012
  

       //how does the mint get paid without causing inflation? //

The Mint is a productive enterprise and its activities are part of GDP. Non-productive activity is (largely) what causes inflation. This was the principal reason that the gold standard was abandoned; to permit deficit spending and thus inflation.
angel, Apr 05 2012
  

       // deficit spending// is what a government does when it knows it doesn't have any credibility. So instead of raising taxes to support <x>, it waters down the currency, thus immediately screwing over anybody with money in their pocket or the bank, and everybody who gets paid for a living, until they can catch up by inflating their prices.
FlyingToaster, Apr 05 2012
  

       I proposed a solution to establish fixed worth by common consent a few months ago, but everybody jeered at me.   

       Not that there's anything wrong with that. I would have been disappointed if you hadn't.
Alterother, Apr 05 2012
  

       //the coins put into various piggy banks are now worth less intrinsically but are still legal tender//   

       If you are due $20, would you rather accept coins worth $21 or $19? The only way to guarantee the coins are accepted at face value is by fiat.   

       The problem then becomes: If you have the choice of paying $20 nominal in coins worth $21 or $19, which are you going to spend? Anyone who is required to accept coins by fiat at face value will end up with a huge selection of the lowest value coins. Since they will also only give those coins in change (why give away more value than they have to), you end up with a whole lot of low value coins in circulation, and very little else.   

       This, then, in no way varies from the current fiat currency, except it loses most of the general acceptance that the current form has.
MechE, Apr 05 2012
  

       //The only way to guarantee the coins are accepted at face value is by fiat.// The post isn't about private minting; it's about producing real, as opposed to fiat (using the definition "money which is currency only because the government says it is") currency. The coinage isn't marked in grams avoirdupois, it's marked in <currency denomination>s.   

       And it does differ from current fiat (in the definition "money of no intrinsic value") system in that if you save your money in a sock or piggy-bank, when you go to spend it it can be worth the same as when you put it in. And if some of it isn't then it's at least worth face value.   

       Of course realistically it's the same as investing your savings in a variety of metals, minus a transaction cost, and plus a smelting cost. Or it could be simply having a piggy bank.   

       But if you have quite a bit of money to invest, then by all means invest in higher-earning financial vehicles.   

       That's the point.
FlyingToaster, Apr 05 2012
  
      
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