28 November 2008

Constitution, Confiscation and Gold

I have amended the confiscation blog with the text below and posted it here for those who have already read the blog so you don't miss it.

What if Western Australia did not want to secede or there was not enough public support to do so, but still wanted to stop gold confiscation by the Federal Government. One possibility is for the State to make gold coins legal tender. They would therefore cease to be just gold and become currency.

Section 115 of the Australian Constitution states "A State shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts." I interpret this as a State shall not coin money, period, but can make (with "make" as make law, not "manufacture") gold and silver coin legal tender.

Now if a State cannot make coins, how does the Perth Mint get away with it. It does so by going to the Treasurer and getting approval to do so under the Currency Act 1965. With the Mint's gold and silver coins, as well as sovereigns, already out there could not a State pass a law to make those gold and silver coins legal tender at their market value, not face value? Interestingly, there is no definition of "coin" so maybe sovereigns and Eagles and Maples could be included, although coin usually means "legal tender" otherwise it is a "medallion".

According to this Wikipedia entry, "Section 51(xii) of the Australian Constitution gives the Commonwealth Parliament the right to legislate with respect to “currency, coinage, and legal tender.” with Section 51 powers able to be legislated on by the states, although Commonwealth law will prevail in cases of inconsistency. Section 115 effectively makes the concurrent power in section 51(xii) exclusive to the Commonwealth. Despite this, coins of the Australian pound were not introduced until 1910. From 1901 to 1910 the states could not issue tender and the Commonwealth had not issued tender, so private currency was used as the common medium of exchange whilst the British pound sterling was the national unit of account."

This then raises the question of whether Western Australia making those existing gold and silver coins legal tender would "inconsistent" with Commonwealth law.

Part V of Reserve Bank Act 1959 states that banks or persons (but no mention of States) shall not issue bills or notes intended for circulation as money but otherwise makes no restrictions on any other legal tender.

I have looked at the Currency Act 1965 and cannot find any section prohibiting a State from declaring gold and silver coins legal tender. Section 22 prohibits persons from making coins. Section 16 says that "a tender of payment of money is a legal tender if it is made in coins that are made and issued under this Act", which the Perth Mint's coins are.

See also the Reserve Bank of Australia's comments on legal tender.

Therefore I see no inconsistency with Commonwealth law if a State passes a law making existing gold and silver coins (at their market value) legal tender. However, there is a catch. Section 23 states that "the Governor‑General may, by Proclamation, call in any coins issued under this Act or the repealed Acts before a date specified in the Proclamation."

So if the West Australian Government attempted to make the Mint's coins legal tender to stop the Commonwealth's moves to confiscate gold, the Commonwealth could just call those coins in.

Now while this investigation seems to have achieved nothing, it does raise one useful point - Section 23 is effectively another confiscation mechanism, but with the implication that it can be used not just to recall gold coins but also any Perth Mint silver coins. Note also that any proof/collectible coins issued by the Perth Mint are also done so under the Currency Act 1965 so numismatic coins clearly have no protection. Therefore, while coins have advantages when moving between countries due to their legal tender status, that legal tender status puts them at risk of confiscation, so one should prefer bars to coins if one is concerned about confiscation.


  1. Bron
    Great logical and in depth research on this. Well done. I met you at GSUL and recall a few conversations around this confiscation issue. Thanks for the added dimension and value you provided at the conference.

    To me it is a very real risk to be balanced. My take on this is that if the powers are there they are there for a reason. Furthermore if those powers don't require any approval by government to be activated then that is by design.

    This is not paranoa either. Gold competes with fiat and there are enormous vested interests that seek to be able to tilt the tables in favour of fiat should all else fail and confidence in fiat suffer.

    You have to think in this light there is a real possibility of an assault on private ownership to achieve this end.

    I hear what you are saying about unalloc at Perth Mint, but I think that loophole would be closed in an instant and in fact ahead of the confiscation announcement.

    As for succession that is an interesting one and to be honest something that has never occured to me as a Sydneysider. I need to research this myself but on the face of it seems very un Australian. With all the obstacles preventing it, I find it hard to visualise but heh anything is possible right. Stranger things have happened when huge wealth is at stake.

    As for the Perth Mints loyalties in a confiscation move, on balance I believe that the management of the mint would be compelled to back the government. You allude to some philosophy that the mint may have in protecting clients interest. Is there any such statement by Perth Mint?


  2. Well some would consider taking your gold un Australian! There isn't any explict statement by the Mint so you are probably correct that management would support Government, but it would be the WA Government, which is why I find the political situation to be dynamic.

  3. Hi Bron,

    As I understand it from your excellent research, the current laws that could be used only affect gold bars, gold coins and silver coins. Silver bars do not feature.

    Is that a fair statement?

  4. Good point.

    I have read a bit more on this statist/centrist tussle in federal and WA politics and you are indeed right in that the situation is certainly dynamic. It seems though it would take an awful lot of upheaval to bring a succession movement to the fore. Maybe a gold confiscation move could result in exactly that. Add in a budget that is once again in deficit constraining Fed expenditure for the States.

