General Questions
Money and Currency
 

For a detailed discussion about money and currency, read our Money series of articles.

1. What is a dollar?
2. What is fiat currency?
3. What is legal tender?
4. What is a note?
5. Are Federal Reserve Notes redeemable?
6. If not redeemable, does that then make Federal Reserve Notes worthless?
7. If not redeemable, then what are Federal Reserve Notes backed by?
8. Should we the people own the money?
9. What does the phrase from the Constitution “…to coin money…” mean?
10. Thomas Edison stated that if the government can issue 30 million dollars in bonds it can issue 30 million dollars in bills. Doesn’t this prove that the money system is fraudulent and counterfeit?
11. Because we now have a debt-based money system, if people suddenly repaid their loans would all the currency vanish?
12. How do you feel about alternative currencies?
     

What is a dollar?

A dollar is a standard unit of measurement, not value. A dollar is a unit of weight.

A dollar was originally defined as 371.25 grains of silver. This definition was established in the Coinage Act of 1792. Dollar coins were to contain a total of 416 grains, with 371.25 grains being silver and the remainder being copper alloy. Since then, however, Congress has further defined the dollar in terms of gold, despite the original definition in terms of silver remaining on the books. Although these various definitions exist, the word “dollar” no longer resembles the original definitions.

Therefore, when people speak about the value of a dollar dropping, this is an absurd statement. To say the dollar has dropped in value would be the equivalent of saying a gallon dropped in value.

What people should be saying when they speak of the declining value of the dollar is the “purchasing power or exchange value of a dollar is declining.” The reason for that decline is currency inflation. Of course, true dollars are no longer in circulation, but the previous example is still valid because the word dollar today is used to describe exchange value. We certainly understand the technical hair-splitting, but we also accept the modern day use of the word.

For a historical discussion about the definition of the dollar, we recommend you read Edwin Vieira’s monograph, What Is A Dollar? Nonetheless, NESARA quashes the entire issue because NESARA restores gold and silver coin, re-establishes the original definition of a dollar, and establishes an exchange value index to monitor the exchange value of all currencies in circulation.
 

What is fiat currency?

Fiat currency is simply something that has been declared to be currency. Such currency becomes currency by decree or sanction. Typically a fiat currency contains no intrinsic value. See the on line dictionary as well.
 

What is legal tender?

Currency that has been declared as the default currency. Legal tender is a forced currency as people often have little choice but to use the currency. See the on line dictionary as well.

NESARA resolves the issue of choosing a currency by restoring gold and silver coin.
 

What is a note?

Generally speaking, a “note” usually means a promissory note. A promissory note is a promise to pay. To whom payment will be made, and the amount to be paid must be specified. Federal Reserve Notes are not notes within the standard definition, but only “token notes” governed by intent. At one time Federal Reserve Notes were redeemable in specie (coin) and the Notes specifically stated “Pay to the bearer on demand…[the exchange value of the note],” but no longer is this the case.

NESARA resolves these concerns by defining new terms and clarifying the definitions of some of the old terms in the law. See the on line dictionary as well.
 

Are Federal Reserve Notes redeemable?

No. Until 1933, Federal Reserve Notes were redeemable in gold and silver specie. From 1933 to 1968, Federal Reserve Notes were redeemable only in silver. Since 1969, Federal Reserve Notes are legal tender, but redeemable in no specie.
 

If not redeemable, does that then make Federal Reserve Notes worthless?

No, such a question is mixing apples and oranges. Not being redeemable in specie has nothing to do with exchange value. Federal Reserve Notes adequately serve the purpose of a currency, that is, to facilitate the exchange of wealth (goods and services).

There is nothing inherently evil with a paper currency. The problem with paper currencies is regulating the quantity of that currency so the quantity does not exceed the supply of goods and services. Currently, there is no law requiring the quantity of paper currency to be regulated—only policies.

However, because the quantity of paper currency in circulation is not regulated, and due to flawed mechanisms that allow Congress to inflate the quantity of currency in circulation, the exchange value of that paper currency dwindles over time. When people speak of the dollar dropping in value, what they should correctly be saying is that the exchange value or purchasing power of a Federal Reserve Note is dropping. The units that a Federal Reserve Note is denominated remain constant ($1, $5, $10, $20, etc.), but because the quantity of currency exceeds the supply of goods and services, the exchange value or purchasing power of the Federal Reserve Note drops—not the “value” of a dollar. Remember, a dollar is a specific unit of weight and cannot change.

