
                           New Money, Old Excuses
                        Ron Paul, Former Congressman
                              The New American
                     Vol 10, Number 18 September 5, 1994


    The U.S. dollar is undergoing a radical change in design, Treasury
    Secretary Lloyd Bentsen announced this summer. The federal government
    says it is giving the dollar a much needed facelift. In the process,
    however, it might also damage the value of the dollar on foreign
    exchange, the productivity of the economy, and the financial privacy of
    the American people.

    The changes will include moving the portrait from the center to the side
    of the bill, adding new colors and inks, and embedding a hologram into
    the bill. The Wall Street Journal hinted that other changes are being
    "kept secret." But whatever they are, Bentsen said that all the changes,
    which are scheduled to appear in 1996, are necessary to foll
    counterfeiters at home and abroad.


    Policy Beginnings

    Bentson irplied that the currency redesign was a Clinton Administration
    initiative. In fact, the initiative itself dates back to 1978, with the
    establishment of the Advanced Counterfeit Deterrence committee of U.S.,
    Britain and Canada. The purpose of the committee was for the three
    nations to share research on counterfeiting. It was at these original
    meetings that a redesign of the currency ft became an issue.

    The timing was ironic. Federal Reserve (Fed) policy would soon cause
    prices to increase at double-digit rates. While the Fed was destroying
    the value of the dollar through government- sanctioned counterfeiting
    (printing paper money with no value), the Insiders were focusing on
    private counterfeiting, which, as estimates suggest, has been a
    relatively minor problem.

    The late '70s was also when the Federal Reserve began to lose track of
    cash. Today, an estimated $150 billion in American currency is
    "unaccounted for." The American underground economy was given an enormous
    boost by tax increases, ivasive regulations, and the "war on drugs,"
    which incased profits in the drug trade while giving the government an
    excuse to abolish our financial privacy. Today, surveys show, most people
    are involved to some extent in a cash-based underground economy, which
    can take many forms, including small-scale buying and selling of produce
    without reporting profits, paying maids and baby sitters in cash, and
    buying and selling vehicles and property without reports.

    During the same period, U.S. dollars began flowing to the Third World to
    be used in savings and exchange, where many of them remain today. In
    response, the State Department and the Treasury went on a search and
    destroy mission against any bank -- foreign or domestic -- that offered
    privacy to customers. As a part of this war, the U.S. government made
    implicit and explicit threats against countries with bank secrecy laws,
    such as Switzerland, the Caymans, Antigua, Liechtenstein, and Panama.

    At home, the Treasury began a new system of cash reporting, orchestrated
    sting operations against retail businesses that dealt in cash, and pushed
    Congress to pass draconian laws against so-clled "money laundering,"
    which is the "crime" of trying to prevent Big Brother from monitoring
    your every move.

    By the end of the decade, financial privacy had become nearly non-
    existent. No longer are foreign bank accounts safe from the prying eyes
    of international bureaucrats. Customs agents routinely check for cash
    going in and out of the country. Your local banker or car dealer is no
    longer likely to accept cash beyond a thousand dollars for deposit or
    purchase without sending forms to the govemment -- forms that add your
    name to an audit list. (The official threshold is $10,000, but everyone
    wants to be on Uncle Sam's good side.)

    A major purpose for redesigning e currency is not to stop counterfeiting,
    but to unearth dollars that are unaccounted for, forcing people to bring
    them into banks for exchange. The occasion would be a prime opportunity
    for revenuers to get a bird's eye view of who is using the cash and for
    what purpose (and to force anyone with "too much" to prve that he had
    eafned it legally, and paid full taxes on it).


    Plan In Motion

    Donald Regan, President Reagan's first Treasury Secretary, was the first
    to push the new currency project by setting up an interagency committee
    that included the Federal Resere, the Secret Service, and the Bureau of
    Engraving and Printing.

    I first got wind of the planned currency switch in October 1983. As a
    member of the House Banking Committee, I called then-Federal Reserve
    Chairman Paul Volcker to get the whole story. He confirmed that plans
    were in the making, and, after some agitation agreed to hold a secret
    briefing on the matter for members of the Banking Committee. We were
    shown samples of various devices the government was considering, but no
    actual bills. The following week, I called the director of the Bureau of
    Engraving and Printing to see the actual bills.

    The bills I was shown-and I was the only member of Congress to see
    them-looked very much like the prototypes that Secretary Bentsen recently
    took before the international press They had holograms socurity threads,
    different thread colors. and a repositioned portrait.

    The secrecy surrounding the government's plans continued during Ronald
    Reagan's second term. Treasury Secretary James Baker, however, changed
    tactics. Tired of leaks and the suspicions they generated, Baker decided
    to bring the plans out into public view. In 1986, he scheduled a series
    of press briefings on the new money. In every case, the media treated the
    subject with a light touch, as if this were a charming and harmless
    redesign. But all the while, the matter was much more serious, as the
    bureaucrats themselves knew full well. A high official of the Treasury
    later told me that it was virtually all they talked about at their
    secret, high-level meetings. They wanted the new money, and identified me
    -- and the libertarians and conservatives who agreed with me -- as their
    chief opponent.

    In the late 1980s, Donald Regan again emerged as the nation's
    unofficialcheerleader for the new money project. He appeared on the
    network news and on business programs around the country. Temporarily
    dropping the counterfeiting excuse, his message this time was that we
    needed a new money to stop drug trafficking and money laundering. As he
    wrote in the New York Times, "with only a 10-day warning, we should make
    all $50 and $100 bills obsolete -- no longer acceptable as legal tender."
    Then "banks and other financial institutions would have to keep a record
    of any cash transactions over $1,000. Reports would be furnished to the
    Comptroller of the Currency and the I.R.S. by name and taxpayer
    identification number."

