Brief explanation about the old and modern monetary systems.

1. Episode II
Currency System and
Role of Gold
Friday, the 7th of November 2014
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2. Wealth?
• Definition of Wealth “A measure of the value of all of the assets of
worth owned by a person” by Investopedia.
• Wealth is your time and freedom.
• Time spent in productive activity generates economic energy,
• Money acts as a container that stores the economic energy,
• Money is the token to trade the economic energy for goods and
services,
• Freedom is the right to choose when and for what to trade money.
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Rule I: Wealth is your time and freedom.

3. Wealth in the
Economy• The law of Conservation of Energy states that the total energy of an
isolated system cannot be changed.
• Rule II: The law of Conservation of Wealth states that the total wealth
of an isolated economic system cannot be changed.
• Wealth can be neither created nor destroyed, but transferred
from one state to another - crisis to opportunity.
• The Economic System brings inequality in wealth concentration.
• Wealth concentration is a process by which newly unearthed wealth,
under some factors, can become concentrated in the possession of
few individuals or entities.
• Factor I: an unequal initial distribution of wealth.
• Factor II: a small initial inequality in knowledge of the mechanics
of the economic system must, over time, widen into a larger
inequality.
• Freedom is to choose when and for what to trade your money.3

4. Money vs Currency
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Money Currency
medium of exchange
unit of account
portable
long-lasting
mutually interchangeable
stores value leaks value away
based on intrinsic value based on faith
Rule III: Stop calling Currency for Money

5. Invention of Money• 6,000 BC Gold was discovered.
• 630 BC Money was born as gold and silver when everything was
measured by WEIGHT.
• 560 BC Lydians invented bimetallic coinage system to produce coins
of gold and silver with specific shape and at fixed size and weight.
• Gold and Silver were the dominant currency for more than 5,000
years.
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6. Money System
• Lydia is known to be the first city to produce coins made of gold and
silver with specific shape and at fixed size and weight - bimetallic
coinage system - around the 7th century BC.
• Athen exploded the use of coinage system in their active trade with
surrounding cities.
• Athen had tax system and free market that helped the circulation of
those coins within and outside the economy.
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7. Collapse of an Economy
• Losing access to sources of good money.
• Disappearing of good money from circulation
within a city.
• Financing wars and expensive public works.
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Rule IV: Quality Money to Quantity Currency leads to Economy
Collapse.

8. Collapse of Great
Civilisation• 431 - 404 BC Athen fights and loses war with Sparta, ending its
military domination of Greece.
Reasons for collapse
• Lost access to gold and silver mines.
• Had to send their gold and silver coins “good money” to their armies
outside the city.
• Had to finance their expensive public works.
Solution: they started debasing their coinage system by:
• collecting gold and silver coins “good money” in taxes,
• melting those gold and silver coins, then adding copper,
• minting new coins “bad money” in same shape and size - same face
value - but not same WEIGHT.
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9. Collapse of Great
Civilisation
Human Behaviour
• Gresham’s Law: a monetary principle stating that “bad money drives
out good” by Investopedia.
• If a new coin (“bad money”) is assigned the same face value as an
older coin containing a higher amount of precious metal (“good
money”), the new coin will be used in circulation while the old coin will
be hoarded and will disappear from circulation.
• During the period of debasing Athen’s coinage system:
• gold and silver coins started to disappear from circulation.
• although the new coins (“bad money”) had same face value of
gold and silver coins (“good money”), good money coins started to
be exchangeable for a number of bad money coins.
• gold and silver coins started to have a PRICE.
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10. Collapse of Great
Civilisation
• By debasing their coinage system they went from bimetallic money
system with intrinsic value to currency system with only face value.
• Purpose was to finance their expensive public works, and war with
Sparta when they lost access to sources of good money.
• Unfortunately human behaviour accelerated the phenomenon of
disappearing the gold and silver coins (“good money”) from
circulation.
• Result: their newly minted coins (“bad money”) became worthless and
unacceptable outside their territory leading to a hyperinflation, a
devalued currency system and economy collapse.
• Hyperinflation is a monetary inflation occurring at a very high rate.
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11. Good Money vs
Bad Money
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12. Quality Money to
Quantity Currency1. A city starts with bimetallic system of gold and silver as money,
2. The city expands and adds layers and layers of public works,
3. The city funds a massive military force and puts it in use for further
expansion.
4. The rapid increase in financing expensive public works and expansion
wars during moderate economic expansion leads to shortage in good
money.
5. The city starts debasing its coinage system then replacing it with
currency system that can be created in unlimited quantities.
6. The expanded currency supply leads to loss in purchasing power and
faith in the currency.
7. The mass movement out of the currency into precious metals and other
tangible assets takes place results in currency collapse.
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Rule V: Currency System steals wealth from its people and
transfers them to banks.

