Editor’s note: nothing in the proposal below should be interpreted as undermining the strength of the US Dollar nor of the “full faith and credit of the United States.”

A Modest Proposal

A new form of U.S. bond should be authorized by Congress, in “denominations” of One Kilogram. The U.S. Treasury would begin to offer them to the market worldwide, including domestic “dollar” purchasers. The floating exchange for gold would determine the “dollar” obligation of the United States, and the interest payments.

Such “U.S.Treasury Kilogram Gold Bonds” would easily fetch today’s current dollar-price (exchange rate) with 32.15 troy ounces of fine gold. That same standard price is also quoted in euro, pounds, yen, yuan, and chf. There are no risks “due to concerns of marketability,” nor after-market liquidity. U.S. Treasuries are all the same, assured by the 14th Amendment and tradition.

Issue Long-term Bonds

The USA has a lot of gold. The inventory at Fort Knox could be identified and pledged/indentured in kilograms as the principal for long-term Treasury bonds. The credit those bonds would collateralize in banks would likely become the basis for several new credit instruments, annuities, and private bonds, but we do not want a government monopoly of money. There is no reason the government should “create” any “money” nor any new Unit of Accounting different from the common measurements of gold weight (gram, kilogram).

The common measurement of gold weight could become a formal Unit of Accounting. That would depend on what “the market” did.

The Kilogram Bonds would be sold for dollars, euro, pounds, yen, yuan and whatever. The dollars received could be used for normal roll-over maturities in outstanding Treasury debt. Gradually the outstanding “dollar denominated” Treasury debt would fall to Zero. To be clear, Congress would not change “the debit limit,” so the Gold Kilogram Bonds would replace the maturing Dollar-Denominated older bonds. Entitlement fund values and bonds in those funds would be converted to gold grams when the Congress authorized that change.

A “CURE” for a USD TOO STRONG in FOREIGN EXCHANGE MARKETS.
Question: Is a strong dollar good for the U.S. economy? Perhaps not.
The proposal below is intended “to cut free” the legal tender “dollar” from the U.S. Treasury and entrust it entirely to the Federal Reserve, which should manage it like a Hayek-competitive currency to be stable in relation to the other central bank units of accounting, perhaps stronger than the others.
—
(If it could become stronger than gold, the US Treasury would be either delighted or embarrassed, but it would be a fun game to see the Fed maintain a stable dollar.)

[The early months of 2016-17, for example, would have been a good time to introduce gold into an official Treasury payments system, as a test to see if the dollar weakened, as some economists favor. With tax cuts proposed in Congress for 2017, the gold bonds could become an intervention tool to moderate “excessive strong moves,” to avoid the problems of 1981-85.
(U.S. exporters will insist on it. President Trump may want to respond.)]

—

Open the Door to Financial Innovation

Meanwhile the Congress and people could begin to rely on a fixed Unit of Accounting. The country would then be officially on a Parallel Currency Standard – for a transition period? – which could last for decades.

Let Congress do something about the weights and measures of Money. Manufacturing physical coins is no longer very important in the electronic money era, nor is printing greenbacks. Certainly physical coins would not be used in much retail trade. But the government would always need to choose its own bureaucracy’s Unit of Accounting, just to make budgets, appropriations, and payments to vendors and employees. Whatever unit is selected, it will define a major measurement of financial value in the fiduciary sphere of the nation.

A Bookkeeping System for Government

Let Congress do something about the weights and measures of Money. Whatever unit is selected, it will define a major measurement of financial value in the fiduciary sphere of the nation. “Dollar” was selected in 1785 by Congress (and the market had long-earlier selected dollars throughout the Western Hemisphere, in preference to the old British colonial “schilling” notes). It was made a paper monopoly currency in the 20th century.

People may quarrel over a definition of “money” but a common “name” is useful, and a weight-name is Concrete. It fits the mental image and it is available for price quoting and balance sheet asset measurements.

I cited the “Schelling Point” aspect of creating a new Unit of Accounting in my article “Gold as a Parallel Currency.”

We just need to have the government “play in the same sandbox” as private sector financial innovators, who can try to create new investment and payments instruments denominated in gold (without fixing a “dollar price” for a gram of gold).

A parallel currency should be as unburdened-by-transactions-costs as the prior monopoly Units of Accounting. The Mint is a “big kid” in the sandbox, regarding Units of Accounting. The Treasury is a “big kid” in respect to government bonds.

