Friday, 29 Mar 2013 07:43 AM

By Barry Elias

Sovereign currency manipulation can be severely curtailed if we require the currency to be backed by real reserve assets, such as gold and silver.

The reserve requirement would be similar to that used by banks to guarantee they have adequate capital to cover future losses. These bank losses can arise from loan defaults, poor asset/liability transformation and inadequate investment strategies.

In the case of currency reserves, the reserve assets would represent 10 to 20 percent of the total money supply. It would require an investment of labor, capital and raw materials to produce these assets, which become a proxy for the cost of production in the general economy. This investment would preclude a distortion of resource allocation by sovereign interests.

The current and projected supply of gold and silver would be adequate to provide this level of protection. This methodology would help reduce the excess credit and debt formation that has wreaked havoc with our global financial system and undermined our economies.

In the past, we only used a gold reserve to back currencies based on a fixed price of gold. For this strategy to work, gold and silver must have a floating price mechanism to accurately reflect the true demand and supply of these commodities, ensure purchase price parity across time and geographic areas and prevent excessive sovereign currency manipulation.

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