Community currency swindle Don't buy local currencies, buy gold and silver.
Local "currencies" are starting to get a lot of news coverage. With this coverage, more and more people will become enamored with the thought of a "different" currency. I am here to inform you that these are not currencies. Furthermore, the hysteria reinforces the fallacy that we suffer from a currency shortage.
Take, for example, BerkShares. BerkShares are used in Massachusetts, and are printed in denominations of 1, 5, 10, 20, and 50. Each one BerkShare is redeemable in one U.S. dollar worth of goods and services amongst 350 merchants. It is important to understand that this not the same thing as being "backed by" those goods and services, since there is no fixed amount of goods these are redeemable in. Each BerkShare is redeemable in whatever one U.S. dollar buys at the time. They are bought for 95 cents each, i.e., at a 5% discount. This means if you wish to exchange them for dollars in the future, you get 95 cents per BerkShare, i.e., break even in nominal terms. There is no interest return on these things.
If the dollar is devalued and the dollar price of goods and services rises, BerkShares will likewise be devalued. In fact, it is possible that one doesn't really get a 5% discount, if merchants raise their prices by 5%. And if these merchants go out of business, then these BerkShares will become totally worthless. If they turn into "Lehman Bucks," or "BearSterns," is the Fed going to bail them out?
Objectively, BerkShares are nothing but gift cards, but are much easier to counterfeit than are the traditional gift cards with the magnetic stripe. The "currency" disguise is a marketing gimmick. It is a scam. As one who supports sound money, i.e., returning to a gold standard, I am almost prepared to say that this activity should be investigated as fraud. Is there a limit to how many of these BerkShares can be printed? If the demand for BerkShares increases, I believe more BerkShares would be created and sold. But what happens when everybody shows up and tries to redeem these BerkShares at merchants? Will prices suddenly skyrocket?
If you truly want to protect yourself form inflation and save your wealth, you should buy gold and silver, not BerkShares. At least do something with your money that generates an interest return. You would be better off buying U.S. Treasuries, and if you want to know what I think about U.S. Treasuries, then click here.
Mark served honorably for four years on active duty in the Marine Corps infantry, and was a Libertarian endorsed candidate for a municipal office in 2002. He re-enlisted in the ARNG in 2006 because he was depressed/at times SI without the military. He has held the NFA Series 3 license (futures and futures options broker) which he did a voluntary withdrawal on because he couldn't in good conscience sell managed futures since firms would do better to hire an in-house trader to trade a proprietary account with a discount broker, which he outlined in his well-written withdrawal request. Since the year 2000, he has spent much of his free time reading the great minds of the Austrian School of economics, such as Murray Rothbard, Henry Hazlitt, Ludwig von Mises, et al.