The Next Attack on Gold Has Begun

When governments want to expand power over the monetary system, they invoke the need to clamp down on money laundering by criminals. There is a problem here. After these laws and new rules are passed, crime never goes down, but our privacy does. That is a problem for us. It is not a problem for governments.

The Toronto Globe and Mail ran a story on money laundering and new Web-based businesses that allow people to buy small amounts of gold and then spend this gold as money.

The development of these businesses is the preliminary step to the restoration of private money. This is regarded with great hostility by national governments and central banks. National governments ever since 1914 have worked with central banks to remove gold from circulation as money. This began with the outbreak of World War I. It has never ceased.

The development of the credit card was the culmination of a dream of every fractional reserve banker. Bankers in a fractional reserve system have always feared the withdrawal of currency by depositors. This reverses the fractional reserve process. It shrinks the money supply.

By substituting digits for currency, bankers have solved this problem. A depositor can move digital money out of his account, but it is transferred to another digital account. The system does not lose deposits. When someone withdraws currency and does not redeposit it, the money supply declines. So, credit cards are a banker’s dream come true. The threat of bank runs by depositors has ended.

But now a handful of small companies have offered depositors a way to substitute digital money for gold stored in a vault. This gold can now be spent digitally. This creates the threat of a rival form of money.

Hardly anyone accepts gold for transactions. So, the threat to banks is remote today. It is merely the first hesitant step in the creation of an alternative monetary system. Yet this threat has aroused the hostility of some government organizations: those that monitor money.

This alternative money avenue is tiny. Hardly anyone knows of these firms. Fewer still have signed up. Nevertheless, some government agencies are preparing to make war on these tiny firms. “This thing must be nipped in the bud.” The Globe and Mail reports on this new pressure by governments.

Canada’s financial intelligence agency warns that criminals may be exploiting Internet-based companies that convert cash into electronic gold, exposing a new front in the international effort to restrict terrorist financing and money laundering.

While other channels of money laundering are successfully being shut down, authorities are increasingly worried about a proliferation of “digital precious metals operators” websites that offer clients a chance to conduct Internet business in units backed by gold and silver rather than paper currencies.

The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, has produced a report on this supposed threat to the public. It’s bad, the report says. It’s huge. It’s everywhere. The reporter summarized this report. These companies are “facilitating millions of transactions on the fringe of the international financial system — the equivalent of a Wild West where legitimate businesses, privacy-seeking individuals and criminals can mingle just out of reach of the law.”

We know what the Wild West was. It was where the U.S. government had not sent a marshal to police everything. The Wild West was just out of reach of the law, meaning Federal law.

At stake is the effectiveness of the financial reporting rules that countries such as the United States, Britain and Canada enacted in response to the Sept. 11, 2001, terrorist attacks. A network that allows individuals to move money around the world means criminals can avoid commercial banks and other financial institutions required to turn over their records to the government.

You can see where this is headed. Legitimate businesses and privacy-seeking individuals are going to be told to surrender to the Greater Good of the Government in its program of stamping out criminals and terrorists. We all know how successful these government efforts have been so far. We are therefore supposed to accept more of the same.

“As financial institutions and non-financial businesses increasingly deter money laundering and terrorism financing, adaptable and technology-savvy criminals and terrorist financiers will likely see other unregulated, exploitable avenues to further their nefarious purposes,” concludes the report, which was made available under the Access to Information Act.

“Digital precious metals may become one of them.”

The horror!

One firm that offers these services is Goldmoney. ( Its vault is located in London. The company is outside the jurisdiction of Canada and the United States. It has done a great deal to restrict access by criminals. But none of this matters to governments. The firm’s offense is that it offers a way for individuals to escape mass price inflation, which is always the creation of central banks. This escape hatch is considered criminal by governments.


When a society’s monetary system is based exclusively on private contracts and voluntary exchange, civil governments find it difficult to make money by counterfeiting. They cannot directly control the monetary system. They can influence it through legislation and the courts by altering what constitutes a legally enforceable contract. The main interference here is a government’s decision to allow banks and private storage facilities to issue receipts — IOUs — for gold or silver that are not covered 100% by the quantity and fineness of the metal promised on the receipt. This violates private contract law. It authorizes fraud. It legalizes counterfeiting. But the government is not helped much by this interpretation of contracts. Banks and warehouse storage facilities are the main beneficiaries.

The history of civil government has been a history of the governments’ assertion of sovereignty over money. They do not prove the case for such sovereignty as an inherent attribute of civil government. They do not even mention this theoretical problem. There merely enforce the principle by law.

