Re: The credit crunch - an effect not a cause

On Sat, 10 May 2008 13:28:31 -0700 (PDT), Mel Rowing
<mel.rowing@[EMAIL PROTECTED]
> wrote:

>On May 10, 8:51 am, Robert Henderson <phi...@[EMAIL PROTECTED]
>
>wrote:
>
>> Once a country moves from a physical currency based entirely on a
>> precious metal to one which remains,  in theory at least,  fully
>> convertible to the precious metal,  but which uses paper  money
>> alongside coins made of the precious metal, government ‘s role is
>> expanded in im****tance because it is ultimately  the guarantor of the
>> currency's integrity. This is so because  the promise of full
>> convertibility of the paper money to the precious metal  could not be
>> met if  most, let alone all, of those holding paper money decided to
>> demand  at the same time coins  made of the precious metal  to the same
>> value, or,  in extreme cases,  a quantity of the metal to the value of
>> the paper money. (Britain’s return to the Gold Standard after the
>> Great War  was of the latter nature, being a promise to convert paper
>> money to bullion - the Gold Bullion Standard).  To minimise the chances
>> of  a run on the currency caused by  too many people demanding  that
>> their paper money be converted to the precious metal, wise governments
>> in such cir***stances  restrict the amount of  paper which could be
>> created by  placing legally required  ratios between  paper money and
>> the amount of the precious metal held.
>
>In the days when individual banks used to issue their own notes yes!
>
>These days that right is restricted to I believe two the Royal Bank of
>Scotland and the Bank of Ireland both of which  have to maintain
>deposits equal in value with the amount of notes on issue.

May interest you
http://www.p-wood.com/articles/localbanks.html