1. Gold coins are the natural money, free access to it is a natural right.Gold is among all known goods and commodities the best medium of exchange: it is divisible, transportable, durable, widely known and appreciated, etc. Gold in the form of coins has developed slowly over thousands of years as the most suitable form of money. Gold coins are in this sense the natural money.
Loans, deposit money and bank notes were originally warehouse receipts for gold coins and could at any time be exchanged free of charge back into gold coins. This direct link to gold was gradually relaxed, and finally cut off on August 15 1971 completely by President Nixon, when he officially suspended the convertibility of dollars into gold. Since then paper is no longer covered by gold, but at best by foreign currency reserves, ie by other paper money.
Fiat money has advantages and disadvantages, just like gold backed paper money. But gold coins are historically the natural predecessor of the paper money, and therefore the right to be able to use not only fiat money but also the “natural” gold money is comparable to the self-evident right to choose, next to artificially modified foods, also natural, organic foods.
2. A Gold coin currency is the ideal complement to paper money and increases security for everybody
On the other hand, paper money and electronic money are even better suited as a medium of exchange than gold coins. They are cheaper to produce and even more simple and more practical in use. But experience shows that paper money is less suitable as a store of value. Since the tie to gold has been cut, paper money has consistently lost value. What is more: inflation, i.e. the increase of the money supply and a concomitant and constant loss of purchasing power is the goal of many central banks.
Gold, however, has for millennia been a good store of value. This has been true, also in the medium term, even since 1971. Gold is less suitable as a medium of exchange for daily use, because of the relatively large short-term price fluctuations.
Gold, as a stable store of value medium-term, is the ideal complement to the form of money most suitable for the short term: paper money. A Gold coin currency is the ideal complement to today's paper money system, or as Professor Peter Bernholz titled his excellent article in the NZZ, Switzerland’s most reputable daily Newspaper on August 16, 2012: "A Franc-gold-combination would bring more security."
3. Gold has two uses: as a commodity and as a (potential) medium of exchange. The demand for gold as a medium of exchange reflects people’s worries about the paper money system.
The function of gold as a medium of exchange is unique among all commodities. If there were no paper money, gold, in the form of coins, would be the next best medium of exchange among all goods and commodities known today.
The gold price is therefore a combination of the demand for gold as a commodity and as a (potential) medium of exchange. Two thought experiments:
In the first case we assume the extreme and theoretical case - that for some unimaginable reason, gold forever loses its function as a medium of exchange or, what amounts to the same thing, that all people develop an eternal and unshakable confidence in paper money. No one will ever again even imagine that gold will be used as a medium of exchange or as money. Gold in this case would be a commodity like any other commodity, the price of gold would be reduced logically to be priced as a commodity, as a raw material for jewelry and industrial uses. Importantly, this would also be true for investments in gold as a real value. Investing in gold would then be like investing in any other raw material, the gold price would have lost its monetary component.
In the second case we assume that all paper money is rendered worthless by global hyperinflation. Nobody wants to hold paper money at any price, because it is worthless as a medium of exchange. In this case, gold and silver coins would be back and would be the next best alternative to the previously used paper money. The purchasing power of gold, the exchange value of a gold coin expressed in goods that it can be traded for, would greatly increase. If gold coins were to replace all current money, we can already today approximate the exchange value of money per unit of weight of gold: it would be roughly all the money in the world today divided by all the gold. This will be an exact number of paper money per gram or ounce of gold. This price of gold, or what amounts to the same thing: this purchasing power of gold per unit of weight, would be multiplied manyfold compared to today.
Today’s market price of gold fluctuates between these two extremes and reflects the concern or confidence in paper money. The greater the trust, the smaller the price of gold and vice versa.
4. Taxes, regulations and prohibitions hinder the possible function of gold as a medium of exchange, shrink the gold market and distort the market price. A legally protected Gold coin currency on the other hand will allow gold to optimally fulfill its function as an ideal complement to the paper money system, especially for small savers.
The demand for gold as a (potential) medium of exchange increases as the worries about paper currency rise and it decreases, when the situation calms down. It is this medium of exchange function which makes gold an ideal complement of the paper money system. Gold complements the paper money where the later has weaknesses, and helps people to compensate for the weaknesses of the paper money. Gold completes the paper currency, it is its complementary currency.
