Financial Freedom

Everything that brings closer the idea of financial freedom, sound money, decentralised banking and emerging alternatives to the outdated banking system and fiat currency.

Read below articles about bespoke monetary solutions and sustainable, ethical ways of saving and investing your capital.

Learn more about the best ways of securing your portfolio, libertarian and decentralised alternative financial solutions, future investing and beyond. Join the future of money with Kinesis.

Marking 50 Years: the Fall of the Bretton Woods Agreement

50 Years Without a Gold Standard: fiat currency post-Bretton Woods Agreement, as discussed in Rickards’ book: “The New Case for Gold” Yesterday, Sunday, August 15th, marked a significant time stamp in the history books, as 50 years since the fall of the Bretton Woods Agreement and gold-backed US currency.  The Agreement of 1944 was the beginning of a foreign exchange system that promoted economic growth on an international scale, forged as a safe-guard against the devaluation of the dollar (USD). Perhaps more importantly, the resulting social cohesion among independent states after WWII was vital for stabilising market volatility on a wider scale. However, this came with the caveat that all participating countries would peg the respective value of their currencies to the dollar. Considering the importance of the Agreement retrospectively, the global reliance and exchange of the dollar have largely contributed to its existence as a major currency, currently involved in over 80% of all foreign exchange transactions.  With an end to the Bretton Woods Agreement in 1971 during Nixon’s presidential campaign, foreign currencies became free-floating on the foreign exchange market, as was the case for larger economies like Great Britain, Japan and the US. Without the ability for the American citizens to claim gold as before, investors looked for private intermediaries to house their gold or to participate in high-risk strategies like Exchange-traded funds (ETFs).  The New Case for Gold Despite the eradication of the gold standard in 1971, it is clear that the enduring value of this precious metal persists today. Bestselling author on matters of finance and precious metals James Rickards explores this momentous event in “The New Case for Gold” as well as debunking age-old myths that surround it.  According to him, the process of separating gold from the dollar confirmed rather than undermined gold as a lucrative asset for preserving value. Whether that value is intrinsic or subjective, humanity’s usage of gold as a currency throughout time can be pinned to its pre-requisite properties of “scarcity, malleability, inertness, durability, and uniformity.” His title recognises the renewed importance of monetary systems based on gold, saying: “In the absence of an official gold standard, individuals should go on a personal gold standard by buying gold to preserve their wealth” While the rationale behind a personal gold standard is varied, this pursuit entails low-risk investment in a stable asset that can provide a safe-guard against inflationary threats. In times of global crises, investors look to gold as a “safe haven”, since it is an asset increasing in value rather than depreciating. The Future of Gold Post Bretton Woods Agreement, it is certain that the future of money is digital. Clearly, the move towards decentralized digital asset management is becoming a widespread reality for those seeking to diversify their portfolio.  As central banks follow suit with digital currencies set to represent fiat, the direction towards digital rather than paper money is already well underway. As Rickards mentions in an interview about his new release, the answer of a digital gold-backed currency with an accompanying debit card to spend owned gold would bring back a new kind of gold standard. Making gold a spendable asset, rather than a hoarded one, enables its circulation in the wider economy. This means that gold can be defined as money in terms of a store of value but also a medium of exchange and unit of account.  A New Bretton Woods Agreement Going forward, the future of gold and gold-backed currency is already in progress. However, whether the gold standard will be introduced to currency on a global scale is another matter. One of the reasons the Agreement fell was the great undervaluing of the price of gold, which meant that gold production would not be sufficient to provide the resources to finance the growth of global trade.  However, as Rickards highlights, when gold is priced on an analytical, not political basis, this enables its sustainable endurance as a form of money. The Kinesis Solution At the time of speaking, he notes that gold was historically a non-yield producing asset, sitting stagnant in vaulted infrastructure for long periods of time. This made it impractical for daily use and inaccessible as an exchangeable asset. However, the Kinesis system participants can not only store their gold with zero fees but can also generate a yield, whether it is spent or simply held in a user’s wallet.  Rather than a Monetary System built on principles of risk or debt, yields are acquired from mutual transaction fees drawn from the entire Kinesis ecosystem. Whether the future monetary policy will mimic the principles of the Bretton Woods Agreement is uncertain, but a global want for fair and ethical monetary systems is without question.

