LETTER TO THE EDITOR — Researcher seeks answers regarding gold-supported buck

The research for my proposal “A Gold-Backed North American Dollar’ has now reached the point where outside help is required.

With this proposal, I am working to improve the idea that the government can erase the deficit and pay off debt through the merger of the U.S. and Canadian dollars into a common currency backed by gold.

I am currently working to improve my original ideas and, although I have some answers, the solutions to two problems elude me.

First, the new dollar was to be fully backed by gold, the theoretical price of which would be calculated daily based on the outstanding money supply divided by gold reserves. There also would have been a market price for gold where the North American Central Bank (which, theoretically, would result from a merger between the U.S. Federal Reserve and the Bank of Canada) would be willing to buy or sell gold. The market price would be close to the theoretical price but could be higher or lower, depending on whether the Central Bank wants to increase or decrease the money supply, raise or lower the theoretical price of gold, or influence the monetary system for other reasons.

Using this system, I estimate the price of gold to be about $34,000 per oz.

Although my calculations are correct, that figure remains a stumbling block.

One solution would be to have a partially backed dollar instead of one that is fully backed. For instance, if the dollar was backed 10%, the price would be about $3,400 per oz. Some would argue, however, that this would defeat the purpose of having a gold-backed dollar.

Another solution might be to create a new dollar, completely separate from existing U.S. and Canadian dollars, based on gold measured in grams instead of ounces.

My second major concern is counterfeiting. Some believe that the U.S. dollar may suffer a loss of confidence as a result of the possible proliferation of counterfeit bills. Although my original proposal called for a system using gold-backed dollars, there is now the possibility of a secure electronic currency — no paper money means no counterfeiting. This electronic currency would be backed by gold so that its owners would have the choice of bank credit or actual gold.

There are other questions to consider about a gold-backed currency, but the preceding, in my opinion, are of the most concern. I am writing in order to solicit help from individuals in the gold community in designing a gold-backed North American dollar.

Two events make such an undertaking important, namely the decision to allow the International Monetary Fund to sell gold and the decision by the European community to allow members to sell most of their gold in order to reduce accumulated debt and deficits. These decisions take us closer to a time when the public will lose faith in both currencies and in the existing monetary system.

The U.S. and Canada, for that reason, should begin work on a gold-backed North American dollar. This dollar would compete with the European Currency Unit (ECU) and could replace it in the event of a loss of faith in the ECU.

Barry Randall

Investment Adviser, Ottawa, Ont.

Editor’s note: Readers can reach Mr. Randall by contacting The Northern Miner’s editorial office in Toronto at (416) 445-6641, ext. 5012.

E-mail: tnm@southam.ca