I am a composer and pianist by training but I have an interest in history, and always pursued these subjects as electives. I have a smattering of economics, so please bear with me if I seem a little naive in this obviously intelligent and informed bunch. Up until around the beginning of the current century, banks, large companies, and other institutions would issue a form of currency of their own that was called 'scrip'. This was sometimes redeemable in the form of some commodity, such as gold or silver, but some could be redeemed in land or lumber, for instance. Considering that many banks would find themselves unable to process electronic transactions with other banks, or might refuse to do so to protect their systems from corruption, might it not be useful to revive scrip? My bank could give me a scrip for a payment I had to make to another bank, say for rent. This would be like a check in one sense, but suppose I could also use it to buy groceries. The seller then could bring that to my bank to exchange either for 'hard' currency or another commodity. This might be useful in a semi-barter economy as well. I have been all over the Net over this y2k thing- which I take very seriously, although I am crossing my fingers as I prepare. I haven't seen any references anywhere to the old scrip concept as an alternate currency. Maybe it's a dumb idea, but I thought I would toss it out and see what people had to say about it. Thanks-

Forrest Covington

theforrest@mindspring.com

-- Forrest M Covington, Jr. (theforrest@mindspring.com), July 14, 1999

Answers

It's a fine concept sometimes referred to as a Bill of Payment. The current practice of signing over or endorsing a check to another individual or business originated with these forms of currency.

They are, of course, only as good and as reliable as the banks which issue them. If people know the bank and know that other people will accept it as payment, then it works. Our current centralized system only exists because Congress decided in 1914 that currency confidence problems were hampering commerce, especially during panics and bank runs.

If TSHTF in a big way, this could be a reasonable option, especially locally.

-- nothere nothere (notherethere@hotmail.com), July 14, 1999.

Well, yes you ARE naive, but your heart and mind are in the right place.

I can't go into a detailed discussion here about why it's now virtually impossible to go back to commodity backed currency. But the main reason is the US Government has a monopoly on currency.

If you look on your Federal Reserve Notes, you'll see the inscription (and warning) that "This note is legal tender for all debts public and private." Though fairly innocuous sounding, there are LOTS of rules and regulations making FRN's the ONLY legal tender.

You have probably heard about the gold standard, and how we're no longer bound to it. Well, originally, the dollar was pegged to a specific amount of silver. At various times, the federal government also issued Gold and Silver Certificates.

The total idea of paper currency was one of convenience. If you have ten thousand dollars in silver or gold, that takes a LOT of room in your pockets, and it weighs quite a bit.

Paper currency is a lot lighter, and has the same face value. The reason it has this value, originally, was because it was redeemable in silver or gold. You could then haul it around in your wallet and not worry about poking holes in your pockets, or getting a hernia.

HOWEVER, today, the dollar has no intrinsic value, and cannot be redeemed for anything. It's based on the faith of people in its value. If the people lose that faith, the dollar implodes. This has happened many times in history. Brazil (1970's), Germany (1920's), Russia (1990's), etc. The outward sign is inflation and hyper- inflation. Another sign is flight to another currency.

So your idea of pegging a real value to paper currency is a basically honest and responsible idea. Therefore it is anathema to our government, particularly the federal reserve - which would then be rendered obsolete.

For a more complete, and scholarly discussion of this exact topic, I suggest you go to :

http://www.newaus.com.au/econ126frank.html

It is written from the "Austrian Economic School" point of view. I think you'll find it refreshing compared to Galbraith, or Keynes.

Jolly

-- Jollyprez (jolly@prez.com), July 14, 1999.

During the 70's there was a shortage of coinage in some countries in Europe so the people would give or get a cheque for the pennies involved. It worked for the most part but the banks didn't want to deal in them, but the people did and I saw that it worked well. Only thing was that the paper would get destroyed in a matter of weeks. So the last one lost money.

-- justthinkin com (Justthinkin@y2k.com), July 14, 1999.

I believe that banks currently issue a form of SCRIPT. It is called Travelers Cheques. They can be used just like money and are issued by the bank. Think about it.

-- helium (heliumavid@yahoo.com), July 14, 1999.

JollyPrez: Good post.

Forrest: If you're interested, you'll likely find suitable books at
http://www.laissezfaire.org/laissezfaire.cfm
or
http://www.loompanics.com

Also, some existing "barter exchanges" might be well placed to fill the gap when government (fiat) money disintegrates.

-- A (A@AisA.com), July 14, 1999.

Check out the silver backed currency at: http://www.norfed.com

-- "Q" ("Q"@hyperspace.com), July 14, 1999.

It TSHTF in a big way, say a #10, we won't be dealing with the Federal Reserve anymore. To survive locally, script might be a very useful tool while the nation/world struggles to climb back out of the hole created by the roll over.

-- winna (??@??.com), July 15, 1999.

In concept this would work. Most recently we have used this on military bases in foreign countries so that the locals could not accumulate US cash. During the depression some cities issued their own form of currency because cash was in such short supply.

There are some instances of local currency practice, one of which is in Albany, New York (or Syracus ?). Do a search on 'local currency' on the web to find a few sites which deal with this.

One of the biggest problems I see in implimenting this kind of system today is the big question mark about the solvancy of the issuing organization. Our financial world is tied together very tightly it is possible that we could not know the extent of damage to an institution for some time into 2000.

I suppose a city could issue script because it can lay claim to tax revenue (leins against property). A bank is just a conduit and is very much exposed to the health of its borrowers. It has no real leverage like a government entity since it can't really confiscate property (that would be of any worth if done in a wholesale manner).

In the past a bank could offer script because it was considered a depository of the gold and silver of its depositors. On occation a bank would print to much script and then there would be a bank run and collapse on a single bank.

Script really only works well in a local environment where everyone knows the rules and follows them and there is something which 'backs' the currency script.

-- ..- (dit@dot.dash), July 15, 1999.

Also http://www.e-gold.com
gold, silver, platinum, and palladium accounts

-- A (A@AisA.com), July 15, 1999.