Latifa Alkhanjary
Latifa Alkhanjary

16/08/2021

The Ease of Redemption with Kinesis

How Kinesis stands out on a physical silver market and why there is no better place for redeeming your precious metals. How much could physical silver be worth if its price was not artificially suppressed for years? Is the recent Reddit uproar an indication that a cannot-be-missed moment to invest in precious metals is happening right now? Is it attainable for a small trader to participate in silver’s miraculous multiplication without the excessive redemption fees proving to be unconquerable? The short answer is - Yes Silver has long been considered the ‘people’s money,’ having a price 70 times lower than gold and therefore being far more affordable for an independent day trader. But is that enough to make it widely accessible for a small investor? It turns out that’s not always been the case. Most providers fail to recognize the importance of making physical silver easily accessible for an enthusiastic individual. Owning silver is still associated with exorbitant redemption fees and inaccessible withdrawal minimums, typically established at 1000 ounces and higher. The Kinesis Solution Kinesis understands the necessity of accommodating easy access and redeemability for an individual investor. Motivated by providing security and reassurance to the trader, the Kinesis Monetary System offers a redeemable amount five times lower than the market standard, starting at just 200 ounces for silver and 100 grams for gold. Moreover, this approach enables maintaining one of the best silver prices across the market globally and dramatically tight spreads, currently as low as $0.21 per ounce for silver and $0.10 per gram for gold. *All information is correct at the time of publishing but may be subject to change. The Drawbacks of Owning Physical Assets Owning precious metals is typically combined with a wide range of inconvenient liabilities. From risks corresponding to storing the metals in-house, to the substantial expenses associated with depositing them into a vault. Let alone the enormous redeemability fees, additionally immobilizing already solidified assets. Moreover, in the case of investors deciding to obtain paper gold or silver in a bank, there is a 95% chance it will not be allocated. The physical metals market seems to be regularly dealing with yet another scandal, as it fails to meet surging buyers’ demand, interminably postponing deliveries of gold & silver bullion that may or may not be in their possession. Although it is a particularly appealing time to invest in physical metals, the buyers’ confidence is fragile, as the market has been offering limited protection. It is not surprising that investors are starting to pay much closer attention to the safety measures of the processes in which their assets are stored. Fully allocating precious metals is undoubtedly the safest direction to protect one’s savings, but it does not always encourage liquidity. Most importantly, exchanging and moving gold and silver is a considerably expensive procedure, with the leading companies offering high-priced redeemability fees and even higher withdrawal amounts. What is Physical Redemption? Redemption is the act of repayment or withdrawal of fixed-income security stored with a bank or a company. In the case of Kinesis, physical redemption describes redeeming the underlying bullion attached to the Kinesis currencies; digitalised physical silver (KAG), gold (KAU), and in the near future, digitalised physical emerald (KEM). As investors’ eyes turned towards physical silver, looking for the most reliable way to obtain and store their assets, it soon became apparent that most providers do not offer an affordable solution. The majority of businesses, such as PSLV, require 10 000 silver ounces, equating to ten 1000 ounce bars as their