13. US Dollar Currency
• Pre World War I: Classical Gold Standard
having 100% reserve ratio. $20 bill = $20 gold
receipt.
• 1913: Gold Exchange Standard having 40%
reserve ratio. $50 bill = $20 gold certificate.
• 1943: Bretton Woods System states that
every currency of the nations will be backed
by the US Dollar and the US Dollar will be
fixed at $35 an ounce of gold. There was no
reserve ratio established.
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14. US Dollar Currency
• The US continued printing its US Dollar at 0% reserve ratio.
• 1960: President Charles De Gaulle claimed that there was not enough
gold with the US to back its currency and asked for the gold.
• 1960-1971: Phenomenon of rush on the US gold by France and other
countries started resulting in loss of around 50% of the US gold
reserve.
• 1971: the US had 12 times of printed US Dollar to the existing
physical gold stock. The US created more receipts for gold that what
they actually had of gold.
• 15th of August 1971: Fiat currency was born to avoid default on
payments.
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15. De Gaulle 1965
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16. De Gaulle 1965
• The french president was opposing the US monetary
policy and having the belief that the base of the world
monetary system must be gold.
• In 1965 he warned that the International Monetary
System based on the US Dollar was a danger to the
world.
• The danger he warned about 49 years ago is now too
large to manage.
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Rule VI: A monetary system based on a single nation’s currency
is a danger to the world.
© Tacna | Dreamstime.com - Memorial Of General De Gaulle Photo

17. Nixon Shock
• In 1971 the US was unable to meet its obligations to foreign creditors
under the terms of global monetary system that was negotiated by
world leaders and in place since the end of World War II.
• That system was based on the US Dollar redeemable in gold.
• President Richard Nixon unilaterally withdrew the US as a party to the
agreement citing the actions of “speculators” as the reason for default
rather than admitting the inability of the US to meet its obligations
under the agreement because Vietnam War spending was
bankrupting the country.
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18. Nixon Shock 1971
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19. Currency System
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Fiat Currency Fake Currency
Real Money
Rule VII: No Fiat Currency Will Survive…

20. Ottoman Currency
• 1844 - 1880 coinage adjustment reform of 1844 announcing the
bimetallism with a fixed gold-silver ratio. The gold lira, the silver kurus
and the copper para were declared legal tender.
• fixed convertibility: 40 para for one kurus and 100 kurus for one
lira.
• Government issued state note known as a “kaime” to finance its
deficit spending. Each “kaime” was 500 kurus.
• 1880 - 1914 the Ottoman Empire adopted the Gold Standard and the
monetary authority sustained the full convertibility of its gold-backed
banknotes.
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21. Lebanese Lira
• 1914 - 1919 after the breakdown of Ottoman Empire, the Ottoman lira
was replaced by the Egyptian Pound in the area of Lebanon as an
accepted legal tender.
• 1919 - 1964 a new lira was issued at fixed exchange price of FF 20
redeemable by a cheque payable at the main office in Paris.
• Issuing bank:
• The Banque de Syrie 1919 -1924 then,
• The Banque de Syrie et du Liban 1924 - 1964
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22. Lebanese Lira
• 1964 - Present
• the lira is being issued by Banque du Liban,
• the local exchange rate of the lira is partially covered by gold, and
foreign currencies that are convertible to gold,
• the local exchange rate of the lira is controlled through market
intervention by Banque du Liban when needed.
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23. Devaluation of
Lebanese Lira• 1975-1992: Lebanese Civil War accompanied by spending on
defence, financing public works, and fragmented state and economy.
• In addition to greed of commercial banks and private hands to
speculate on the depreciation of Lebanese Lira.
• Resulted into a mass movement out of Lebanese Lira to foreign
currencies.
• The Lebanese Lira collapsed and foreign currencies sky rocketed.
• After 1992: Banque Du Liban controlled the exchange rate of
Lebanese Lira by intervening in the local market as buyer or seller to
the Lebanese Lira.
• What is next? It is all about the size of Banque Du Liban’s balance
sheet of foreign currencies that are convertible to gold, and the
intention to exercise its role to intervene into local exchange market.
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24. Currency System
• Currently there are three forms of tokens
• Commodity Money
• Paper Money
• Digital Money
• We are being fooled by the invention of Currency System.
• Currency System is just an illusion.
• Currency System does not really exist but it is only an idea living in
our minds, and the same dream that we are dreaming.
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25. Brief History of
Currency System
• 30-40 years: Classical Gold System when all issued receipts were
100% redeemable with gold.
• 30 years: Gold Exchange System when all issued bills were partially
backed by gold.
• 28 years: Bretton Woods when one nation’s currency “US Dollar” was
fixed to one ounce of gold and all other currencies were pegged to the
US Dollar.
• 39+ years: Fiat Currency when no gold cover.
• What is next?
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26. Currency System!
• Currency systems evolved from several incidents of Engineered
Collapse.
• The cycle of a currency system is around 38 years.
• It is a must to study the history of financial system, and how the
financial system works in order to understand the game that is being
played, and avoid getting dissolved and vanish.
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Rule IX: for every crisis there is an opportunity.

27. New Developments
• FirstRand Gold Bond, South Africa:
• 12-Aug-2014 a new development in bonds market “Gold Bond”
and may be the world’s first fully gold-denominated bond.
• Investors may only purchase the bond by using South African one-
ounce gold Krugerrand for payment.
• Minimum purchase amount is one Krugerrand.
• At maturity, the value of the bonds is determined by the price of
gold, the dollar/rand exchange rate and the earned interest.
• Owners can opt to take redemption in either Krugerrand or paper
money.
• The value of the bond is fixed in ounces of gold.
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