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15.01.2013
Switzerland and the monetary crisis in Europe
Author: Prof. Antal E. Fekete

Refinancing sovereign debt as gold-bonded debt
Here is the solution to Europes problem of sovereign debt: Every country using the euro would offer to refinance its debt in gold francs. Refinancing would take the form of exchanging eurobonds for gold bonds. A quantity of gold bonds would be auctioned off monthly, until no more eurobonds are presented for refinancing. Eurobonds that remain outstanding will be serviced and retired in euro units according to the terms of their issue.

Countries using euro currency would give themselves gold revenue. They need the gold to service and to retire their gold-bonded debt. Here are three ways for a country to get gold revenue.

1. They could impose a seigniorage charge on coining gold at the mint. It is understood that this charge will be discontinued once the sovereign debt is liquidated.

2. They could levy custom duties and excise taxes in gold. Incidentally, this was what the Northern states of the U.S. did during the Civil War in the 1860s and afterwards while servicing their gold-bonded debt, when the currency was the irredeemable greenback.

3. They could levy real estate taxes, including those on owner-occupied housing, in gold.

It will be argued that such levies are regressive. Those who have no gold will not be able to pay them. This is a false concern. The fact that the most people dont have gold and thus cannot buy imported goods is a blessing in disguise. It will lead to the repatriation of industries that left the country in the years when jobs were exported instead of goods, thanks to the depreciating currency then in use. In addition, the repatriation of these industries will help easing the unemployment problem.

But there will be a number of people who will want to buy imported goods. Their taxes paid in gold will go a long way to contribute to the gold revenue of the government to service and ultimately to liquidate the countrys gold-bonded debt.

Likewise, the fact that most people dont have gold and thus cannot afford to own their home may also be a blessing in disguise. It will lead to the reinvention of the rental property market. If this gives rise to a new construction, so much the better. To that extent it will also help ease the unemployment problem.
But there will be a number of people who will want to live in a home they own. Their property taxes paid in gold will go a long way to supplement the gold revenue of the government with which to service and ultimately to liquidate the countrys gold-bonded debt.

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