minimal redeemable amount - an insurmountable barrier for an average investor, rendering silver another unachievable luxury. Kinesis recognizes this market standard’s unattainability, offering a far more viable 200oz Silver and 100g Gold minimum, making precious metals easily accessible for everyone who wishes to secure their savings smartly. Moreover, Kinesis withdrawal fees also stand in stark contrast with the market norms, remaining as low as 0.45% plus $100 delivery cost, as presented in the table below. Withdrawal Fees In order to illustrate these numbers better, let us assume for a moment that the KAU market price is currently $60 per gram and 1 oz of KAG costs $30. The table below depicts calculations based on the minimum withdrawal amount for digitalised silver and gold. Withdrawal Costs Breakdown As an example, Wall Street Silver member, Jim Forsythe, recently redeemed 200 oz physical silver (200 KAG) from the Kinesis vault in New York. The total cost for redemption, including delivery, worked out as 8.17% above the spot price. View his meticulously documented due diligence post here. The Benefits of Bringing your Bullion to Kinesis Kinesis Redemption terms are certainly impressive when compared to the majority of popular providers, but depositing existing bullion in Kinesis vaults is an equally attractive opportunity. Transferring precious holdings into Kinesis’s vaults is not only free of charge but also an excellent guarantee of security. Kinesis vaulting partners; Loomis, Brinks and Malca-Amit, provide the most advanced vaulting technology and facilitate the logistical infrastructure to ensure your bullion is safe. Exchanging Physical for Digital (EPD) Gold and silver bullion can easily be brought into Kinesis, enabling higher liquidity and the benefit of a recurring yield. Exchanging physical precious metals for digital gold (KAU) involves a 0.10% fee and 0.20% fee in the and digital silver (KAG) case. *All EPD fees are waived until the end of the KVT Minting Offer period. Depositing Fees This is why Kinesis stands out on the Physical Metals Market. Security and Trust: KAU and KAG are backed by 1:1 allocated investment-grade gold and silver bullion, securely vaulted and comprehensively audited bi-annually by world-renowned independent auditors; Inspectorate International, a Bureau Veritas company, making it an ideal solution to mend trader’s tarnished confidence.Simplicity: Kinesis brings technologically-driven liquidity, efficiently combining physical gold and silver with blockchain technology, with every ounce virtually assigned to its owner.Depositing bullion with Kinesis ensures excellent protection in world-renowned vaulting facilities, with no storage fees. Additionally, digitalising precious metals allow it to benefit from the unique Kinesis Yields reward system.Redeemability: Last but not least, Kinesis understands the absolute necessity of making physical metals easily redeemable, positioning itself as a prime spot physical exchange to own physical silver, as well as gold. Conclusion There is no other exchange in the world that offers redeemability as low as 200 ounces. Excellent redemption terms not only offer vital reassurance but also facilitate the exceptionally tight spreads within the Kinesis Monetary system. As silver indeed holds the potential to outperform gold over the course of the next few years, there has probably never been a better moment to join the silver market uprising. What is even more inviting, it has never been this easy to own precious metals, in the history of investing. Kinesis removes all the obstacles that have been, until now, discouraging investors from enriching their portfolios with silver and gold. Digitalised, liquified, and with exceptionally low redemption fees, Kinesis KAG and KAU offer an unconquerable alternative to the traditional assets.

