Business Idea: A Gold/Silver 100% Reserve Bank

This is not an original idea even in today’s world of fiat currencies and fractional reserve banks. I am aware of two precious metals banks that currently exist.

The first is Peter Schiff’s Euro Pacific Bank [1]. It is a 100% reserve gold bank. Depositors’ accounts are held in gold that is physically located in a vault owned by the government of Western Australia. The bank itself is located in Saint Vincent and the Grenadines. What makes Schiff’s bank such an outstanding idea is that accounts have a debit card that can be used in the same manner as that of any fiat currency, fractional reserve bank. When making a transaction, payment is made in the local currency and the account debited by the spot gold price in the local currency. For the merchant, the transaction is no different than that of any other debit card. For the account holder, they now have the ability to effectively use a gold coin standard. It is as if they purchase goods and services with physical gold coins.

The second is the Free Lakota Bank, owned and operated by the Lakota Indian Nation [2]. It is a 100% reserve silver bank. It also has a loan bank, but this is separate from the 100% reserve silver deposit bank.

The rationale for this post is an attempt to publicize these two banks and to promote the idea of 100% reserve commodity banking. The capital flight out of Greek and Spanish banks is well known. These depositors are rightly fearful that their accounts will be frozen and their euros forcibly converted to a new national currency that will promptly collapse in value versus the euro. They are fearful of suffering the appalling fate of Belarusians when the Belarusian ruble collapsed by over 50% overnight against the US dollar. For now, the account holders in Greece and Spain favor transferring their euros to German banks. I emphasize “for now” since when the ECB begins to print money at a furious pace to bail out the various bankrupt countries that comprise the EU, the devaluation of the euro will accelerate and the perceived safety of German banks will come into question.

Let us also consider the plight of those who have bank accounts in Argentine pesos. Argentina is in the midst of yet another currency collapse. Consumer price inflation has been estimated as 25%. Since Argentina last went down this road a decade ago, it is not difficult to see the endgame.

We can certainly cite the US or China, where savings accounts in dollars and yuan are subject to negative real interest rates and both banking systems are rickety. So, we see that many people around the world should be concerned about their bank accounts held in their local currency. They are subject to negative real interest rates, possible bank collapses, and possible abrupt devaluations. What is the solution? 100% reserve precious metals banks. Why trust another depreciating fiat currency denominated by another untrustworthy government? Why accept any counter party risk? Precious metals and 100% reserve banking is the answer for hundreds of millions of people world wide.

So, why are there not more 100% reserve precious metals banks popping up all around the world? I don’t know. Frankly, I am puzzled by this. To me it seems to be an idea whose time has come and should be quite profitable. As such, I expect to see the idea spread as the ongoing depression puts pressure on all fiat currencies.

[1] US citizens are not permitted to open gold debit card accounts at Euro Pacific Bank.

[2] For my non-US and Canadian readers the phrase “Lakota Indian Nation” will seem odd. The Lakota comprise various Native American tribes that reside in what is now the upper Midwest in the US and parts of Manitoba and southern Saskatchewan in Canada. Those that escaped being slaughtered by the US government’s genocidal war against the Plains Indians after the failed revolt of the Confederacy, were either forced onto reservations/confined to tribal lands or assimilated into the general population. The various treaties that they were compelled to sign with the federal government supposedly spelled out their political relationship with the federal, state, and municipal governments. Unfortunately, the political status of the various Native American tribes is uncertain. They are exempt from some laws, able to make some of their own laws, and are also subject to laws as ordinary citizens of the various levels of government. This murky status impacts the legal status of the Free Lakota Bank. Their website is very unclear about how they are able to operate in the US, the tax status of accounts, etc. I strongly suspect that they are able to exploit a loophole in a treaty that allows them to operate and not be destroyed by the federal government.

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