Liberty Dollar
The American Liberty Dollar (ALD) is a private, alternative currency issued in the United States by NORFED, a Nevada nonprofit corporation based in Evansville, Indiana. The currency consists of specially-minted .999 pure silver and .9999 pure gold coins, as well as paper certificates (warehouse receipts), and digital eLibertyDollars (digital warehouse receipts), both of which are redeemable for the coins. The currency is not endorsed by the Federal Reserve or the U.S. government and is not designated legal tender.
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Purpose
The United States dollar was once defined as a specific weight of gold or silver, but from 1913 to 1971 gradually came to be defined by the Federal Reserve Note (FRN) fiat currency. The Federal Reserve Note has had 96% of its original 1913 value eroded to inflation (according to the CPI). Motivated by a desire to create an inflation-free currency, a retired mintmaster named Bernard von NotHaus created the National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code (NORFED) and launched the Liberty Dollar on October 1, 1998 as a political statement for the return to the gold and silver standards.
Currency exchange
By buying a Liberty Dollar, a person is exchanging one US dollar for an amount of private currency declared equivalent to 1/10th of an ounce of silver or 1/500th of an ounce of gold. The ability to exchange Liberty Dollars back to FRN/USD currency is not guaranteed by NORFED. NORFED claims that such exchanges are counterproductive to its goal of increasing the silver and gold in monetary circulation.
Liberty Dollars are offered for sale by NORFED and its affiliates. Liberty Dollar Associates and merchants can get the currency at a market-driven exchange rate for less than USD$1, depending upon the spot price of silver at the time of exchange. Liberty Dollars are backed by a specific amount of silver or gold, specified by the currency's "silver base". The "silver base" is a unique and controversial feature of the Liberty Dollar.
The silver base
The silver base, commonly referred to as the currency's backing, defines the price of an ounce of silver expressed in Liberty Dollars. The silver base is currently $10 (and has been since 1998), meaning that ten Liberty Dollars are equivalent to 1 ounce of silver. A person is able to redeem one ounce of silver from the Liberty Dollar warehouse with ten Liberty Dollars.
Put another way, an ALD$5 certificate with a $10 silver base is "backed" by a half-ounce of silver. An ALD$10 certificate with a $10 silver base is backed by an ounce of silver.
NORFED will raise the silver base from $10 to $20, if the 30 day moving average for silver's spot price goes over USD$7.50 for thirty consecutive days. By doubling the silver base, NORFED will adjust the ALD to account for the rising price of silver, purported to be due to USD inflation. NORFED will facilitate the exchange of older-base currency with new currency to keep the ALD in circulation at relative par with the USD.
Investment economics
For pure investment, the Liberty Dollar does not deliver to the investor as much silver per USD as buying generic silver rounds or junk silver does. Since the silver Liberty Dollar is essentially a branded silver round, it is at least as liquid as other silver rounds, and perhaps more liquid due to brand recognition and reputation. Silver had a spot price of USD 7.10 per ounce on July 25, 2005. Comparing this with the silver markup on silver rounds shows that the seignorage on the Liberty Dollar is higher, since major bullion sellers charge approximately 10% premium, at least for quantity buys: a Silver Liberty costs USD $10, while silver rounds would sell for about USD $7.90 if you buy 100 at a time.
The mark up on a Liberty Dollar is currently higher than the retail prices of American Silver Eagles, and comparable to collectable limited edition coins. Current spot prices on Silver Eagles are around USD $9.50 USD for one, but wholesale run under USD $9.
Marketplace acceptance
Liberty Dollars are not currently widely accepted. Although they are not legal tender, contracts specifying payment in Liberty Dollars (or any other specie) are legally enforceable. NORFED both encourages the use of Liberty Dollars for all transactions and maintains a website listing merchants who have indicated that they accept them. Many merchants have been known to accept Liberty Dollars without realizing their unofficial, nongovernmental nature.
Legality
There is no law mandating the use of US dollars for transactions, except that contracted debts not specifying repayment currency can be legally discharged by payment in dollars at face value.
As with all forms of private currency or corporate scrip, including air miles, acceptance of Liberty Dollars is at the option of the merchant, and at an exchange rate to be determined by the contracting parties.
Just as many states, banks, and local communities once issued their own currency, and a few still do, the Liberty Dollar is a lawful form of currency, not considered counterfeit by the U.S. government. According to NORFED, the currency was submitted to the U.S. Treasury Bureau of Engraving & Printing for review, which verified that the Liberty Dollar is not an attempt to counterfeit under 18 USC 3056.
The US government does not back or authorize the claims of NORFED for the suitability of the Liberty Dollar as a currency, and does not guarantee that NORFED has sufficient silver to back the currency. The backing of the Liberty Dollar is verified by an independent firm with their findings displayed monthly on the NORFED website.
The paper and digital warehouse receipts are governed by UCC Article 7 which deals with warehouse receipts, bills of lading, and other documents of title. Note that the warehouse is a separate legal entity from NORFED, and as with any warehouse receipt, the contract is between the bearer and the warehouse (not NORFED.)
Security
The paper Liberty Dollars include many security features, such as holograms, microprinting, hot gold and silver foil stamping, and an invisible synthetic DNA security thread. NORFED claims that paper Liberty Dollars are more difficult to counterfeit than Federal Reserve Notes. Anyone familiar with the appearance of the certificates can easily spot a counterfeit.