Natalie Laz
Natalie Laz

01/04/2021

Watch WallStreetSilver Interview with Kinesis CEO Thomas Coughlin.

The Kinesis CEO answers the most common questions asked by the WallStreetSilver Reddit Community. https://www.youtube.com/embed/QZhTt2pfSVU Is there is any other way to go, but gold and silver backed currency? Watch the interview to learn how Kinesis’ vision aligns with WallStreetSilver's mission: A brief explanation of the Kinesis Monetary System: 1:30How do we know funds in Kinesis are backed by physical silver: 7:30How can I be sure my gold and silver is stored in Kinesis vaults: 13:30How can Kinesis reward its users with recurring yields: 23:25Can users transfer and receive crypto from other sources: 25:55What Makes Kinesis Money auditors trustworthy and reliable: 32:30How is Kinesis bullion sourced? Is local delivery possible: 35:21How easy it is to move assets across countries with Kinesis: 54:30 In this video, Kinesis CEO, Thomas Coughlin is interviewed by Lee Justo and Jim Lewis from the Wall Street Silver community. They are accompanied by the movement leader, Ivan Bayoukhi. Thomas explains why he has donated 2000 ounces of silver ($53 000) to the Wall Street Silver group and why he believes it is Kinesis’ moral obligation to support the WSS in popularising physical silver and gold as everyday currencies. What is the KAG and KAU connection to the physical silver and gold? Inspired by the evolution of blockchain technology and the decentralised ledger system, Thomas has no doubt that “it is a natural progression to monetise silver and gold as well”. Thomas Coughlin explains how digitalising physical silver and gold opens up their accessibility, while allowing people to access an incredible store of value. As Kinesis believes that silver and gold should be money, it has digitalised them. Through backing KAG and KAU with 1:1 allocated physical precious metals, Kinesis has effectively created a closed-loop monetary system. As a result, Kinesis provides banking utility, which enables stacking, sending, trading, and spending of physical silver and gold, via the Kinesis VISA card. In a question from Jim Lewis, Thomas explains how Kinesis rewards users with recurring yields from the Master Fee Pool. At the end of each month, Kinesis redistributes a collective pool of wealth, accrued from global transaction fee revenue, back to users. As Thomas points out, every transaction within the Kinesis monetary system is beneficial for its users, with yields paid in KAG or KAU as a reward for participation. Thomas further explains that “Kinesis KAU & KAG are not cryptocurrencies. Instead, Kinesis uses blockchain as a decentralised registry for the allocated precious metal, bringing a digital level of quality assurance and enabling high liquidity, by facilitating transfers peer-to-peer”. How can I be certain that my physical silver is securely stored in the Kinesis vaults? Thomas addresses the aspect of security and trust within Kinesis, as well as the institutional heritage of the Allocated Bullion Exchange (ABX). The Kinesis CEO thoroughly explains the involvement of the independent audit and inspection specialist, Inspectorate International, a Bureau Veritas company and the Quality and Assurance Framework, according to which audits are coordinated globally on a semi-annual basis. Allocating physical metals 1:1 is the legal obligation of Kinesis Money. Thomas describes how Kinesis ensures exceptionally low redemption fees for its users. As an example, Wall Street Silver member, Jim Forsythe, recently redeemed 200 oz physical silver (200 KAG) from the Kinesis vault in New York. The total cost for redemption, including delivery, worked out as 8.17% above the spot price. View his meticulously documented due diligence post here. Thomas also explains the benefits of portfolio diversification and securing holdings in a multitude of ways. Stacking silver both physically and digitally, through a platform like Kinesis, enables liquidity, but also allows for taking advantage of the yield system and extremely tight spreads on the Kinesis Exchange. Thomas Coughlin’s parting thought: Kinesis took the greatest store of value and married it up against a highly efficient new age technology, to facilitate an effective medium of exchange, adding the yield component to supercharge the monetary system. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.