But gold can only fulfill this function as a perfect complement to the paper money system if it can be used, if desired, in reality, in daily life as a medium of exchange. This in turn will be most easily possible if gold can be, today already, traded easily, practically and legally protected.
Today many countries levy taxes, restrict the minting of coins and know legal uncertainty. In the U.S, for example, all gold purchases and sales must be registered with the federal tax office since the beginning of 2012. Switzerland has trade restrictions imposed by the currency and minting laws and taxes are always an issue. All this will hinder gold to function as a medium of exchange.
Taxes and restrictions prevent small transactions and hinder the use of gold as a medium of exchange. To illustrate, just imagine, for example, all of today's franc coins were banned and only large paper notes and coins were legally permitted. A large part of all small business exchanges would be impossible, the use of money massively curtailed. For gold this is precisely the case today: Coin and Currency laws prohibiting the production of simple, small gold coins, suitable for everyday use. Another example: suppose paper money would be taxed at each use. There would, therefore, not only be a VAT on the purchased property, but an additional transaction tax on the money itself. Money would immediately become less attractive and barter would increase instead. This is what is happening today when the buying and selling of gold is taxed, as is the case in many countries today.
Prohibitions and restrictions thus prevent potential small business transactions and financial products for small savers. The volume of the gold market remains small with corresponding implications for the gold price. A study recently confirmed that only about 13% of Swiss possess gold. With a Gold coin currency this percentage would certainly be closer to 90%. In other words the gold market under current conditions will continue to be restricted mainly to the wealthy and to experts.
Imagine, finally, that gold ownership is banned altogether. That sounds exotic, but it is not. The United States, the symbol of economic freedom, nationalized in 1933 all privately owned gold. Private gold ownership remained illegally until 1974. Under such circumstances, gold would not become a medium of exchange until after a complete collapse of the paper money system and until the gold ban could no longer be enforced. The price of gold under such circumstances is degraded to pure speculation on the paper money collapse.
A Swiss gold gold coin currency will give gold a constitutionally protected money status, it makes gold accessible to small savers and enlarges and stabilizes the gold market. It allows anyone, even with a small sum, to use gold as the optimal hedge and complement to the paper money system. It will lead, according to the above described logic, to a larger market and more stability with corresponding implications for the gold price. A stable gold price will then open up new possibilities for its use, etc., etc.
5. The existence of a Gold coin currency will discipline the paper money system. It will make a catastrophy less likely and will render it, should it occur, more bearable.
Let us imagine the worst case3: the quantity of paper money is increasing ever faster worldwide, its value decreases first yearly, then monthly, daily, hourly, a global hyperinflation occurs. In every hyperinflation there comes a certain moment when suddenly nobody accepts any paper money anymore. Commerce breaks down immediately and completely. On a worldwide scale this would mean, within no time, chaos, war and famine.
If at the time of the disaster a practical, proven and well-known Gold coin currency exists, this will allow for a relatively orderly transition to a new monetary system. Moreover, if there is such a simple, practical and legal Gold coin currency, these coins would have long before the disaster gradually came into use. But if suddenly more and more people started using gold coins in their daily lives the paper money authorities would no doubt notice and they would have an interest in reestablishing trust in the paper currency and thus to avoiding the catastrophy.
A Gold coin currency can in this sense discipline the paper money system and protect its long-term existence.
1 Frank Vischer, monetary law, Basel 2009: decision of the European Court, 23.11.1978: "Krugerrand" a South African gold coin, "in the member markets in which they are traded they are treated as money .... Its trade must therefore be classified as a currency transaction that does not fall "under Article 30-37, - ... thus it is money and not a commodity, and no import, export and transit prohibitions or restrictions are allowed, only to the rules on the free movement of capital and payments
2 Singapore has abolished its VAT on gold as of 1 October 2012, while the Swiss VAT authorities are supposedly studying if such a tax can be introduced in Switzerland.
3 Ben Bernanke, 13 July 2011: "People hold gold as a protection against what we call tail risks, really, really bad outcomes and to the extension that the last few years have made people more worried about the potential of a mayor crisis they have gold as protection"