Posted on 10/09/2003 10:49:33 PM PDT by Starwind
After repeated warnings from currency analysts and market advisors (including yours truly) that the U.S. currency system is on the verge of becoming a blocked, two-tier system we now have confirmation that the country is one step closer to realizing this. When fully implemented, the new U.S. dollar will mean a "banana republic" type currency and across-the-board devaluation.
According to a CNN/Money news wire report of Oct. 7, the new U.S. $20 bills will be released this week at banks across the country. Meanwhile, the Fed and its Bureau of Engraving and Printing (BEP) will hold a nationwide series of publicity events as part of a $33 million campaign to let the world know of the new bills and to acclimate the public to their strange new appearance.
The new $20s are peach-toned with the presence of blue ink, making it the first time in almost 100 years that a mass-circulation U.S. note has prominently contained a color besides green and black. They also contain an embedded vertical plastic strip and color-shifting ink, whose appearance changes from copper to green as the bill is tilted against the light. Below is what the front of the new $20 bill looks like (from the BEP website).
So what is the significance of this change of color in the U.S. $20 note? Well according to the Feds it is designed as a deterrent to stop counterfeiters. But accordingly to currency analyst Lawrence Patterson, who authored the 1994 monograph titled "Currency Recall", which accurately forecast the new multi-colored notes, the new colored money is part of a two-tiered currency system that will have drastic implications for investors and non-investors alike here in the U.S.
Patterson calls the new notes "crayola currency" and claims they will circulate domestically while the normal green currency that we've grown accustomed to will circulate offshore all over the globe. According to commentator Terry Savage, "Two-thirds of the U.S. paper currency is circulating in foreign countries." With the coming two-tiered currency system, foreigners will continue to be allowed to use the greenback while U.S. citizens will be stuck with the "crayola currency" which cannot be exchanged.
Patterson forecasts the coming use of foreign exchange controls for the U.S. dollar domestically, which would prohibit Americans from transferring capital to any other world currency. Again, this is discussed in Patterson's now-classic monograph "Currency Recall" (which I've read and highly recommend to students of currency policy and investors seeking to retain the value of their investments).
Patterson states, "I want every one...to think carefully about this...because we are coming very, very close to the end of the freely convertible domestic dollar. They cut in value could be as much as 50%...I believe those holding gold bullion bars offshore and bullion coins domestically will be very surprised to find that special regulations will prohibit them from profiting."
He further maintains that coin dealers are under a strict Treasury regulation and must report your sales of some coins but not others. The rule is as follows: Coins with a premium above 15% do not have to be reported. In addition to the 1099 report, filed by the coin dealer, you have to declare any capital gains as well."
He continues, "The existence of this rule, I believe, indicates an intent to outlaw the ownership of bullion coins altogether! However, the rule will not remain at 15% necessarily and could be changed to a higher percentage, which is unknown at this time. Obviously, you do not want to own any investment coins with a premium of 15% or less and better stay at the 25% or 30% level to be safe." Patterson points out that complications for the government would clearly arise should numismatic collectibles be forcibly confiscated since the bullion coins' value can be determined by the London gold fix, but not so for collectibles. "The price of the collectible coin may or may not be easily determined as numismatic valuables are routinely auctioned off at prices of not only tens of thousands of dollars, but hundreds of thousands of dollars per item," he observes. "It is difficult to imagine just how this would all be sorted out by the bureaucracy to come up with a calculation of compensation that would relate to the market value." He advises staying in the "safe zone" and exchanging bullion coins not needed for emergencies (such as food or gasoline shortages, et al) for numismatic coins with higher premiums.
Obviously, the introduction of the new peach-colored $20 bill is a test on the American public to see how they respond to the drastic new changes. The CNN/Money article states that the BEP has launched a multi-million dollar promotional campaign aimed at gaining public acceptance of the new currency. For example, the twenties are being featured on game shows, including "Wheel of Fortune" and "Jeopardy," sporting events, like ESPN's college football telecasts. The bills are also part of some consumer product tie-ins, according to CNN/Money, and pictures of the bills will be on the side of bags of Pepperidge Farm Goldfish. If the government succeeds in getting the American public to accept the bills, the other remaining denominations will obviously follow and plans will proceed for the blocked domestic dollar.
In a sense, the US had a dual currency system from 1944 to 1971. Internationally, the dollar was convertible to gold at $35/oz, but not domestically (since it was illegal to own gold other than numismatics and jewelry from 1933-1974).
Patterson states, "I want every one...to think carefully about this...because we are coming very, very close to the end of the freely convertible domestic dollar. They cut in value could be as much as 50%...
What does this mean, really? Cut against what? You can't devalue with a pen stroke like FDR did in 1934 when the dollar was convertible.
End of the freely convertible dollar? In today's global economy, it's inconceivable. How would transnational corporations function? How would people travel? How would people with foreign real estate pay their bills?
It's hard to understand the ramblings of a paranoid person. It's a form of mild mental illness in most cases.
End of the freely convertible dollar? In today's global economy, it's inconceivable. How would transnational corporations function? How would people travel? How would people with foreign real estate pay their bills?
If in fact a dual currency were re-instated, I assume the international dollars would be treated as a foreign sovereign currency complete with exchange rates for personal and business transactions, and currency exchanges (at banks and customs at the US border) for travelers with cash. Transactions would proceed as if you were paying for something denominated in a foreign currency.
The new wrinkle would be the reporting requirements of where the old greenbacks came from when converting to new 'peachbacks', much as is done today if you bring in/out more than $10K. Domestically, they would have to outlaw old-design greenabcks as no longer being legal tender domestically (forcing one the bank to exchange bills - and report where you got the greenbacks). This point of outlawing what was legal tender (raised only by one poster) seems fraught with problems and the biggest obstacle unaddressed by the article.