Natalie Laz
Natalie Laz

23/03/2021

The Advantages of Digital Silver Stacking

Kinesis offers a 21st-century solution to using gold and silver as money again. We believe in moving out of paper and into digitally represented, 1:1 allocated physical bullion. We believe in stacking physically as well as digitally and each holds value to the modern metalist culture. We put together a quick comparison of the differences between physically and digitally stacking silver. Digital silver stacking With physical stacking, there's all the benefit of touching and owning your silver in your possession, something that is undoubtedly held by you. As far as real-world utility, unfortunately, there’s no easy way you can use your silver coins or bars as an everyday currency, as highlighted in this video. Also, if required, silver can be difficult to liquidate, and there’s always some level of risk involved in keeping your metals at home. The upside of digital silver stacking is you can use your physical silver as money, holding your wealth in physical silver outside of the traditional banking system. You own fully allocated silver securely stored in the Kinesis vaults, in your name. Then, instantly convert your silver into fiat for spending on day-to-day items, as and when you need it. Of course, the only real disadvantage of digital silver stacking is you can’t take it out and look at it, whenever you want. That said, every ounce of physical silver underpinning KAG is fully redeemable, with low fees and low minimum withdrawals requirements. Additionally, with Kinesis you can earn a passive holders yield by stacking silver. How do I know my silver is really there? Kinesis has taken every step possible to make sure you know your silver is in safe hands. All precious metals are: Stored in world-class vaulting facilities without charge. Independently audited twice a year. Fully allocated, with legal title held in the holders’ name at all times. Fully redeemable. Fully insured. Audits All physical gold and silver bullion within the system undergoes independent, biannual audits by Inspectorate, a leading global physical commodity audit and inspection specialist. The results of all audits are available - here. Blockchain Record Every KAG (1 oz of silver) and KAU (1 g of gold) on the Kinesis blockchain can be viewed via this live link. Every time new precious metals are introduced into the system a record is stored on the blockchain, maintaining an immutable and irrefutable ledger of all gold and silver within the system. Kinesis then correlates the existing balance of our KAU and KAG on the blockchain to our vaulting infrastructure. Redeemable All precious metals behind Kinesis digital currencies are fully redeemable. So, if you do want to take delivery on your silver, you can redeem as little as 200oz, with a fee of 0.45% + $100. How can I trust Kinesis? Kinesis is born from Allocated Bullion Exchange (ABX), an Australian public company and leading electronic institutional exchange for allocated physical precious metals, with over 10 years of experience facilitating global trade. Kinesis brings the extensive vaulting network and precious metals trading experience of ABX to facilitate the trade of physical precious metals on a global scale. The ABX and Kinesis vaulting network extends across 12 vaults in 8 countries, including: Brisbane, Dubai, Hong Kong, Liechtenstein, London, New York, Singapore, Sydney and Zurich. How is storage free? All storage fees are eliminated by a share of global transaction fees charged across the Kinesis system, and the robust infrastructure of Kinesis’ bullion vaulting network, covering all major trading hubs globally. How does KAG benefit me? Digitalising 1:1 allocated silver is the next logical step in enabling easy access to true monetary value, which you can fully trust. Kinesis simply covers all the troublesome parts of holding your silver in safe storage for you, while allowing you to spend silver on day-to-day items, like a cup of coffee. Kinesis Silver (KAU) merges the best of physical and digital worlds, transforming physical silver into an optimal everyday currency, which you can spend whenever and however you wish. Fully accessible for instant conversion to fiat, as you spend it on the go. This means that you can hold all your finances in silver and gold, practically withdrawing completely from fiat and the banking system, and allowing you to fully regain control over the flow of your money. Kinesis enables using silver as money once again, and only touching fiat when absolutely necessary. With Kinesis, stacking silver earns you a passive yield Part of what makes Kinesis unique is that we give more than half of our global transaction fee revenue back to users, in the form of the Kinesis yield system. A 52.5% share of every transaction fee taken across the entire global monetary system is distributed back to the users, rewarding them for their participation. This means that with Kinesis, you can earn a passive holders yield, simply by stacking silver.

