How to Use Silver as Money

Silver Stock Report

by Jason Hommel, October 4, 2006


Why aren't people using silver as a medium of exchange?

It's common sense that we ought to use just weights and measures in our exchanges, in commerce.  Silver is honest money, but why don't silver coins circulate?  Are all of us really that dishonest?  What is the real issue here?

Dear reader, I pray that God will open your eyes, and open your heart and mind, to understand that the main points in this article are not my concepts, but truthful and honest values that the Lord has given to us for our benefit, and for our prosperity, harmony, and peace among men.  Have no fear about promoting simple honesty.  The Lord has not given us a spirit of fear, but of boldness, and of sound mind.

Contrary to popular belief, the main form of monetary exchange is not between the customer and the merchant.  The main form of monetary exchange is between employer and employee.  As supporting evidence, let me point out that income taxes are far higher than sales taxes.  The heavier taxes are on the bigger exchanges!

And it is through incomes, that money first enters into the hands of the consumer.

My study of history and markets tells me that in order for silver to circulate, we need a common standard, and a large issuer (or many issuers) of silver coins, and neither exists today.

The market needs a common standardized price for one-ounce coins.  And large traders, employers, or local governments need to issue and accept such coins as a means of payment, and here's how:

1.  Mint your own silver "rounds", or buy standard rounds at 6% over spot. (Find bullion dealers or mints here: http://silverstockreport.com/buybullion.htm)
2.  Offer your employees the benefit of receiving part of their paychecks, in silver rounds, priced at 10% over spot.
3.  Offer to accept the silver that you gave to your employees, at 10% over spot, for products that you sell.
4.  Don't offer to trade silver for large quantities of dollars.

It's that simple, but let me explain why those 4 steps can be so useful and effective.

We don't have a common standard price for one-ounce coins, because silver prices (spot prices) are set mostly by the large traders on the NYMEX, and their product of trade is 1000 oz. bars, and not one-ounce coins.  One-ounce coins, or "rounds" as the coin shops call them, are a different product, and carry with them the additional minting cost and shipping cost, and can vary in price between 6% to 14% over the cost of the quoted price for 1000 oz. bars.  

(Historically, when silver was money, minting costs were about 1/2 of 1%, and I suspect we will return to that again as silver increases in value about 20 times more than everything else, such as minting costs.)

What is worse about the current situation (in addition to the high minting cost) is that the one-ounce rounds have a "spread" on them.  For example, if you sell the rounds back to the coin shops, they will typically only give you the spot price, or 1% under the spot price, which is much less than the 6-14% cost above spot that they sell them for.

To function as a medium of exchange, an item needs to be liquid, and based on a "just weight and measure".  The spread is the evidence of the unjust weight and measure of the dollar!

In history, silver circulated as money typically when a good goverment set out to promote trade by issuing coins to the people.  And that creates prosperous markets.

In markets, any large trader can act as a market maker to reduce volatility, and narrow the spread.

But governments that fix prices can end up destroying markets (and their own tax base), and traders can go bankrupt if they try to manipulate the market.

Price fixing does not work because freely changing prices are the most effective way to communicate information to the market.  Freely changing market prices make markets work most efficiently.  Prices are the best indicator of where to allocate resources, and prices create the incentives to direct people's productivity.

Therefore, I cannot suggest that any government or trader fix the price of one-ounce rounds to the dollar, because that would destroy even a government.  

So, the first key is to fix the price of one-ounce rounds to the "spot" or market price of silver, so that a one-ounce round is always, for example, 10% above the quoted spot price.  This creates the standardization needed for consistency and reliability and ease of calculations.  In large quantities, silver coins can be minted for about 7% over spot, thus creating a modest profit to any issuer of silver coins.

A more important key is to eliminate the spread, so that a silver coin is issued at a value of 10% above spot, and redeemed at 10% above spot.

This is a huge benefit to those who would accept such coins, because with no spread, people who hold the coins accept less risk than they would if they bought silver at 7% over spot from a coin dealer, and had to sell back to the coin dealer at 1% under spot.  The benefit of redeemability at 10%, can justify the extra price of 10%, rather than 7%.

In this way, the honest value of a silver coin is determined by the market price of silver bars, from which the coins are minted.  Silver would thus become a "just weight and measure" according to the marketplace. 

The most important key is to use silver in commerce!  Especially, in exchange for goods and services, and not in exchange for dollars.  How can you honestly exchange real value for false value?  This is the reason why coin dealers must charge a spread of about 7-10% on silver; there is a risk to them to hold dollars, because silver prices can change 5% or more in a single day, and there are banking hold times on checks, and check fraud, banks go bankrupt, etc.

Employers ought to offer silver to employees, and merchants ought to accept silver for goods and services.  Many employers are also merchants!  

But there is no need to issue silver for dollars!  

Here's the problem:  If I offered to trade silver with no spread at 10% above spot, to any buyer who held dollars, I could be ruined.  A wise buyer, with more dollars than me, could buy all my silver from me when silver prices are low, and sell silver to me when silver prices are high, and I would be ruined.

Here's the solution:  Trade silver only for goods and services.  If I pay my employees in silver in amounts that are relatively small, and frequently, over time, I can not be ruined.  And if I accept my own issued silver coins for goods that I'd sell to my employees, I can not be ruined.

In sum, the main ideas, again, are:

1.  Mint your own silver "rounds", or buy rounds as they exist at 6% over spot. (Find bullion dealers or mints here: http://silverstockreport.com/buybullion.htm)
2.  Offer your employees the benefit of receiving part of their paychecks, in silver rounds, priced at 10% over spot.
3.  Offer to accept the silver that you gave to your employees, at 10% over spot, for products that you sell.
4.  Don't offer to trade silver for large quantities of dollars.

I offer these ideas to those traders and employers who are wealthier than me.  Pay your employees in silver, using an honest weight and measure, according to what I have outlined above.

I also offer these ideas to those who may be unemployed, or employees.  Present these ideas to employers, such as mining companies, or retail merchants.  Perhaps you will be put in charge of administering such a program!

These ideas can be used in any nation anywhere in the world.  It's only a matter of which society will recognize truth first, and put it into practice in commerce.

Whether or not such coins are accepted between customers and merchants (or minted into fractional ounces) is a secondary step, and that will be determined by market demand.  But first, employers need to offer to pay people in real money, silver, and employees need to ask to be paid in silver.

And for investors who are far ahead on the learning curve, and already have silver, but wonder what to do with it when the price exceeds $200 to $8000 per ounce, do not worry about who will redeem your silver ounces when the price reaches or exceeds $8000/oz.  By then, there will be as many silver dealers as real estate agents today, and you will be able to spend your silver ounces at stores and gasoline stations or anywhere you wish.  Silver will reach such high values due to monetary demand, and such demand will create liquidity.

In the meantime, don't worry if Wal-Mart won't take your silver.  If you are holding silver because you know it will go up in value, you are using silver as your money; it is your store of value, one of the primary functions of money.  If others do not yet accept or appreciate your offer of honest money, at least you are providing honest savings for your future self.  And in a world where nearly everyone else is deceiving themselves with paper money, being honest with yourself will prove to be a very valuable thing.

Sincerely,

Jason Hommel
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