There is a reason for this. All civil governments, with the lone exception of Byzantium from 325 to 1453, have deliberately tampered with the metal content of the monetary unit. They have practiced counterfeiting. They have added less expensive metal to the silver or gold and have then spent the new money into circulation at the older, higher value.

This is theft. Governments steal from naïve, trusting individuals who sell at yesterday’s prices on the assumption that the nation’s official counterfeiter has not, coin by coin, stolen silver or gold and replaced it with tin or some other base metal. The skeptics see what has happened and raise prices, or they borrow with the intention of repaying the loan with money of reduced purchasing power.

Counterfeiting, when practiced by a private agency not licensed by the government, is denounced as theft and is prosecuted by the government. On the other hand, whenever counterfeiting is practiced by a national government or a government-licensed central bank and fractionally reserved commercial banks, this is referred to as scientific monetary policy. It is heralded by free market economists as being in the public interest.

Central banks are charged with the responsibility of carrying out monetary policy. The major purpose of the Federal Reserve System (and other central banks) is to regulate the money supply and provide a monetary climate that is in the interest of the entire economy. (Gwartney & Stroup, Economics, 4th edition, p. 281).


Sometime around 750 B.C., the prophet Isaiah identified the practice of monetary debasement as one of a series of government acts against the public interest.

Thy silver is become dross, thy wine mixed with water (Isa. 1:22).

The process of debasement, he argued, was initially moral debasement. It affected the entire nation. “Wash you, make you clean; put away the evil of your doings from before mine eyes; cease to do evil” (Isaiah 1:16). Then it became judicial debasement. “Thy princes are rebellious, and companions of thieves: every one loveth gifts, and followeth after rewards: they judge not the fatherless, neither doth the cause of the widow come unto them” (Isaiah 1:23). But its most visible mark was monetary debasement. This led to the debasement of wine, i.e., product quality debasement. He warned of God’s wrath to come.

Therefore saith the Lord, the LORD of hosts, the mighty One of Israel, Ah, I will ease me of mine adversaries, and avenge me of mine enemies: And I will turn my hand upon thee, and purely purge away thy dross, and take away all thy tin (Isaiah 1:24—25).

Academic economists refuse to identify monetary debasement as a moral issue. Economics textbooks at every level discuss fractional reserve banking in terms of technical issues, never moral issues. The only exception is Murray Rothbard’s little-known textbook on money and banking, The Mystery of Banking. He identified fractional reserve banking as immoral. It involves theft. The book was never adopted by any economics department. It soon went out of print. You can download it for free here.

There is moral cause and effect in society. Because counterfeiting by any agency is immoral, because it deliberately forces the redistribution of wealth from those who spend the money late in the process, after prices have risen, society suffers. An assault on the integrity of contracts undermines cooperative ventures.

Whenever the government or its licensed monopoly, the national central bank, spearheads this assault, the public is unable to defend itself. It does not even suspect there is a problem until the rate of price inflation is widespread. Even then, the government and its spokesmen blame speculators for rising prices.


Jesus said, “But when thou doest alms, let not thy left hand know what thy right hand doeth” (Matthew 6:3). His point was that we are not to seek fame from our giving.

Take heed that ye do not your alms before men, to be seen of them: otherwise ye have no reward of your Father which is in heaven. Therefore when thou doest thine alms, do not sound a trumpet before thee, as the hypocrites do in the synagogues and in the streets, that they may have glory of men. Verily I say unto you, They have their reward (Matthew 6:1—2).

That thine alms may be in secret: and thy Father which seeth in secret himself shall reward thee openly (Matthew 6:4).

In the field of civil government, the right hand ought to know what the left hand is doing. Otherwise, policy may be at cross-purposes.

This is what monetary policy is in the United States and Canada. Both nations produce gold coins. They are not really coins. They are not counted in the money supply. But they look like coins. People can buy them.

Problem: evil criminals and terrorists can use these non-coins in their nefarious plans. These non-coins leave no paper trail of digits.

My advice is that we should take advantage of the governments’ schizophrenia. If we can legally buy a little future freedom, we should.

I recommend using digital gold storage facilities that are legally incorporated outside the United States, and whose vaults are also outside. But the little guy should first buy gold coins issued by his nation’s mint. Maybe after the first $10,000, he should consider an off-shore vault program.


The war on gold will continue. For my free Ebook on this, click here.

May 28, 2008

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2008