Payments, Currencies, and Broken Money
by Dr. Jeffrey Lewis, Silver-coin-investor “If you want a vision of the future, imagine a boot stamping on a human face – forever.”- George Orwell As an advocate for sound money, I am forever tormented by the egregious and overt growth of asset confiscation. The indirect tax from monetary inflation, bank bail outs and coming bail-ins, moral hazard, two tiers of justice accompanied by the gradual conditioning of the masses toward acceptance and true self denial. Yet along the way, we see little clearings. Echoes of a deeper truth attempting to spring forth. They haven’t confiscated precious metals yet. We are still relatively free to buy them. And in their vain attempt to mask the inevitable fall of money, they’ve made the price dirt cheap – not only relative to actual production – but relative to the amount of false debt and unbacked credit created On other glimmer is the crossover realm where modern payment systems are meeting virtual currencies. Like most things, if you aren’t up on it, you are down on it; as in the case of virtual, electronic, or crypto currencies. But being up on it just makes it easier to see where it falls along the spectrum as we approach, move through, and beyond, the inevitable dollar crisis. Technology will not go away. It will be needed to usher in the return of sound money – commodity money – or precious metal backed currency. And we may be able to indirectly gauge the transition by how the government and it’s banks respond. Therefore, it bodes well to maintain an open awareness pertaining to the maturation of payment systems and the infancy of the new digital currency age. Two stories recently shed some light here. The first is the launch of BitGold, a new of a payment system that has commodity (gold) backing. The second was the first penalty delivered by the federal government against a crypto (or BitCoin-like) currency. Both raise questions that can’t be answered without a crystal ball, but asking may at least triangulate a few rational outcomes or motivations. Reminiscent of its technologically more primitive and fallen predecessor eGold, BitGold promises to finally have the ultimate way to spend and transact in gold. Press release here: http://www.businesswire.com/news/home/20150504006626/en/Announcing-Global-Operating-System-Gold#.VVJIRRPF-AE Though the BitGold press release emphasizes that BitGold is not a crypto currency like BitCoin, there are similarities. In particular, the BitGold platform allows for the quick settlement of gold trades so that a user’s gold is easily acquired and accessible across various payment networks such as SWIFT, Visa, MasterCard, Interac, SEPA, UnionPay, Discover, American Express and others – including BitCoin. But is this nothing more than a tool? Perhaps an innovative math. Not a theorem, but a progression. Another financial innovation. Beyond another ‘financial skimming opportunity’, there is a hint of indirect value here. The potential for expanding the general awareness that makes the simple distinction between currency and money is alluring. Intelligence is not a guarantee of justice, but it’s nice to imagine the wave of technology and computer nerds contemplating this social injustice of unsound money and the abuse of power. Are these payment systems here to stay? Whether it is a gold-backed currency or a true (market backed) crypto-currency, it is sobering to envision widespread adoption. Is it pervasive? Don’t see it. What does the tipping point for widespread adoption look like? The circumstances? Is it only disruptive so far in tiny circles…including the big banks and government… Feds slap virtual currency company with first penalty http://thehill.com/policy/cybersecurity/241167-feds-slap-bitcoin-exchange-with-first-ever-fine Federal regulators this week levied a first-of-its-kind penalty against a virtual currency company. The company, Ripple Labs, allows users to move both real and digital money but failed to register as a money service business. The company — which manages its own crypto currency, called XRP — also failed to institute an adequate anti-money laundering program, government officials said. As punishment, the Financial Crimes Enforcement Network (FinCEN) slapped Ripple with a $700,000 penalty. “Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,” said FinCEN Director Jennifer Shasky Calvery in a statement. Federal watchdogs have stepped up digital currency oversight in recent years, as cyber crooks gravitate toward largely untraceable crypto currencies like BitCoin. These virtual currencies can be exchanged for money or used to directly purchase goods and services. BitCoin has become the crypto currency of choice. Advocates say it’s beneficial to have alternatives to a government-backed monetary system. But detractors counter that digital currencies have enabled cyber crooks to anonymously conduct business. Digital thieves can also store digital money in encrypted vaults, away from law enforcement officials. These concerns caught FinCEN’s attention. Last fall, the agency issued guidelines warning BitCoin exchanges and digital payment processors that they could be considered money services, and thus subject to existing regulations. Tuesday’s action was the first enforcement made since the new guidelines dropped. FinCEN used the 1970 Bank Secrecy Act to justify its penalty. The law requires financial institutions to maintain transaction records and report suspicious activity. “Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products,” Calvery said. Who is the Federal Crimes Enforcement Division? FinCEN’s director candidly expressed its mission in November 2013 as “to safeguard the financial system from illicit use, combat money laundering and promote national security.” FinCEN was established by order of the Secretary of the Treasury (Treasury Order Numbered 105-08) on April 25, 1990. In May 1994, its mission was broadened to include regulatory responsibilities, and in October 1994 the Treasury Department’s precursor of FinCEN, the Office of Financial Enforcement was merged with FinCEN. From the FinCEN website: “The primary motive of criminals is financial gain, and they leave financial trails as they try to launder the proceeds of crimes or attempt to spend their ill-gotten profits. It is a network bringing people and information together, by coordinating information sharing with law enforcement agencies, regulators and other partners in the financial industry”. First of all, it’s always good to step back and contemplate the actions of public enforcement. All we really have is what amounts to public relations. Internally, these agencies are obscure to say the least. The framing of enforcement around criminal behavior is laughable in that the system they so desperately protect is made vulnerable (and fragile) by their policy to begin with. It is a policy that is ultimately much more damaging than what any outside criminal force could manage. It is indeed ironic that the agency storyline above leans toward the benefits of saving us, when the government-enforced free-floating fiat world currencies in actuality – only saved them from us.