    In this respect it will be interesting to see what the politicians have to say regarding the premiers conference and the next Fed budget.

    I personally see political and social instability as rising trends in the future as governments have to make more and more difficuly decisions about where they have to cut back on spending.

    In this light what seems "out there" at the moment could become more "normal" a little down the track.

    Interesting times.


  5. Hi Bron,

    Thanks for your fascinating research and insights.

    If Perth Mint coins were to be "called in", I'm guessing the compensation would be at their face value? Yikes!

    What is the legal situation when coins are called in? I guess they called in 1 and 2 cent coins, but it's not a crime to hang on to them or even use them in private transactions, right?


  6. Yes, I think silver bars are not mentioned anywhere, so are probably realtively safer.

    Trevbus, your conclusion about face value is correct in my opinion. Face value has a benefit when moving coins between countries but this is the possible downside.

    The 1c & 2c situation is unusual. The RBA wensite says "these coins have been withdrawn from circulation but are still legal tender" which I take to mean that they were never formally "called in" but just stopped manufacturing with sellers no longer accepting them for payment (perfectly legal as well).

  7. so,if the states cannot take anything but gold and silver as payment for debts,how do i pay my fines to the court then,if the constitution says they cant as there is none in circulation.is this true.

  8. If you're interested, I have a fully developed argument regarding coins & currency. Let me know & I will email to you.

  9. Sure, just email me @ perthmint.com.au to bron.suchecki

  10. Just as a "by the way", any acquisition of property by the Federal government is subject to Section 51(xxxi) of the Constitution, which requires it under "just terms" so that would technically mean they would have to pay the value of the gold. (Think the movie "The Castle").

    However, practically that strikes 2 problems: 1. The government could de facto confiscate & not be bothered about the constitutional ramifications (think "dictatorship") & 2. The value of Reserve Bank notes varies with the "market", so they could be valued much less in a hyperinflationary period (which, by the way we've entered, a la 1930).

    So unless you can enforce your rights via the High Court, bye bye gold & silver.

    Remember the golden rule - he who holds the gold, rules! And also, he who pays the piper (or politician) plays the tune ... Certainly a 'golden' oldie!

    Beware bankers bearing "gifts"!

  11. A further comment on a couple of aspects raised in your article ...

    As far as the Perth Mint producing coins, it once was a Royal Mint, so the issue of it being in a particular State allowed it to bypass the Constitutional requirements, as a Royal Commission or Letter Patent would beof Imperial ranking in law & therefore ranking equal to the Constitution.

    Prior to the Great Depression (GD), the value of a coin was meant to be equal to the metal which composed it. That was the whole idea - coins are monetised metal, or real money. Because of the corrosive effects of inflation becoming all too apparent after the GD, notes had their promissory nature removed & coin values were diluted & departed from their real value.

    One must remember that the pound sterling was the same for 1000 years in England.

  12. I thought I had successfully posted earlier, but my phone battery died before I checked it properly! Damn.

    Here goes again ...

    As far as two points you made go ...

    Regarding the ability of the Perth Mint to produce coins: at one stage it was a Royal Mint & as it's authority
    was from a Royal Commission or Letters Patent or Warrant, it was above Commonwealth law. Imperial law & Royal prerogative are above local law in the legal hierarchy. Money is part & parcel of Royal prerogative.

    Also, coins are monetised metal, meaning that only coins are money. Until the Great Depression (GD), coins were made of precious metal that was equal to it's face value. After that, the metal was diluted to the point that the face value was far in excess of actual value.

    Let us remember that notes were exchangeable for coins or silver/ gold at the Treasury (prior to 1933).
    After that the promise was removed because rampant inflation made it too obvious that
    the link with reality and value was departing.

    Post-1933 even coins were diluted in value until they now no longer reflect face value. The pound sterling was the same value for a 1000 years; the silver being the same as face value for that time.

    Notes are only ever meant to be promissory for money (coin) and money is never meant to be a commodity but a measure of work.
    Notes were originally receipts for an amount of silver or gold. It's when the bankers became cunning that that link was cut & manipulation began it's current course.

    As for 1c & 2c pieces, the Currency Act & Regulations quite clearly specify that coins from 1c to $1000 are legal tender & can be used. Don't let the Reserve Bank Act confuse the issue, as it has nothing
    to offer as far as legal tender goes - that is governed by the Currency Act 1965, which is superior.

    Hope that helps.


  13. Sorry, I meant actual value was far in excess of face value! Actually on that point, gold & silver have inherent value. The Reserve Bank notes have a flexible value, relative to the gold/silver value, not the other way around.

    Remember, you can always buy a good suit with an ounce of gold!


  14. don't know if it's my mobile, but I can't see any of my new comments posted anymore.


    p.s. The verification is a nightmare!

  15. Because you're posting as Anon plus some other things blogger doesn't like for whatever reason your comments were flagged as spam. I don't check my blog every day so it may get held up.

  16. The possibility of confiscation remains a threat to gold investors. How dare they even think of such a thing governments that is thats why its a wise decision to not just invest in gold and silver theirs other metals that will not be confiscated.