Sam Briggs
Sam Briggs

09/03/2021

Why mint with Kinesis?

Find out all of the ways minting has changed precious metals provision - and exactly how you can benefit. For as long it has existed, precious metals provision has faced a number of challenges. Many of which were thought inseparable from the properties of gold and silver themselves. It goes without saying that the value of physical gold and silver bullion necessitates secure vaulted storage, which brings with it poor liquidity and high storage costs. The inaccessibility and expense of traditional allocated bullion storage, act as barriers for many potential investors and traders. These shortcomings in provision cause most precious metals investors and traders to accept the counterparty risk of unallocated gold and silver, such as Gold ETFs and Silver ETFs. Another historic drawback of precious metals investment is the lack of yield. For example, investors must weigh up the costs of storing allocated physical gold bullion, against its merits as a hedge or a long term investment. Meanwhile, the difficulty of accessing large quantities of fairly priced physical bullion in tight markets, serves as a further deterrent. The wider precious metals industry has gone some way to address the individual challenges of gold and silver provision, but is yet to offer a complete solution. Kinesis brings together value, access, security and innovative profitability, providing investors and traders with allocated physical gold and silver provision unequalled in the space. The provision of Kinesis is exemplified perfectly in minting, the process of creating Kinesis gold and silver-based digital currencies. Through minting, Kinesis provides a lucrative access point to the chargeless storage and instant liquidity of Kinesis precious metals provision. Profitability For the first time in economic history, Kinesis has derived a yield from physical gold and silver bullion. In the case of minting, Kinesis minters can access a lifelong passive yield calculated from a percentage of all transaction fees collected across the Kinesis system. Prior to Kinesis’ conception, precious metals traders could only generate profits speculating on price movement, while investors held on to gold and silver for long-term gains. Kinesis yield-sharing technology has transformed gold and silver from assets solely of trade or investment into assets that generate a passive yield. Now Kinesis users have the option to mint the gold and silver they wish to trade or hold. In this way, Kinesis users are able to profit from precious metals investment or trading, while earning an additional recurring yield of gold and silver paid into their account monthly. Access to Physical bullion With each order in the Kinesis Mint, a minter brings new physical gold bullion (100g) or silver bullion (200oz) into the Kinesis monetary system. Minting provides Kinesis users with immediate access to large quantities of allocated physical gold and silver bullion, even in the tightest of markets. Kinesis is able to offer a constant, immediate supply of physical bullion supply due to our parent company, Allocated Bullion Exchange (ABX). ABX is a leading electronic institutional exchange for allocated physical precious metals, with over 10 years of experience facilitating global trade. Even in periods of exceptional global demand, ABX is able to provide Kinesis minters with a guaranteed instant access point to allocated physical gold and silver bullion. Bringing value to precious metals investors Once new gold and silver is minted, the unique value permeating all aspects of the Kinesis system becomes ever more apparent. Traditional allocated physical bullion storage providers are typically very costly, with banks charging as much as 1.5% annually. In an industry first, Kinesis provides securely vaulted allocated physical gold and silver bullion with all storage costs covered. Kinesis has made chargeless storage possible, through eliminating storage costs with a share of global transactions fees charged across the system. Additionally, the robust infrastructure of Kinesis’ bullion vaulting network, which covers all major trading hubs globally, assists in offsetting storage costs. Precious metals investors and traders no longer have to choose between the assurance of allocated gold and the value of unallocated gold, such as Gold ETFs or Silver ETFs. In offering allocated physical gold bullion and silver bullion, without storage costs or counterparty risk, Kinesis offers value and assurance unseen in the space. Access your physical gold and silver Kinesis offers users immediate liquidity of their physical holdings through a number of innovative access points, bypassing the inefficiencies of archaic industry infrastructure. Through the Kinesis Exchange, Kinesis enables the immediate, seamless and low-cost trade of allocated physical gold and silver bullion. Kinesis gold and silver-based digital currencies allow users to trade in physical gold and silver as simply and cost-effectively as paper gold and silver. The Kinesis VISA card presents Kinesis users with another avenue of instant liquidity, enabling cardholders to spend physical gold and silver for everyday payments. Kinesis cardholders eliminate the minimum requirements, high costs, and inefficiencies from withdrawing, and spending, physical gold and silver bullion. While offering more efficient routes to liquidity, Kinesis and ABX understand the absolute necessity of physical redemption in gold and silver provision. As a matter of imperative assurance, Kinesis provides physical redemption of all precious metals underpinning our gold and silver-based digital currencies.* Kinesis brings instant, technologically-driven liquidity to precious metals trading and investment. In combining physical gold and silver with blockchain technology, Kinesis has created the ideal solution for investors and traders alike. Minting provides Kinesis users with a dependable and uniquely lucrative access point to allocated physical gold and silver bullion. All securely stored with unrivalled value and innovative digital access native to the Kinesis monetary system. Kinesis offers minters groundbreaking profitability, chargeless storage and instant liquidity, distinguishing Kinesis from all other iterations of precious metals provision so far. If you want a video run-through of what minting is, the benefits, or how to do it, our Power of Minting page has all the answers you need - here. Start minting today. LOG IN