Technologically, it seems quite feasible.
The motivation (ostensibly to thwart money laundering by 'filtering' the exchange/flow of new and old currency domestically while not 'inflciting' that new currency on international populations whose confidence and use of dollars we wish to retain) seems plausible.
The 'unintended' consequences of two values for US currency to the detriment of domestic bill holders seems plausible.
But your point about Droke's credibility is noted.
Actually, if there were any devaluation, it would devaluate the old currency that is now circulating overseas as that currency would be riskier to hold.
Consider the case of the "Hawaii Dollar":
This U.S. currency, with "Hawaii" printed on it, was issued during World War II for circulation in Hawaii. If the Japanese had ever captured the Hawaiian Islands, the U.S. Government could have immediately declared all "Hawaii dollars" to be worthless.
The old U.S. currency circulating overseas has now become the 2003 version of "Hawaii Dollars".
By demonitizing the old currency after a period when it can be exchanged only at banks, the U.S. Government can, at any time of it's choosing, convert the narco-traffiker's and terrorist's cash reserves of billions of U.S. dollars into souveniers that would be bought and sold in the "Obsolete Currency" category on eBay.
What is money? It cannot breath life into the now-dead dreams of childhood. It cannot heal a broken heart nor repair the shattered portals of a broken home. I speak, of course, of Confederate money. - Joel Chandler Harris
Actually, the Confederate money I bought in 1985 is worth quite a bit more now than the U.S. greenbacks I bought them with. :-)
Ya gotta know where to shop!
Yes, actually, except that the good quarters were driven out of circulation by the new quarters back in '65.
The same principle will operate on paper money if the article's premise is true.
The 'sky' is not falling - everything is just 'business as ususl' when it comes to politicians and printing presses.
Some questions to think about:
Would the exchange rate between the two be fixed or float? If fixed, would each float against other currencies? Seems like there would be problems unless the domestic currency was convertible only into greenbacks, and then greenbacks could be exchanged into foreign currency at exchange rates that float.
Would the US maintain 2 money supplies: domestic and greenback? Beyond money supply management, the simple wearing out of paper bills would force new issuance.
How would transition work? Seems like a lot of people would dump the peachbacks if devaluation relative to greenbacks was expected.
Is the purpose of all this to maintain the dollar's global role, while plundering the savings of US residents to inflate away debt?
What's that for?
Speculating: Optical or holographic scanning, possibly encoded with the serial number and anti-counterfeit measures. It may aid in tracking a bill's history, at least which banks it's been cleared through and maybe who deposited/exchanged them.
As to Soren's points (in the following 'peachbacks' are the new currency to be circulated only domestically, 'greenbacks' are the old currency to be circulated only internationally):
Would the exchange rate between the two be fixed or float? If fixed, would each float against other currencies? Seems like there would be problems unless the domestic currency was convertible only into greenbacks, and then greenbacks could be exchanged into foreign currency at exchange rates that float.
Don't know. Save for your last question, I would assume both peachbacks and greenbacks might float against other currencies and each other at rates set by the market. I would further assume peachbacks are convertible to greenbacks only at US borders or currency exchanges for people leaving the US, and convertible back to peachbacks for people entering the US. I assume this would be enforced by treating peachbacks internationally as counterfeit money when discovered by banks or authorities and treat greenbacks likewise as counterfeit domestically (this is where the greenback legal tender issues arise). Merchants would readily recognise either currency and refuse to accept the disallowed currency in transactions, knowing their banks will confiscate them in merchant deposits. However a black market could operate.
The exception would be anyone could walk into a bank or currency exchange and voluntarily exchange disallowed currency for allowed currency with accompanying form explaining where the disallowed currency originated. Presumably this would be routine for amounts below say $10K and more scrutiny applied for larger amounts. If the identity of the holder or the serial numbers on the bills tripped an alert, the cash police descend upon the hapless tourist.
Would the US maintain 2 money supplies: domestic and greenback? Beyond money supply management, the simple wearing out of paper bills would force new issuance.
Yes I would assume so. The existing mechanisms for recognizing worn out greenbacks would remain in force as well as be applied to the peachbacks. Exchange would simply be in accord with what is the 'allowed' currency based on domestic or international location. The treasury would retain responsibility for printing both currencies and dispensing new bills to (and collecting old bills from) banks domestic and international as they do now.
Money supply management could be more focused and adjusted differently for domestic and international supply targets, as the Fed felt inclined in pursuit of its policies. Which given two separate money supplies, could now have diverging policies each customized for a particular goal.
How would transition work? Seems like a lot of people would dump the peachbacks if devaluation relative to greenbacks was expected.
Don't know. Peachbacks would be difficult to dump assuming they'd be the only game in town (domestically) and the envisioned enforcement measures. But I could imagine two black markets forming depending on relative valuations.
Is the purpose of all this to maintain the dollar's global role, while plundering the savings of US residents to inflate away debt?
That, in my opinion, is the real question.
Assuming there are no technical nor operational barriers to having this dual currency and black markets are not a significant factor in setting floating exchange rates, it would seem plausible peachbacks could be used to contain or partition some of the effects of the Fed's inflationary policies (but not entirely) while retain at least the appearance of the greenbacks being the favored reserve currency internationally, and thus helping to avoid/minimize the effects of devalued greenback denominated bonds.
Any thoughts as to the feasibility, practicality, plausibility of this last point (your question)? Maybe in light of this last question, the peachback/greenback exchange rate should be fixed, relative to each other and the greenback floats as it does now? I dunno? But given the mindset of the Fed & Treasury these days, the above seems like something they'd want if they thought they could make it fly.
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