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No Such Thing as Bad Publicity
There's a private currency called the Liberty Dollar that I've been aware of for several years. It's a silver-backed (or silver-coin) currency. I've always felt conflicted about it, because while I agree with the goal — a return to hard money — I haven't been comfortable with the way the liberty dollar hopes to do it.
The "problem" is that the liberty dollar has a face value, and that people are encouraged to spend it at face value rather than at its intrinsic (silver) value. Of course it's a negotiable instrument, so people could trade it at its intrinsic value. But even though the price of silver is readily available, very few people have even a rough idea of what it's worth.
You're thinking, "Cap'n, most bullion coins have a face value. So what?" Unlike other bullion coins, the face value on the liberty dollar is higher than the intrinsic value of the silver. So it's slightly dishonest to trade a liberty dollar for face value. Naturally, this objection can be brushed aside by noting that Federal Reserve Notes have exactly the same problem except they have an even lower intrinsic value — zero. So is this a phony problem?
Not quite. The liberty dollar's face value is deliberately held higher than its intrinsic value. When the price of silver rises, the currency needs to be re-issued. This happened very recently; the old "$10" one troy ounce silver coins were reminted to be "$20" coins.
Hey! That's debasement! That's inflationary!
You bet it is.
And, perversely, that's supposed to be a feature. This is supposed to make the liberty dollar "inflation-proof", because its face value will keep up with the inflation of the U.S. dollar. Well, er, sort of … but that's a funny way to think about inflation.
It's also, perversely again, a marketing feature. The high face value makes it possible to manufacture the liberty dollar and sell it "at a discount", for less than face value. People who buy at a discount then hope to spend for face value. That's slightly dishonest, too.
I sympathize with the liberty dollar, but I can't endorse it. Nonetheless, I have to acknowledge that having a high face value has been a very good idea from the issuer's perspective. Offering the money "at a discount" makes people more inclined to get it and spend it — leading to publicity (h/t DGC News.)
News stories about the liberty dollar aren't frequent, but they're notable because they're free publicity. The news stories dutifully introduce the currency, explain that it's silver-backed, that it's not legal tender, and that banks won't accept it, but also that it's perfectly legal. They have to explain all this simply so the reader can understand the story. As I said, free publicity.
The liberty dollar is the only silver currency I'm aware of that's actually had success at circulation. People don't try to spend other bullion coins; they don't think of them as usable cash. This sets the liberty dollar apart. I recognize that success, even while holding my nose.
(I have a few liberty dollars, but only as a collector.)
The liberty dollar will have some competition soon from the Phoenix Dollar, a new private silver currency that will not have a face value. I'm much more comfortable with that, but I think building circulation will be a major challenge.
(In time I'll get a few of these too, but the coins aren't back from the mint yet. How weird is it that I collect privately-issued money?)
Lastly, a question. Why do silver bullion makers always make them pure silver, instead of an alloy? Pure silver is soft and tarnishes easily. How about sterling silver or some lesser alloy, instead? If you're serious about having a circulating coin, it would make sense.