Denominations
Currently the Liberty Dollar is available in the following denominations:
- $1 silver certificate (brown)
- $5 silver certificate (magenta)
- $10 silver certificate (blue)
- $10 Silver Liberty (one troy oz. coin, .999 pure silver)
- $500 gold certificate (gold and blue)
- $500 Gold Liberty (one troy oz. coin, .9999 pure gold)
One feature that certificates shares with the euro but not with the U.S. dollar is that the certificates' size and color varies with the value. However, unlike the euro, only the long dimension varies. The higher the value, the longer the certificate.
The gold and silver Liberty coins, formally called specie, have a similar design except for particulars such as mint date and value. Because gold is denser than silver, the Gold Liberty is smaller, with about 5/6 the diameter of the silver coin. Both coins have milled (rough) edges, like on the U.S. quarter and dime, intended to discourage coin clipping.
Other values of coins sold by NORFED include denominations of $1, $5, $20, and $50, but they are limited collector's editions, not intended for use as currency, and cost more per ounce than the regular $10 Liberty.
eLiberty Dollars
NORFED also offers an electronic online version of Liberty Dollars called eLiberty Dollars, which are intended to be used for online transactions such as eBay auctions. These are identical to Liberty Dollars except the currency exists as online trading credits rather than as paper currency. They can be purchased with US dollars but can only be redeemed for silver (not gold) certificates or coins.
Criticism of Liberty Dollars
The Liberty Dollar does not have the liquidity generally associated with a currency, such as the ability to easily convert to other currencies, and the ability to deposit in savings or checking accounts in conventional banks. Moreover, critics believe the NORFED claims that the currency is "inflation proof" to be false. Instead, it is hedged against inflation since generally silver and gold retain their values in high inflationary periods, but can lose value in periods of deflation or low inflation.
The widest criticism of Liberty Dollars is that they are not backed with silver in an amount equivalent to the face value of the currency based on current prices of silver. A related criticism is that Liberty Dollars can only be exchanged for silver coins (currently, a 1 ounce coin per every $10 in Liberty Dollars) through NORFED representatives who have signed up to become associates or regional currency offices. Essentially this means that a business accepting Liberty Dollars, and unable to deposit them in a bank as with U.S. Dollars, can only cash in Liberty Dollars by selling them on the open market. The ease and practicality of doing this depends on whether there is even a NORFED representative in one's local area, the ability of the merchant to locate buyers for the currency, and the availability of buyers at any point of time. NORFED encourages merchants to offer the Liberty Dollar as change to their customers, but it is unclear how many merchants actually do so.
These criticisms have been made by many who would otherwise support the idea of an alternative currency, including Carl Watner who publishes the individualist anarchist newsletter The Voluntaryist, and Las Vegas libertarian writer Vin Suprynowicz, who calls NORFED a multi-level marketing scheme. NORFED claims not to be multi-level marketing.
Some of the critics including Carl Watner agree with the concept of hard money, but disagree with NORFEDs marketing plan. In particular, they note that NORFEDs "dollar base" is extremely rigid compared to the spot price of silver, and prefer the use of generic silver rounds. Furthermore, by stamping a dollar amount on the Silver Liberty, NORFED defeats the purpose of measuring money in terms of weights of specie. Also, the design of the piece may confuse some end-users into thinking that the Liberty Dollar is legal tender, and unscrupulous dealers may use this confusion to pass Liberty Dollars to those who don't realize that they are not official government currency.
Differences from other alternative currencies in the United States
The United States currently has a number of alternative currencies in circulation, including the NORFED Liberty Dollar. Two primary differences exist between Liberty Dollars and most of the other alternative currencies. Liberty Dollars are based on support for returning to a silver-backed currency and are partially backed by silver (60-70% of their value based on current spot prices.) Most other alternative currencies in the United States are based on the Time Dollar theory, in which the value of the local currency is tied to a specific unit of time; the most common being currency denominated in "Hours", 1 Hour = $10.00 USD. The other main difference is the other currencies are intended as local currencies to be used in a specific city or region. Liberty Dollars are intended as an alternative national currency.
Liberty Dollars and the other alternative currencies all share the fact that very few businesses accept them presently, some who do accept them only accept them for partial payment. Ithaca, New York's local currency has been relatively successful because Ithaca Hours are depositable in one of the local banks.
There are also a number of alternative online currencies such as E-Gold, as well as other online payment services such as PayPal, which e-Liberty Dollars hopes to compete with. Primary differences are that PayPal exchanges actual U.S. Dollars which can be charged to a credit card or deposited in a bank account. E-Gold exchanges gold, silver, and other precious metals, and can be redeemed through various online services at the actual spot price of the metal. e-Liberty Dollars can be redeemed for silver rounds or for paper Liberty Dollars, but unlike E-Gold they cannot be redeemed for silver at the current spot price, rather they are redeemed at the silver base ratio, currently a one 1-ounce silver round per $10.
References
Note 1: What's the downside to The Liberty Dollar? at the Austin Silver Center website
See also
External links
- Liberty Dollar website
- "A Competitor for the Fed?" by Lawrence H. White, July 2000
- Micro-National and Fantasy Coins
- Retail prices of junk silver coins
- "Fed Up With the Federal Reserve" by Carl Watner
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