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Thursday, November 1, 2007

Protect Your Giold and Silver Coins!

There is one weakness of circulating gold and silver coins. The coins tend to wear out over time. This is particularly true with gold coins.

When coins were issued by a government, legal tender laws forced worn coins to be accepted at the same value as new coins. This caused Gresham's Law to drive the new coins out of circulation.

Without a government, worn coins will trade at a discount. Therefore, if you hold gold or silver coins, it is necessary to protect them. Gold and silver coins probably should be laminated or put in some other case for protection. The authority that seals the coin would stamp it to verify that it checked the quality. If someone mistrusted the authority, they could break the seal.

There could even be laminated small slivers of gold or silver. You can have slices of 0.01 or even 0.001 ounces of gold or silver, laminated in coin or card form. This would facilitate making change. The laminated slivers would trade at a premium to a whole coin, due to the cost of manufacturing them. Personally, I'd prefer paper or electronic credits for small values. For transactions valued less than the size of a 1 ounce bar, I'd rather accept paper or electronic credits.

Without legal tender laws, holders of gold and silver should be careful that their coins don't wear out when they are circulated. Personally, I'd prefer to just deal in bars. I'd settle for electronic or paper credits if my trading partner is trustworthy, and use bars to settle if someone had a big surplus or deficit.

2 comments:

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Anonymous said...

"Without a government, worn coins will trade at a discount."

Without a government, ALL government coins will trade at a HUGE disount. Why should anybody believe the government when it "certifies" that a coin contains a certain amount of gold? How do you know they're not LEAD COINS. You're better off melting them.

"XYZ government says this coin has .999 oz of gold!" Yeah? Then prove it by melting it.

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