"What you say is true (altho it would violate the terms of governance
of the e-gold system) but it is beside the point of what I understood
to be the original topic. Namely, the assertion that the use by
a 3rd party, such as SR, of e-gold to back another currency, such
as AUG, would introduce risk to e-gold itself."
That was not the point of my original post , actually. The point was,
fractional reserve banking in gold will do one or both of the following:
1. It will increase the supply of "gold" on paper - thus contributing to
gold's loss of value against other goods and services, hurting all holders
of gold, even if only infitesimally. The widespread adoption of this
practice will most certainly keep the price of gold down just as gold
derivatives on paper are assisting to keep the price down today. To put it
in the simplest terms - fractional reserve banking and/or derivatives will
cause the total amount of gold in everyone's books to greatly exceed the
actual amount of gold in the world. The growth of this paper gold supply
steals value from the holders of gold by passing something as gold that
really isn't.
2. It will cause the particular currency that is being issued to devalue
against 100% backed currencies.
While the growth of the "ether-gold" supply will hurt the currency of the
fractional-reserve institution the most, it will also hurt ALL holders of
real gold by "adding dross" to dilute the pure metal. It is a subtle form
of theft. It breaks the command "thou shalt not steal" which is fundamental
to the success of a free-market economy.
I would also like to reiterate that there is nothing wrong with lending or
creating debt-based instruments, as long as it is done in such a way that
only one person actually owns the gold at a given instant in time. In other
words, when I lend 1000 grams at interest to the bank, Metalsavings, or
whatever, I should not have a demand account that says I have 1000 grams of
gold. In order to lend at interest without creating a fractional reserve
system, there has to be a time contract associated with the loan. I give up
the money to the borrower for x period of time to be paid pack at y%
interest.
I agree that the GoldMoney clause is rather vague. If GoldGrams are money
and I want to borrow $1000 from a bank using my 100 grams of GoldMoney as
collateral, why shouldn't I? It would be interesting to find out
GoldMoney's intent behind the clause.
HK Kid
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