> Now suppose that 19 other banks do the same thing and have the entire gold > stock in their vaults. Bank deposits are used as money rather than coins as > before. (i.e. the 10 000 oz of deposits act as the medium of payment rather > than the 1 000 oz of coin). > > How does this affect the balance sheets of the participants in the closed > economy? The initial stock of wealth was held as 1 000 oz in coin, and 15 > 000 oz in equity. The new distribution is 8 000 oz in bank depsoits and 8 > 000 oz in equity. The stock of wealth is the same, the form in which it is > held has changed. The value of money is unchanged and bears no relation to > the quantity of money.
So far so good. But now you have arrived at 8000oz in bank deposits while there is only 1000oz in real gold (coins). These banks will be forced to do the same what the USA did: announce that bank deposits are no longer redeemable for real gold. If people come to cash out 20% of their bank deposits you already need 1600oz of coins and there is only 1000oz of them... I agree that the value of money is unchanged here, but you have already introduced something like the US dollar, no longer backed by real gold, but by the value of the assets in this economy. And that's what I was saying: as soon as you introduce borrowing and interest rates, you already off the gold standard. > The monetisation of assets changes the form of wealth from non-monetary to > monetary, and so increases the quantity of money. It does not influence the > value of money. I agree. The new dollars are created when somebody borrows money, so normally he will have put up some collateral, and that becomes the backing of these new dollars. The quantity of money was increased, but it does not influence the value of money. Danny --- You are currently subscribed to e-gold-list as: [EMAIL PROTECTED] To unsubscribe send a blank email to [EMAIL PROTECTED] Use e-gold's Secure Randomized Keyboard (SRK) when accessing your e-gold account(s) via the web and shopping cart interfaces to help thwart keystroke loggers and common viruses.