    But isn't this contrary to individual rights and liberty to demand people
    turn in their money for new bills? If your cash is "Legitimate," Regan
    wrote, have "no fear". He stated that any honest citizen would be
    "willing to put up with a little inconvenience so as to trap these
    criminals." In an interview in USA Today, Regan went so far as to invoke
    the Founding Fathers on his behalf, writing, "I'm sure that Thomas
    Jefferson or James Madison or George Washington would have gone after"
    drug dealers and launderers.

    As promised, the Treasury introduced some minor chahges in the higher
    denomination bills in 1989, the most conspicuous being a polyester thread
    which runs along the side of some larger bills. The excuse was again
    counterfeiting, but the real puIpose was to test how the public would
    respond to minor changes in preparation for much larger ones.


    Federal Fear

    Bureaucratic incompetence isn't the main reason it has taken the
    government so long to enact the changes it originally began studying in
    1978. It also has to do with the government's secret fear that a radical
    change in the currency could affect the dollar's value on foreign
    exchange and in the United States. When money is based on a weight of
    gold -- as it was to some extent until the early 1970s -- it does not
    matter what the paper ticket representing gold looks like. But the value
    of a purely fiat currency is different. There is nothing to back it up
    besides public faith in the government.

    As Ludwig von Mises demonstrated, a fiat currency cannot come into
    existence as money on its own merits, but must piggyback on its former
    commodity status. Thus, the dollar's present value is a trait inherited
    from the gold it used to represent. This suggests that its standing as
    the world reserve currency is not necessarily permanent. It is a
    confidence game that some people in the Treasury suspect could come to an
    end at any time.

    What Treasury officials fear is what we might call the "Susan B. Anthony
    Effect." When that dollar coin was introduced in the '70s as a
    replacement for the paper dollar, it never really cauht on with the
    public. People say it was because it was the same size as the quarter.
    But it was as different from the quarter in size as the dime is from the
    penny. Bureaucrats secretly fear the "feminist" dollar did not work
    simply because people did not believe it was money. That same sense of
    insecurity is what continues to delay the introduction of the new money.
    It also offers insight into why the government engages in periodic media
    blitzes on behalf of the new money. Officials want both to test and
    prepare the public for the switch.

    But no matter how many stories appear in major newspapers or are featured
    on television news, or how many press briefings are held by the Treasury,
    nothing can be done to diminish the possible impact an exchange would
    have on the free-market underground economy. On the one hand, the
    government wants the underground destroyed. On the other, nobody really
    knows how large it is and how big an impact its destruction would have.
    How much would American productivity be affected?

    Questions concerning the new money's impact on the dollar and
    productivity have led some in Congress to be skeptical enough to hold
    hearings on the issue. To meet expressed objections, Bentsen altered the
    rationale somewhat during a July hearing of the House Banking Committee.
    Bentsen argued that if we don't redesign the dollar, "we would risk
    eventual diminishment of confidence in the integrity of our currency."

    In order to shore up confidence in the dollar, Bentsen said, "it is
    vitally important that people around the world understand that all
    existing U.S. currency will continue to be valid. The redesigned currency
    will be introduced over a period of years and no U.S. currency will be
    demonetized, devalued, or recalled."

    Don't bet your savings on this, however. Press rumblings have suggested
    that an immediate recall might indeed be in the works, even if it were
    limited to foreign holders of American paper currency. The most
    conspicuous mention of a supervised currency swap was made in a
    Washington Post article by well-connected consultants Robert Kupperman
    and David Andelman.

    A recall with a time limit is necessitated by the logic of the
    government's own excuse for the new money. A counterfeit-proof currency
    would do little good if the old currency could continue to be produced
    and marketed. That will be the case so long as the old dollars remain
    valid for trade.

    For some years, Insiders have also advocated a parallel currency for
    domestic and foreign uses distinguished by different colors. I believe
    this plan is in the works as well It would require, in totalitarian
    fashion, that any American dollars would have to be exchanged when the
    border is crossed. U.S. dollars acquired overseas would have to be
    converted to the domestic version to make them valid.

    About 70 percent of U.S. currency is held overseas, all over the globe.
    All of this would have to be traded in. Even if the switch did not occur
    quickly, the government would be willing to put out the message that
    dollars should be replaced sooner rather than later. Eventually, the
    currency that could not be laundered into approved channels would be
    rendered worthless. This alone could be enough to give the markets a jolt
    and shake the confidence of future dollar holders.


    From Cash to Cashless

    The final uncertainty concerns the extent of changes in the currency. It
    is technologically possible and financially feasible for the government
    to give all bills machine-readable strips. Then the currency could carry
    a record of where it has been. It is a small step from computerized paper
    money to a completely cashless society. Welfare recipients in several
    states already get their doles through a machine-readable card. If the
    government has its way, all of us would be subjected to the same form of
    financial and economic slavery.

    Will the fear of dollar destruction and the other uncertainties deter the
    Clinton Administration from pursuing its plans to change the design of
    the dollar? Perhaps, but speculators who bet on it will lose big if
    their bets are wrong.

    The government has lied about the new money from the very beginning of
    this project. Americans would do well to take all its promises with a
    grain of salt, and, for safety's sake, to reduce cash holdings. As for
    the dollar's value, its future is as uncertain as the timing of the new
    money and the likelihood of a recall or even an eventual devaluation.

    -- RON PAUL
    Former Congressman Ron Paul is the publisher of
    "The Ron Paul Survival Report".


(This file was found elsewhere on the Internet and uploaded to the
Patriot FTP site by S.P.I.R.A.L., the Society for the Protection of
Individual Rights and Liberties. E-mail alex@spiral.org)

