Commentary, Home Page Featured
Sprott’s Proposed Gold / Silver Bank: A Step in the Right Direction?
October 18, 2011 by prospectingjournal · Leave a Comment
COMMENTARY—ProspectingJournal.com—A particular part of the gold/silver debate I always enjoy (and admittedly always scratch my head over) is the practicality of carrying and storing large amounts of bullion in a post-fiat currency collapse. After all, the gold bashers have a point: do you “crazy” gold bugs really think that you’re going to lug around non-divisible bars and coins, worth many multiples their current value, to buy groceries? In our highly digitized society, a devolution (or evolution?) to the coin-carrying days of old would be painful at best. Besides, in a post-collapse scenario, the poor (the vast majority of the population) would be quite happy to shoot you and take your treasure.
Unless you have a better idea, there would need to be some kind of new banking system. Indeed, I shudder at the thought of those two words, considering the havoc they have wrecked on our lives, but the thought of heavily armed citizens, sitting in their homes guarding a gold-filled safe is even more ridiculous. As for the “new” bank, I’m not thinking of the “traditional,” fractional-reserve, over-leveraged madness we see now, but something that stores precious metals, for instance, and allows customers to make payments with a currency or cheque that is tied to their physical holdings. A modern version of the gold standard, perhaps.
Makes sense? Eric Sprott thinks so. One of the loudest critics of the paper currency empires, the Canadian financial heavyweight is pushing for a currency trading company that allows customers to store bullion in the form of savings/chequings accounts. Sprott Asset Management and Continental Currency Exchange Corp are applying to the federal regulators for permission to turn Continental’s 17-branch operation into the “Continental Bank of Canada.” This bank would not loan out money—a vast departure—but would take bullion deposits and allow customers to issue cheques against those holdings. The idea, preached in a recent article, is “providing service instead of credit,” says Scott Penfound, VP of Operations at Continental Currency.
I like this idea and I believe that investors and, well, everyone should pay attention to the regulators’ decision regarding the bank, which we will hear about next year. If the bank goes ahead, it could provide us with a testing ground for an eventual new monetary system and a return to a commodity-backed currency. The positive is that the bank, presenting an unleveraged system with safe holdings, would allow customers who don’t trust government-backed currency with a viable, consumer-friendly way to store (and keep) their wealth. The negative is profit: besides banking fees, would profit come in the form of re-investing bullion in bonds? Trading on the daily/weekly/monthly bullion price swings? Help me out here.
The bottom line: this is a bank that would not do what the vast majority of banks do–and that is create ridiculous wealth for their owners based on outrageous leveraging and fractional reserve lending. I’d like to see that happen.
Chris Devauld
ProspectingJournal