This continual dropping in exchange value does not mean that the paper currency itself is worthless, but only that we need better mechanisms and tools to control the exchange value. NESARA provides those mechanisms.
 

If not redeemable, then what are Federal Reserve Notes backed by?

Your question is based upon a misleading idea that only specie can serve as currency.

What is any currency backed by? Goods and services—and your confidence in using that currency. The sole purpose of any currency is to exchange wealth, that is, goods and services. Currency contains no intrinsic value, but serves only as a medium of exchange.

Technically, the Federal Reserve Act requires adequate “backing” be pledged for all Federal Reserve Notes in circulation. When FRNs are created through Open Market operations, that “backing” is through U.S. Treasury securities. Technically those securities are backed by goods and services—often through future labor. In reality, those securities are backed by no goods and services.

At the local level, where money is created through local bank loans, that money is backed by virtual wealth, that is, wealth that does not yet exist but is expected to soon exist. That wealth is typically in the form of a new home, business, etc.

All currencies, both current and past, and regardless of substance, are backed by goods and services. All currencies represent an unfinished exchange of property, an unfinished exchange of wealth. Currency represents purchasing power, whereby the possessor of the currency previously exchanged some form of his or her own property or wealth, typically labor, for those claim checks on other goods or services.

All currencies are backed by goods and services. Always have been, always will be. That is why regulating the quantity of currency is important. Money is not wealth but represents a claim on wealth. The form and substance of the currency is irrelevant. The quantity of currency available must always equal the value of the supply of goods and services. When the quantity of currency exceeds the value of the goods and services available, the aggregate suffers currency inflation. When the quantity of currency is less than the value of the goods and services available, the aggregate suffers currency deflation. Both situations are inequitable and unfair because the expected exchange value of that currency changes.

Your question most likely centers around the fact that at one time paper currencies in this nation were redeemable in specie. However, such a question mixes apples and oranges. Federal Reserve Notes are declared legal tender, that is, must be accepted as currency. However, even when Federal Reserve Notes were redeemable in specie, the paper itself was not “backed” by anything, but only redeemable. Being redeemable is another way of saying exchangeable. Exchangeable for what? Another form of currency. That other form of currency was gold and silver coin. And what was that other form of currency backed by? Goods and services.

Also, let us not forget that even when specie was used, that particular form of currency was also declared legal tender. Nobody much complained back then.

Think about the terminology for a moment. A dollar, by definition is 371.25 grains of silver. A dollar cannot be backed by a dollar. That would be circular reasoning. Therefore, if redeemable, a paper Federal Reserve Note, denominated in units of one dollar, is not “backed” by a dollar. The paper is redeemable, that is, can be traded for a dollar or represents a dollar somewhere on deposit. A dollar is still 371.25 grains of silver, a unit of weight.

Ultimately, all currencies are debt instruments, mere social claims for goods and services, nothing else. Currency is a medium of exchange. What is always being exchanged is goods and services. Currency serves only as a placeholder to keep track on what has been exchanged. Those goods and services are what back any currency.
 

What makes Federal Reserve Notes valuable?

What makes any currency valuable? Nothing but perception and confidence in the medium of exchange being used.

Even if gold and silver coin were used as currency, when used as currency the specie (coin) still represents a specific exchange value for wealth—goods and services. The intrinsic commodity value of gold and silver becomes moot when the coin is used as currency. When used as currency, people keep the gold and silver coin under their bed mattress not because of the intrinsic commodity value, but for the future exchange value.

When used as a commodity, the exchange value as currency becomes moot, and vice-versa. If you do not believe this, reflect back to the early days of this nation. No sooner had Congress established the exchange value of gold coin, the commodity value of gold increased and the gold coin ceased to circulate as currency. Congress tried to rectify that situation years later by establishing a new exchange ratio for gold coin. That effort too was undone—by gold rushes. The gold rushes increased the supply of gold, thus lowering the commodity value of gold coin and in effect raised the commodity value of silver coin. Soon thereafter silver coin ceased to circulate as currency.

All currency, regardless of substance serves as a claim on the total wealth of the society. All currencies serve as a public utility, nothing more.