The goal of the modest proposal is to set up the Unit of Accounting for new financial instruments in terms of gold bullion, as a “parallel legal tender” Unit of Accounting, for the private sector to use.

This is a “Schelling point” in the financial system – the Unit of Accounting in which the bonds are denominated. (“gram”)

Strict Gold Accounting, under the Constitution

The ‘Not-so-Modest’ Proposal

The government itself needs a bookkeeping system and a system for planning budgets, etc. Units of Accounting are important, and a system based strictly on bullion should be measured in bullion. The United States and all of the rest of the world measures commodities in the System International units, and so also should the fundamental unit of accounting for the government and debts of the United States. The “gram of fine .9999 gold” seems available.

I RECOMMEND a statute, adopted under Article I, Section 8, in which the Congress declares the official Unit of Accounting for the Federal government of the United States will be “the gram of .9999 fine gold.”

(5) The government would not issue any paper or credit “notes” in this Unit of Accounting, but it would vote appropriations in the Units, and Sec.Treasury would disburse those “value-amounts” in whatever paper money a person being paid wants to receive, using ACH methods, into her or his bank accounts.

Government Bookkeeping and Debts are Different from Payments

(4) Taxes similarly would be paid into the US Treasury in whatever paper units a taxpayer has in a bank for payments, but Sec.Treasury would convert any such payments, using the Exchange Stabilization Fund he now controls in the US Treasury, to convert those payments into the gold gram units of accounting used by the US government’s General Fund. The statutory authority is already in the law. [31USC5117] The bookkeeping would be computerized, and trivial.

Nothing Changes on Day-1 in Financial Markets

(3) The private market could issue and use whatever paper or credit system they wanted to adopt. The Federal Reserve System could keep on managing the “dollar denominated” US Debt on behalf of the US Treasury, and Congress would still be due to pay “dollar-denominated” interest on Treasury Debt until all dollar-denominated bonds would be matured and paid off.

The “expectations” of the market regarding the future value of the exchange rate of the Federal Reserve Accounting Unit Dollar would be something for the Federal Reserve, not the Congress nor the Sec.Treasury, “to manage.”

The Federal Reserve instead of Sec.Treasury should be “managing” the foreign exchange rates of the USD. Those should be freely set by buyers and sellers, not by policy.

(2) The Federal Reserve would “manage the money supply and interest rates” just as it continues to do today. The national debt of the government of the United States, under the 14^th Amendment, will not be questioned; it will be paid according to agreements, but no bond denominations now issued will be continued when the Gold Kilogram Bonds become available. Until then, business as usual in “dollars.”

Long-term Treasury Gold Bonds

(1) The US Congress should authorize the Sec.Treasury to begin issuing 50-year or even 100-year coupon Treasury Bonds denominated in Kilograms of .9999 Fine Gold. As old dollar-denominated Treasury Bonds mature, the new issues of Gold Kilogram Bonds to the market should easily command sufficient “dollar funds” to pay off the maturing bonds.

The coupon rates on the bonds could begin at 1% annually, or less; and should be indexed to some fiscal measure, but indexing is not essential. A “console” method of the bonds paying interest but never actually “maturing” is recommended, instead of institutionalizing “roll over” periods. The U.S. Treasury should make good delivery in specie upon maturity (or if console bonds, on surrender) if a holder requested redemption. If some investors wanted “to cash” the Treasury kg.bond in some other foreign exchange, or in US Dollars, ACH could credit accounts in whatever paper units the holder requested (using the Treasury’s Exchange Stabilization Fund, 31USC5117).

Paying a variable coupon amount as an indexing element would also be advisable. Fiscal indexing means that Congressional budget surplus or deficit appropriations would affect US bonds’ interest rates directly and immediately.

[ I wish to credit John H. Cochrane of the University of Chicago Booth School and the Hoover Institution for important new ideas about console financing and variable coupon rates, fiscal indexing, and new economic thinking about macro-economic models in a “large central bank balance sheet monetary system.”
He, of course, bears no responsibility for my crackpot libertarian ideas.]

SEE THE RELATED PAGES on this site
Government Accounting with Gold Grams
Financial Planning Requires a “Concrete” Unit of Accounting
Gold as a Parallel Currency.