07 October 2010

High Court Judge Rules Paper Money “Almost Worthless”

In a recent High Court of Australia judgement on the Goods and Services Tax treatment of foreign currency transactions, I note with amusement Justice Dyson Heydon’s statement that:

“Apart from those rights [as legal tender], the pieces of paper had little value. They might have been used to stop an uneven table wobbling, or to jam shut a loose door, or to amuse small children, or to light a cigar. If the currency included coins, the coins might have been used to turn stiff screws or to lay on railway lines for the purpose of being flattened. But uses of that kind, which are very remote from their real purpose, would not prevent both the pieces of paper and the coins from being almost worthless.”

Before you rush to burn your money or flatten your coins, the judgement notes that “because the tokens are currency, the holder of the tokens can use them as a medium of exchange and as a store of economic value. Currency has value only because of the rights that attach to it.”

So relax, your paper money does have value. However, if you are concerned about what high inflation may do to the value of cash, you may wish to consider storing your surplus “economic value” in the form of legal tender bullion coins - sorry, tokens.

Of course, I can’t guarantee that precious metal prices will not fall, but at least you will always be able to use the coins to turn a stiff screw or two!

3 comments:

intuitivereason said...

I can imagine there may be some comment should a gold coin with a twist in the edge be on sold... 'i couldn't find a screwdriver...'

trevbus said...

That quote by Heydon J would be very useful in a case against the Commonwealth for confiscating gold. The Constitution requires that it must be on "just terms", so it could be argued that if the Commonwealth confiscated gold they must give something else of limited supply in exchange, like silver.

Anonymous said...

Sorry trevbus that won't fly. This case is not relevant to PMs, to the meaning of "just terms," nor to the power of courts to award compensation to you in anything other than legal tender.

What the court was called to decide was whether the exchange into a foreign currency on the depature side of the customs gate was subject to GST or not. This reduced to a question of whether the supply of the currency was "acquired for use outside Australia."

His Honour was merely pointing out the obvious. A foreign currency is useful in that foreign country, and not that useful in the departure lounge of an Australian airport (unless you happen have a wobbly table).

Note that this applies irrespective of whether that foreign currency is a fiat currency, or tied to any particular commodity. So there is no gold angle to this judgment. Bron obviously had his proverbial tongue planted firmly in his cheek with this posting.

Nor does this case have anything to do with the meaning of "just terms," for the purposes of s51(xxxi) of the Constitution. It is long settled that "just terms" means as close as possible to market value at the time of acquisition (Nelungaloo v C'th (1948)).

Only under exceptional circumstances could you ask a court to award you silver (or any other particular commodity) as for example when applying for an order for specific performance in relation to a contract for the supply of silver &c..

In the unlikely event that the C'th forcibly acquires gold from, you will get a cheque for the market value of the gold at the time of acquisition.