What makes a Federal Reserve Note valuable for exchanging wealth is the same as that for any currency—public confidence. Regarding every day consumerism, the substance of the currency is irrelevant. All most people care about is whether the currency being used will retain purchasing power to exchange wealth. All currencies, regardless of substance, are used strictly based upon public confidence. All currencies are accepted for what they represent—the anticipated ability in the future to obtain wealth—goods and services.
 

Should we the people own the money?

Perhaps using the word “own” is a mite restricted. The word “control” is probably a better word. However, to answer your question, yes, of course.

All currencies, regardless of substance, serve the public. Remember, currency at its base level represents debt—a claim check. Currency is nothing but grease that keeps the wheels of the economy churning. Currency itself is not wealth, but represents a claim upon wealth. Unlike pure barter, when currency is used that currency represents an unfinished exchange of wealth—goods and services. Currency therefore becomes a claim check on the total wealth of the society. Currency serves the public, not the converse.
 

What does the phrase from the Constitution “…to coin money…” mean?

This phrase is from Article I, §8, cl. 5 and reads in full:

“To coin Money, to regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”

This clause is part of the specific powers enumerated to Congress.

Until 1861, Congress did not consider the phrase to mean that Congress had the power to create paper currency. Until that year, the clause was interpreted to mean solely that Congress could establish mints and convert into coin the people’s gold and silver bullion. In other words, the production and creation of money was a byproduct of the people engaging in the free market. The Founding Fathers believed the creation of currency was best left to the people and that Congress had no authority to create currency. That the Founding Fathers believed as much as can be discerned from the many papers and notes written at the time of the Constitution’s ratification. Until 1861, the methods available to Congress for collecting revenues was through land sales, excise taxes, tariffs, and borrowing. The bulk of the revenues came through land sales and tariffs.

The American War Among the States changed that picture, however. When Lincoln attempted to negotiate loans to fund the war, lenders wanted usurious rates of 24 to 36 percent. The lenders also insisted the principal and interest be paid in gold. Lincoln considered such interest rates unacceptable. Such terms would have also depleted gold reserves.

Lincoln then, through the advice of others, decided to ask Congress to simply print paper currency. This decision received much debate in Congress, as many representatives believed such an act was unconstitutional. In fact, many people today still feel such an act was unconstitutional and the merits of those discussions are reasonable. However, a war has a way to make people bend the rules, and subsequent court cases rendered the issue moot. Thus the Greenbacks were born and with the National Banking Act of 1863, effectively ended all privately owned bank notes, thus creating for the first time in America a common paper currency. These Greenbacks were redeemable in gold specie as coin was still considered the money of account. At the time, the mindset of Congress and bankers had not yet evolved to fully do away with commodity money.

Although the banking act provided for a national paper currency, know that when some people use the term “constitutional banking” one can see that such a term is meaningless. There never was such a term.

Likewise, if you see a person shouting that we must return to the money like what Presidents Jackson, Lincoln, or Kennedy issued, or return to the banking system of those presidents, be aware that the Constitution provides no such powers to the executive office. Only Congress has constitutional power to coin (or create) money.

For 68 years (1792 to 1861), although bank notes were issued by private and state-chartered banks, the only money of account recognized by Congress was gold and silver specie. After the two congressional acts in 1861 and 1863, Congress still recognized only gold and silver as the official money of account. Congress simply recognized Greenbacks as the only “receipt” money allowed to circulate. That paper still was redeemable in specie.

From those years until 1933, paper currency was redeemable in gold or silver. Paper currency was redeemable in silver until 1968.
 

Thomas Edison stated that if the government can issue 30 million dollars in bonds it can issue 30 million dollars in bills. Doesn’t this prove that the money system is fraudulent and counterfeit?

Even if Edison said something like that, and although the observation certainly makes a good point, such a statement hardly proves the money system to be fraudulent. The message that is lost in such an observation is simply that money is a public utility.

However, if the Fed was abolished and the U.S. Treasury issued paper currency instead of the Fed, such an action would solve only part of the money problem. Without proper controls (laws) such a transition would do nothing to stop currency inflation, or control Congress’s insatiable desire to continue plundering the people to buy votes.

Yes, if the Treasury issued the currency instead of the Fed, we would all be taking a big step in the correct direction, but that is only part of the solution.
 

Because we now have a debt-based money system, if people suddenly repaid their loans would all the currency vanish?

