15 December 2010

The American Open Currency Standard(AOCS)

I am a big fan of real currency and recently while checking around for silver rounds and other metal rounds, I found something new(God/Goddess bless the internet). Before I tell you about it, let me speak, briefly(if that is possible), about 'real currency'.

'Real currency' to me is using a commodity of value to trade for another commodity. The 'greenback'(US Dollar), you hold in your pocket is a 'real currency', in that it is physical and has a value, however its actual value is far lower then you think it might be. Take a $20 US Dollar bill, is it worth $20 dollars? Yes, it is in that everyone would willing accept it for $20 dollars of commodities. No, it isn't, in that without the Federal Reserve in existence, it would only worth the ink and paper it is printed on, far less then the 'face value' of the 'bill'.

My personal preference for 'real currency' are silver rounds. My reasoning is that I like to exchange silver, rather then use Federal Reserve Notes(FRN's), and gold and platinum are too high in 'value' to exchange whereas silver, traditionally, has been pretty low so that a quick trip to the store for less then $20 in commodities is possible. Copper has started to rise in the lower value, so I may start exchanging in those soon for my currency needs.

So, I found the American Open Currency Standard(AOCS) website, and started reading about it. I'm member of the now defunct Liberty Dollar, the largest private currency competitor to the Federal Reserve Note, and so I'm happy to see the AOCS picked up where the Liberty Dollar(LD) left off. Rather then being a producer/distributor of a currency however the AOCS is similar to a trade association in form. The purpose of the AOCS is to create a system of standards upon which people can reliably exchange currencies.

The nice thing about the AOCS is that they offer, as the LD offered, a market rate for the price of silver in relation to the FRN. A lot of people have a problem with this 'market valuation' that both the AOCS and LD have, because they have far too long relied on other people telling them what their currency is worth. Let me try to give an example of this.

Currently the AOCS standard exchange rate is 1 oz silver to 50 FRN's. The New York market exchange rate(the rate most people use to value silver, which is silly because the rate is based on 5000 troy oz exchange, not on an oz for oz exchange) is roughly $30 dollars. What this means is that an individual can exchange their 30 of their FRN's and get 1 oz AOCS approved silver. They can then turn around and, merchant/individual willing, exchange that 1 oz approved silver for products or services equal to 50 FRN's.

It takes one with very little math skills to see that 30 to 1 back to 50 is not an equal formula. And this is where most people stop thinking. The path from 1 back to 50 is not equal and so someone is losing value somewhere.

Firstly, when two people exchange something they agree that in the exchange the items being exchanged are of equal value, if it weren't then they wouldn't be exchanged in the first place. So, just because one exchanges 30 FRN's for 1 oz AOCS silver and then exchanges it again for 50 FRN worth of goods or services, doesn't mean that someone is losing value, if  they were they wouldn't exchange.

Secondly, if you exchanged 20 apples for 1 orange, you are going to make sure you get something of equal value for that orange. Value isn't determined by markets, or by groups of people, value is determined by two individuals exchanging one thing for another thing. A man with 1,000 gallons of water is a millionaire in a desert where there is very little water, but he is Joe Shmo when he is near a fresh lake. In this way, a man who accepts a 1 oz AOCS silver in exchange for 50 FRN's value of products and services isn't losing value, because -when- the market fails, he have more value then a man holding the 50 FRN's. More to the point, it puts the man holding the AOCS silver at an advantage because he has a storage of value and as not subject to inflation, market collapse, or any other factors which might cause him to lose value. Is that worth the additional 20 FRN's of value that he appears to be losing?

The long held quote is that 'bad money chases out good money', which is to say that in order to get people to use good money an incentive needs to be made to get them to use it. For example we see people buying AOCS silver and trading it for AOCS market rates as a way of incentivizing people to use AOCS silver currency. When the Bob the Builder takes in the ounce of AOCS silver for 50 FRN's he is giving a discount for his services to get something he values more then the FRN. He can then turn around and exchange that AOCS silver for 50 FRN's to another AOCS member, or he can take the 'loss' and exchange it for most of its value at 30 FRN. Most likely he will keep the AOCS till he can find someone willing to exchange 50 FRN's for it, or near that value.

The 1 oz of AOCS silver once spent into the market place now has a value of 50 FRN's, and it will maintain that value, assuming the market never changes(which it will of course, but not in the short term, at least roughly 45 days). Others who believe in market standards will accept the AOCS silver for 50 FRN's because they believe that a currency based on value is superior to that of someone who values valueless currency(FRN's). Those who don't accept the AOCS silver for value will continue to hold on to valueless currency.

Ask yourself, which has more value, 30 FRN's or 1 oz of silver?  Look at the long picture, if your are saving FRN's, what are you saving? Pieces of green inked paper which currently have value only because someone says it has value. If you were saving silver, you are saving something that will always have value, not because someone says it has, but because it always has had value.

I say this not to scare people, but rather to make them aware of the danger of saving FRN's of the long period. When the market crashes, when hyper-inflation hits, when the bubble bursts on the FRN, will you be holding valueless paper, or will you be holding something that historically has always had value? Me, I'm saving silver who's value is objective, not paper who's value is subjective.


Jeremy said...

Hi, I'm Jeremy.

I was the Liberty Dollar RCO for Denver, then the marketplace director for the American Open Currency Standard. Currently, I have created and run the FreeWorldMarket website which is an online mall that uses silver AOCS currencies.

I am going to link to this article from my site - I like the simple way you explain the face value.

Forrest said...

Thanks, Jeremy, I'm glad I had the ability to do it.

Often I find myself trying to explain 'complex' ideas as a computer support tech. I have found it to be really helpful to try to show people a complex idea by equating it to a simple idea.

Currency exchanges aren't really a complex idea. You don't have to know how a car works to drive one, in the same vein you don't have to know how exchanges work to use one. Of course you do need to know how to trade.

I'll look over your site and perhaps do an article on it.