Power & Market

The Goldback: An Alt-Currency That Combines Sound Money with Modern Technology

Sound money is now more portable than ever! Paper banknotes were originally created and issued by private banks as receipts for their depositor’s gold. Said receipts were then used by the customers as currency, being traded between themselves and businesses to avoid the burden of transporting gold. Over time, these privately issued notes were eventually replaced by the Federal Reserve’s own paper bills. Dollar bills were entirely severed from their gold backing when the Nixon Administration decided to go off the gold standard. Now, however, technology has advanced to the point that allows gold to be transported more easily than ever before, even in a wallet. While some may be thinking that this advancement comes in the form of coin minting, as it turns out the market’s answer to solving gold’s transportability issues lies in between two thin sheets of plastic.

Enter the Goldback.

Created in 2019, Goldbacks are privately funded currency notes with gold embedded in the note. Resembling Federal Reserve issued currency, the Goldback has various designs, serial numbers, and denominations. These denominations range from 1/1000th to 1/20th of a Troy ounce of gold. Currently, the States of New Hampshire, Nevada, and Utah all have privately issued sets printed and available on the market for purchase. Goldbacks combine sound money with modern technology through a process called vacuum deposition. Goldback’s company website describes this process:

“The designs are printed on a sheet of polymer that is then bombarded with the correct amount of atomized gold particles in a vacuum chamber. This gold is then sealed inside by a second protective barrier of polymer, thus creating a beautiful negative image.”

The company that manufactures Goldbacks, Valaurum, has also produced gold-embedded-bills for the Republic of Ghana, the Republic of Cameroon, and various private organizations.

The drawbacks of the Goldback are very apparent. Namely, they’re spotting at more than double the current price of gold. This high premium is a result of its expensive crafting and limited supply. Both factors create difficulties in the currency becoming a widely accepted medium of exchange at this time.

Despite these drawbacks, the future holds great potential for the goldback. As technology develops, competing producers could have a Goldback-like product manufactured more efficiently, increasing the supply and thus lowering the cost to consumers. This is the beauty of the market. As time progresses, profit incentives draw in entrepreneurs who create higher quality products at lower costs. The computer serves as a great example. In an article published by The American Enterprise Institute, Mark Perry explores the market development of the computer:

 “Compared to today’s desktops, mainframe computers were 128 times slower, more than 8,000 [times] as expensive, and were more than 1 million times as expensive in terms of cost per MHz.”

Logically, the same principle would apply to Goldbacks, especially when more competitors join the market. The process of having less expensive gold-embedded bills on the market could be expedited further if larger banks decide to print their own Goldback-like currency. However, this is highly unlikely to happen in the foreseeable future due to the Federal Reserve’s policy of easy money that benefits its member banks.

Today, individuals face soaring prices at the gas pump and grocery store. Due to the Federal Reserve creating trillions and trillions of dollars since the beginning of the Covid-19 Pandemic, inflation is causing devastating pain all throughout the market. Because of this, finding hedges against inflation, such as precious metals, is more important than ever before. If the dollar ever reaches a point of Weimar or Venezuela-style hyperinflation, low income and fixed income households, savers, and retirees will be the most harmed. Luckily, this is an area where the Goldback can potentially ease the pain of inflation. Rather than needing large amounts of capital to purchase gold, a Goldback can be bought for less than the cost of a typical lunch. This is an especially promising development for teenagers and college students, like myself, who do not have the capital to buy large quantities of gold.

Ludwig von Mises famously remarked, “[The] first precondition of any monetary reform is to halt the printing press.” If stopping the Fed from printing more money is not an option (which seems to be the case), then arguably the next best step for monetary reform is to divest from state-provided currency and invest in private alternatives. The Goldback is one such option. Although it is unlikely that this currency will be accepted in your grocery store anytime soon, the technology behind it certainly makes for a hopeful future where individuals can use privately provided sound money in the form of gold, rather than the State’s unstable, debased fiat currency.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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