Let’s first understand something when studying complex systems. Although individual elements of a complex system can be analyzed, rarely can a single element be extracted from such a system and be expected to function the same as when part of the system. For example, consider any organ of the human body. Any organ can be studied and analyzed within the context of the human body, but remove that organ from the body and the organ can no longer function. Complex systems are like this, and regrettably many people attempt to isolate portions of complex systems and then explain behaviors outside the system. Rarely can you do that.

The money system is a complex system, and yes, we do have a debt-based money system. Specifically, monetizing debt creates currency. In today’s world that means, currency does not exist until borrowed into existence. As we discuss throughout this web site, there is nothing inherently wrong or immoral with such a system (although we also insist that the present system needs some modifications to keep it moral and honest—those modifications are part of what NESARA is all about).

One of the challenges associated with studying complex systems is understanding the character of any particular element. Although most currency today is originally debt-based, the simple truth is that once that currency is in circulation its character changes. Once in circulation, the currency is merely currency, and people can no longer determine its original character. For example, you borrow $100,000 to build a home. While sitting across the desk from the bank loan officer, the character of the currency is debt-based, but after the check is cashed and the funds are circulated throughout the community, buying materials and paying contractors, the character of the currency is mere currency. Nobody can now tell who borrowed the money, or when. The borrower still has an obligation to repay a debt, however.

Let’s consider a few other factors to answer your question. Coins are introduced into circulation without borrowing. At one time, there were United States Notes in circulation, and United States Notes are not debt-based. Only a generation ago, silver certificates were in circulation, another interest-free currency. At one time gold certificates were in circulation. Although these currencies have been “converted” into Federal Reserve Notes (FRNs), the original currency never was borrowed into existence, therefore those converted FRNs still would be in circulation even if every debt was repaid.

In short, if people repaid their debts, we can see there still would be currency in circulation. The amount of currency in circulation would be much less than today, that’s for sure, but there still would be currency in circulation.

We must also consider the complexity of this system. Physically and practically, people could only repay all their loans by stockpiling huge savings. This would mean that, up to that day of total repayment, the amount of currency in circulation would have been slowly decreasing. Supply equals Demand. If people suddenly stockpiled cash in such vast amounts, effectively removing currency from circulation, such behavior would lower the demand for goods and services. This lowering of demand would cause reduced production, which would cause layoffs and reduced orders for raw materials. The layoffs and slowdown would cause people to spend their stockpiled reserves. Spending those stockpiles places currency back into circulation. As you probably can observe from this cycle, such a situation is most unlikely.

Here is something else to chew on. Total money supply is about $3.5 trillion. Of that, about 95% is checkbook money. That is, nothing but digits in bookkeeping systems. Therefore, only about $175 billion in actual cash circulates. Nobody knows the amount of that cash circulating outside the nation, but if a conservative 25% resided outside this nation, that leaves about $131 billion in actual cash. That averages to about $486 of actual cash per person! With just those numbers alone, you can see the difficulty of all the people trying to stockpile enough cash to pay off all their debt at once. Most would have to stockpile checkbook money rather than cash. To stockpile that volume of money in either character, most people would have to labor for most of their lives, which is what they are already doing! As you can see, repaying all debts is more impossible than highly unlikely.

Also, if people started repaying loans in mass quantities, there will always be another person around the corner willing to borrow some money for whatever reason. If one person repays a loan, effectively removing the currency from circulation, another person would borrow currency right back into circulation. Banks profit by making loans. A sudden influx of repayments would motivate bankers to lower interest rates in the hopes of encouraging people to borrow more. With such moves by bankers, you can be sure that many people would do just that.

Those people making the “vanishing currency” argument fail to realize or acknowledge that if every person suddenly repaid all their loans, everybody would be debt-free and the need for currency would be tremendously reduced. Would that debt reduction and the related decrease in need for currency match the currency remaining in circulation? The answer remains unknowable because of the system’s complexity. Yet, if everybody is debt-free we can be sure that the need for currency will be nowhere as severe as the “vanishing currency” proponents would like you to believe. By phrasing their argument in this way some proponents are, for argument’s sake, trying to demonstrate the character of money. Unfortunately, others pose this question to frighten people into thinking that there would be no currency in circulation, the economy would falter, we would all starve and die. They use “scare tactics” and “rigging the game” simply to impress others or to win arguments.

