The Gray Market Role of Defunct Coinage in a Cashless Society

I’ve received several e-mails and letters from SurvivalBlog readers, asking me if and when I believe that a “cashless society” is coming. My response is: Yes, I do believe that it is coming, but I can’t say when. There are some that have argued that a currency collapse will be used as the pretense to implement a multi-continental or even global digital currency. Most likely it would be in the form of a debit card, similar to what has been popularized in Germany with EuroCheck (EC) Cards. I mentioned these cards in my most recent book, “Survivors: A Novel of the Coming Collapse”. These cash equivalent debit cards would resemble outwardly a bank debit card, but would be issued by the Federal Reserve, and would be tied to your Social Security Number. Like a debit card, they would have a PIN used for password protection.

Say that a cashless society comes about. What will happen to all of the old paper currency? There will obviously have to be a deadline for it to be turned in for exchange. (For a credit on your card.) But what about coinage? Will that also be phased out? Officially, yes, but I predict that unofficially, there will still be a lot of it in circulation, in an entirely unofficial Gray Market.

In my estimation, coinage cannot be completely banned, for several reasons:

1.) Large numismatic collections exist, with many owned by wealthy and influential people. There is a long-standing legitimate reason to preserve them. It is noteworthy that even the notorious gold coin and bullion seizure by the FDR Administration under Executive Order 6102 exempted numismatic coins. To ban coin collections would cause a huge uproar and surely be deemed an illegal “taking” by any reputable court.

2.) There are millions of forgotten piggy banks and coin jars in private homes. For these small coin hoards to be declared contraband would be absurd.

3.) The melting of coins for their scrap value would soon become universally legal. (It is presently considered a crime.) It would clearly be in the government’s best interest to have the defunct coins “out of sight and out of mind.” But obviously some coins not yet melted down into ingots would have to be legal. I predict that governments will simply put a deadline on convertibility. Past the deadline, you would be “stuck” with the old coins, just as you would with the old paper currency.

4.) Coins have long been used mounted in jewelry and even in sculptures, and exceptions would have to be made to keep those coins legal.

5.) There is an important distinction between paper currency in the U.S. and our minted coinage: The paper currency–Federal Reserve Notes and their electronic ledger entry equivalents–are debt-based and created by the Federal Reserve (a private banking cartel) in cooperation with the U.S. Bureau of Printing and Engraving. But all of our coinage is created directly by the U.S. Mint, at taxpayer expense. So any effort to ban coinage would face a much stronger challenge in the courts on Constitutional grounds than a ban on paper currency.

With the safe assumption that it will still be legal to hold (but not necessarily conduct trade in) U.S. coinage, we can therefore conclude that:

A.) A large portion of the currently-circulating coinage will be turned in for redemption through banks and credit unions to the U.S. Treasury, for credit back to citizens, digitally.

B.) Use of foreign currencies for private domestic transactions will be banned shortly before or concurrently with announcement of the digital currency. (Like the Mafia, governments hate competition.)

B.) Gresham’s Law dictates that a large portion of the citizenry will turn in their relatively worthless post-1965 dimes, quarters, Sacagaweas, Suzies, and Presidential Dollars. But many people will wisely hang onto their pennies and nickels, since their base metal value is higher than their face value. And it goes without saying that nearly everyone will continue to hoard their 90% silver pre-1965 coins as well as their 1965-1970 (40% silver) half dollars.

C.) A gray market will immediately spring up in pennies and nickels, for small transactions, and pre-1965 silver coins for larger transactions.

D.) I further predict that both the coinage gray market and vast barter networks will quickly catch on in part because of interest by some Christians who fear that digital currency is The Mark of The Beast, as prophesied in the Revelation of John.

E.) Even though officially discouraged, the coinage-based gray market will not be vigorously prosecuted. Doing so would be politically unpopular. And because the collective value of all of the coinage in circulation is miniscule compared to the ocean of paper dollars, it will be considered a non-issue–something “not worth bothering with.”

Here are some numbers to consider (with a snapshot of values as of 11 December, 2011), courtesy of the fine folks at Coinflation.com:

So, in essence, a nickel is still worth a nickel, but a dime is now just a copper token only worth about 2 cents. This makes it obvious that pennies and nickels are worth retaining, but the larger denomination coins are not.

(By the way, Coinflation also publishes some very useful information about silver coins. Be sure to bookmark those pages and print out reference hard copies of the key tables.)

Take a few minute to re-read my article about stocking up on nickels. With the advent of a cashless economy in mind, it makes even more sense to save your nickels!