Money scam: creation of money

The global money swindle
by Eberhard Hamer, professor at the Hanover Institute of the Middle Classes

The current manipulation of the currency and exchange systems is the most important scandal with the most marked consequences of our time. For the first time, money scams are reaching global dimensions because they take place all over the world, they can no longer be controlled, stopped or prevented by any government, and they even take place in a legally legal way, in accordance with laws. obsolete national However, it is certain that money scam, like any other scam, can not enrich the criminals in the long term by the impoverishment of their victims, since one can not abuse any liberal monetary system in the long term.

According to financial theory, money is a legal means of exchange, which retains its value. That is why it was once a monopoly of the state (right to coin money). The coins of gold, silver and copper circulating as money were beaten by the state. It also guaranteed the purity of the metal and the weight of the coins, so that it was known at all times, in the country and abroad, what was the value of each coin. Thus, coins were simultaneously means of exchange and lasting value.

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• But to coin money, the state must have gold and silver. It was therefore important that he had silver mines for example (Rammelsberg near Goslar), which allowed him to beat additional currencies in money. Conversely, citizens knew that the state could only coin money to the extent that it had the corresponding precious metals. The supply of precious metals was therefore the basis of the precious metal currency in circulation (gold coin in circulation).

From real money to fiduciary money

However, princes have always tried to obtain more money than they had precious metal by reducing the share of precious metals in the alloying of coins. As a result, the merchants and burghers yielded the bad money, but kept the good money until, all being aware, it was necessary to recast the bad money. Gold coins circulated until the First World War.

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• A gold coin in circulation, however, has the disadvantage that the increase in gold does not reach economic growth, so a lack of deflationary gold can prevent strong economic growth. This is why many states switched to an indirect gold coin: they had a gold treasure of a certain amount in gold, from which were issued bank notes that it was easier to transport, count and hold in large quantities. Their value was the ability to present the notes at any time to the central bank and to exchange them for the corresponding amount of gold or silver (convertible notes in precious metal). In this way, the state could issue more fiduciary money than it possessed precious metal, few holders of money usually insisting on the exchange of gold notes. Normally, a volume of less than 10% gold was sufficient for a volume of 90% notes.

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• The system worked around the world. Indeed, gold-free countries guaranteed holders of their notes a fixed exchange rate against gold convertible currencies. As long as this exchange guarantee existed, the burghers were certain of being able to exchange - in fact by means of a double exchange (gold exchange standard) - their fiduciary money for coins of precious metal and thus had at least an indirect guarantee of the value of their currency.

Read Part 2: State and private money

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