Yet, let us suppose that somehow everybody did miraculously pay their debts and reduced the amount of currency in circulation to a trickle. Do you think that would halt the world? Hardly. Remember that firstly everybody would be debt free so initially all people need to do is supply basic needs. In a society with a high division of labor and the absence of any general circulating currency, people most likely would resort to circulating local IOUs, but because of the world’s high division of labor, those local IOUs would eventually circulate to outside locations. Eventually those IOUs would become the new form of currency. And what is today’s paper currency? That’s right, nothing but an IOU, a claim check on the total wealth of the society, representing an unfinished exchange of wealth. Do you see the fallacy of thinking that the character of currency is important? Currency is anything that is used as a medium of exchange. What is being exchanged? Wealth—goods and services. Currency is used only to facilitate those exchanges in a world with a high division of labor.

Consider one more factor concerning currency. Because all currencies, regardless of form or substance, are token symbols of debt representing an unfinished exchange of wealth, if everybody paid their debts (including routine monthly expenses) no currency would or could be in circulation. The only reason currency exists is to help exchange wealth in a society with a high division of labor. The difference between an IOU in the previous example and currency is that an IOU is a token symbol of debt with respect to individuals; currency is a token symbol of debt with respect to an entire society. Currency cannot come into existence without representing debt—one person receives wealth and another receives currency representing an unfinished exchange of wealth. In other words, people who attempt to scare people with the “vanishing currency” routine do not understand the nature or purpose of currency.

Lastly, consider that today we live in a global market place. Can you seriously visualize every person in the world repaying loans and then subsequently nobody else stepping forward to borrow? Hardly. Human nature is very predictable in one sense: there always will be people who are willing to trade future labor for instant gratification.

Nonetheless, NESARA addresses the “vanishing currency” issue in a positive way. Note section 6B of Part I of the bill authorizes the Secretary of the Treasury to print as many of the new Treasury credit-notes as needed “to complete the exchanges or replacements specified by this Act” upon the written request of the newly formed Treasury Board of Governors. Although immediate printing is expected to be only approximately $500 billion, theoretically the BOG could request the Secretary to print enough new interest-free Treasury credit-notes to replace all FRNs in circulation as well as purchase all outstanding government debt.

By now, a shrewd observer has noticed three things:

1. As of the day NESARA becomes law, every FRN, whatever its character may have been, assumes the character of the new Treasury credit-notes because they are exchangeable on a 1 for 1 basis at the Treasury Reserve Banks. (No need to rush on down to make your exchanges; as the old FRNs wear out they will be replaced automatically with the new Treasury credit-notes. Sit back and relax, they will come to you!)
2. The initial volume of debt remains the same, only the character of the debt changes, from interesting-bearing government debt with the taxpayers picking up the tab, to interest-free Treasury credit-notes (mostly just numbers in accounts with the same character) backed by the total supply of all goods and services. All American currency truly becomes a public utility.
3. NESARA renders the entire discussion of the character of FRNs and the “vanishing currency” issue an enormous waste of time.
    

How do you feel about alternative currencies?

We have no problem with alternative currencies. That is one reason why NESARA reintroduces gold and silver coin into circulation. Regarding other currencies, such as those used in many local communities, we think that idea is a winner too.

As you study the material on this web site, you discover that currency serves one purpose only: to facilitate the exchange of wealth—goods and services. The actual medium used is far less important than maintaining the exchange value of that medium. Therefore, people should always be free to choose any medium for exchanging wealth.

However, we are concerned about the wide spread, incorrect idea that ONLY gold and silver can serve as currency. Or that paper currencies must be “backed” by gold and silver. Our web site extensively addresses the purpose and function of money and we only ask that people understand what money does. The substance of the currency is not as important as providing mechanisms to control currency inflation. Hard currencies play a role in controlling that inflation by establishing roots to the real world, but largely gold and silver play minor roles regarding the purpose of currency. Regardless, NESARA provides several substantial changes to monetary policy to control inflation, and more importantly, to control Congress’s indirect ability to create currency out of thin air. Once Congress is forced to borrow funds in circulation, the problem is largely conquered.

As to the validity of alternative currencies, all that is needed is a published exchange index so that users of multiple currencies understand the exchange value of any currency used and honest dealers in that currency. NESARA establishes a national exchange index to monitor the exchange values of gold, silver, and the new Treasury credit-notes. Local currencies would benefit greatly by referencing their exchange value to the national index.