Sam Briggs
Sam Briggs

22/01/2021

What is Gresham's Law?

What is Gresham’s Law and what does it mean? The history behind Gresham’s Law, modern examples and its importance in terms of finance. Gresham’s Law can be described as a monetary principle that states that, “bad money will drive out good money.” The law was originally based upon the composition of coins and the overall tangible value of the metals used to make them. Since metallic currency use has dropped almost to the point of abandonment, Gresham’s law as a theory is now applied to the stability of different currency values in the global context. Gresham’s law states that overvalued currency will push out undervalued currency from circulation. What Does “Good Money” vs “Bad Money” MeanHow does Gresham’s Law Work? Why is Gresham's Law Important?The History Behind Gresham's LawGresham's Law Modern ExamplesThe Reverse of Gresham’s Law - Theirs’ Law What Does “Good Money” vs “Bad Money” Mean Gresham’s Law states that bad money will drive out good money from circulation. Bad money then becomes a currency in the market that has equal or less value compared to its overall face value. From there, good money becomes a currency that has greater value or the potential for more value. The basis of Gresham’s law involves the concept of good money (currency that is undervalued or more stable when it comes to internal value) and the concept of bad money (money or currency that is overvalued or possibly loses value quickly.) It can be assumed for this principle that both of these currencies are equally acceptable in terms of exchange, can be easily liquid, and are available to be used at the same time. Individuals in the market will opt to transact business with bad money and maintain hold balance on good money, as the latter has more potential to be worth more than its face value in the future. How does Gresham’s Law Work? Throughout the history of currency, coins have been composed of precious metals, such as gold, which gave the coins their natural value. However, over time, coin issuers would reduce the amount or percentage of precious metals used in their composition and attempted to implement them as full-value currency. The new coins with fewer precious metals would have less market value and would be traded at a discount or, simply, not at all, while older coins that actually were full-value would retain more value. As government laws establish that new coins must have the same face value as old coins, then new coins are now overvalued while old coins are legally undervalued. Governments and similar coin issuers would do this to gain revenue via seigniorage and use that revenue to pay older debts back into new coins at par value. Since the value of the metal in older coins are higher than metal found in new coins at face value, citizens have a very transparent incentive to prefer those old coins with higher precious metal content. As long as both types of coins must be treated as the same unit of currency, buyers will pass their less precious coins on as fast as they can and hold onto their older coins. These coins could be melted down and sold for the metal they contain or be hoarded to increased stored value. Bad money will then circulate through the market and economy, and good money gets removed from market circulation. The end of this process is known as currency debasing, in which there is a decline in the purchasing power of those currency units, leading to inflation. In order to combat Gresham’s law, governments will resort to messy tactics such as currency control and confiscations of precious metals. Why is Gresham's Law Important? Gresham’s law is important because it continues to play out in the modern economy for the exact reasons it was applied in the first place. It all comes down to legal tender laws. Without effectively enforced legal tender law, good money will drive out bad money because individuals can simply refuse to accept the less valuable currency as a way to pay for transactions. When currency units are mandated by law to be recognized at an identical face value. In today’s market, the link between currency and precious metals in the legal context has become a lot more tenuous and in many cases has been severed altogether, as paper money has been adopted along with Bitcoin and other purely digital currencies. This debasement, which continues today, has created a constant trend of inflation in most economies around the world. In particularly dire cases, hyperinflation can even occur where money isn’t even worth the paper it’s printed upon. When hyperinflation occurs, currencies from foreign sources will usually replace local currencies, which would be an example of Gresham’s law working in reverse. When a currency loses value quickly, people will stop using it quickly in favour of foreign currencies that are more stable, even if there are legal regulations in place. One example of this could be the case of hyperinflation in the nation of Zimbabwe. In 2008, the inflation of the country’s currency annual rate was about 250,000,000%. While the Zimbabwe dollar still had to be legally recognized as the main currency, most people in the country started to stop using it in everyday transactions, which led to the government being forced to recognize de facto dollarization of the total economy. As the country faced a devastating economic crisis with an almost totally worthless currency, the nation’s government could not enforce its legal tender laws. As more stable (good) money pushed out the hyperinflated (bad) money, the country’s economy recovered. In this context, Gresham’s law can just as well be considered across international currency markets and trade, since legal tender laws only really apply to domestic local currencies. In the global context, resilient currencies like the euro hold a lot more stability in terms of value over time and will often circulate as the international medium of exchange. That currency is then used as the global pricing reference for international commodities that are traded between countries. Currencies that are much weaker and a lot less stable, particularly currencies in less developed nations, will circulate rarely or not even at all outside of the currency’s local jurisdiction. With global competition between a variety of currencies, and without an individual global currency (universal currency), good money will continue to circulate and bad money will continue to be kept out of general circulation by the overall operation of the market. The History Behind Gresham's Law The phenomenon that Gresham’s law seeks to explain had been noted in the 5th century BC by Aristophanes. There is also reason to believe that currency devaluation had been recognized in a number of ancient sources, such as the Machpela Cave transaction and a few instances in the Bible. However, a sixteenth-century financial aid of the English Crown named Sir Thomas Gresham was one proponent of the law that explained the phenomenon to Queen Elizabeth I during a crisis with devalued shillings. The king before her, Henry VIII, had replaced a significant amount of silver in shilling coins with basic metals in order to inflate the government’s income without increasing taxes. The bad money would be used when possible, while the good money would be saved and thus would disappear from circulation. In his paper on the phenomenon, economist George Selgin broke down the interaction that eventually claimed Gresham’s name. “As for Gresham himself, he observed ‘that good and bad coin cannot circulate together'. In a letter written to Queen Elizabeth on the occasion of her accession in 1558,” said Selgin, “The statement was part of Gresham's explanation for the ‘unexampled state of badness’ that England's coinage had been left in following the ‘Great Debasements’ of Henry VIII and Edward VI. This reduced the metallic value of English silver coins to a small fraction of what it had been at the time of Henry VII. It was owing to these debasements, Gresham observed to the Queen, that "all your fine gold was conveyed out of this your realm.” Gresham's Law Modern Examples One example of Gresham’s law can be found in the United States today. Coinflation implies that a nickel’s metal content is worth just a little over 20% more than the nominal face. A writeup on Gresham’s law for Market Business News broke down how and why the U.S. Mint will likely use cheaper metal to make nickels. “It is highly likely that the US Mint will soon decide to use a cheaper metal to make nickels,” the article reads, “It will not want to continue losing money to the tune of one cent for each nickel it produces. Many believe that its current composition – 75% copper and 25% nickel – will be switched to steel.” Back in 2016, former President Barack Obama had signed into law a provision that would make it possible for the U.S. Mint to switch to a cheaper metal for nickels. “When the change does happen, Gresham’s Law will definitely go into effect,” the article continues, "The copper/nickel coins will be hoarded and disappear from circulation – the new ‘bad’ money made of steel will drive out the ‘good’. Hoarding these nickels is risk-free. If their metal content is not switched, each one will still be worth a nickel.” This change could take quite some time, but the chances of it happening are fairly high. Bitcoin is another example of Gresham’s law in place. In the recent Kraken 2021 Crypto Market Outlook stream, Kraken strategist Pierre Rochard broke down why he believes bitcoin will be extremely popular in the market in 2021 and how it relates to Gresham’s law. “My boldest prediction is that if we take the S&P 500, the world’s largest corporations, I think that by the end of 2021, more than half of them will have Bitcoin on their balance sheet, and I think that will be driven by simple economics, which is that issuing shares to buy Bitcoin causes your stock price to go up more than the dilution,” said Rochard, “And so because that is the case – we have market data showing this – we’re going to see a huge amount of corporate adoption of Bitcoin, and we’ll even see like what [MicroStrategy CEO] Michael Saylor is doing, corporations issuing large quantities of bonds, fixed-income instruments – whether they’re convertible or whatever – in order to just bulk buy Bitcoin. So the way the sound money drives out bad money is what’s called Thiers’ law. And Thiers’ law is actually the inverse of Gresham’s law. And Thiers’ law, really the practical implication of it is that eventually, the recipient of the payment – not the sender, the recipient of it – is going to refuse fiat.” It’s likely that USD is going to lose value quite fast, so corporations will be much more interested in bitcoin. In fact, many companies convert their USD funds into bitcoin already. Bitcoin could be seen as the ultimate example of good money in action because it is impossible to debase it. There is a stable, fixed amount of bitcoin available right now, and the rate of new bitcoin is programmed to reduce over time. Eventually, the new supply will disappear entirely. In this case, Gresham’s law is stipulating that good money will be saved instead of spent. This is happening now with bitcoin, as forensic studies show that the majority of bitcoin is held instead of traded or spent, returning it to circulation. Investors tend to purchase bitcoin and sit on it. This tendency to hoard bitcoin instead of trading in or spending it has led to the reduction of circulated bitcoin. If a thousand dollars of bitcoin goes into storage and never comes out, the impact of the supply and demand balance is no different than reducing bitcoin supply by a thousand dollars forever. The more investors realize that other investors are sitting on their bitcoin to escape the bad money (fiat currency), the more incentive they have to sit on bitcoin in the long-term instead of spending it or trading it. This creates a feedback loop that is powerful. As fiat currencies continue to be debased at a high rate, the more bitcoin people will hold instead of trading it. This reduces the bitcoin supply further and kicks up its price via large supply and demand imbalance. The Reverse of Gresham’s Law - Theirs’ Law There is also an opposite principle known as Theirs’ law. This principle was established and argued for by Rolnick and Weber (1986) in an influential theoretical essay. The two argued that bad money could drive good money to a premium, instead of simply driving it out of circulation. However, the research they conducted did not take into account the market-based context in which Gresham made his initial observation for the law. The two did not take into account the influence of legal tender legislation, which will require people to accept both good and bad money as if they were of equal value. They also focused a little too much on the interaction between different metallic currencies, comparing the overall "goodness" of silver gold, which is not what Gresham was describing in his original theory. The experiences of dollarization in nations with not-so-strong market economies and currencies could be seen as Gresham's law operating in its reverse form, because overall, the dollar has not been legal tender in these kinds of situations, and in a few cases has actually been illegal. So there we have it, Gresham’s Law has a rich and lengthy history, but will it be around for much longer? Author of Victory Book, Shane Morand, explains here how to defeat Gresham’s Law. Check out more articles like this one. Visit our blog

Doug Turner
Doug Turner

08/01/2021