What happens when the cost of silver gets too high?

Northern Colorado Community Barter member businesses accept a half ounce silver medallion with a face value of twenty-five in exchange for their product.  This value up until recently was the same as $25.  This convenient one to one exchange worked well as long as the cost of silver (as tracked on KitcoSilver) was relatively low–between $20 and $30 per ounce.

The price of silver is impacted by political events, such as the current turmoil in the Middle East, supply and demand, the Dow Jones Industrial Average, the perceived value of the dollar, the unemployment rate, the amount of dollars in circulation (there have been a lot more lately), the number of people betting that silver will go up, the number of people betting that silver will go down, the phase of the moon and the number of Emperor Penguins hatching chicks in Antarctica (OK, I’m kidding on the last two)–in other words, many things that are beyond the control of Northern Colorado Community Barter.  The price could go up or go down and there isn’t a thing anyone here can do about it.

Why choose to make barter tokens out of a metal with such volatile prices?  Two words:  intrinsic value.  Silver will always have its own value, which is precisely why it has historically been used as money.  This makes it good for bartering, saving and protecting yourself against inflation.

Unlike many barter networks based on electronic credits or points, if you have accumulated a lot of our tokens and NCCB goes away, you will at least be stuck with something that has worth–something you could sell to a local coin dealer for dollars, or better yet, something that could increase in “worth” relative to dollars the longer you hold onto it.  At Northern Colorado Community Barter, we are all about providing true value to all participants.

When the cost of silver reached $37.50 an ounce, we could no longer sell the tokens for $22.50 (10% discount from 25).  At this point, the one to one exchange between dollars and the units represented by the words “twenty-five” was broken and we began to sell the tokens for $33.25 instead.

The American Open Currency Standard (AOCS), which produces the barter tokens, plans to eventually do a move-up on the face value of all its pieces.  At the time of the move-up, the face value will double.  The barter tokens we use will then have a face value of fifty.  The new value will again trade one to one with dollars.  The move-up will take place when certain conditions are met as detailed on the AOCS website.

Once the spot price of silver blew past $41.50 per ounce (the magic number which will begin the steps to trigger an official AOCS move-up), we at Northern Colorado Community Barter decided to go ahead with the post move-up value of fifty on the half ounce barter tokens, even though they will continue to say “twenty-five” for several more months.  We noticed at least one of our participating businesses was already valuing the token at fifty so it made sense to encourage all the other businesses to also value it at fifty.  This new value allows us to gracefully handle the increased costs of purchasing the barter tokens from our supplier while also offering a discount to customers and a share of the proceeds to partner charities.

We will offer the barter tokens to our customers for $33.25, which represents an even greater discount from the new value, until the American Open Currency Standard makes the moveup official by producing barter tokens that say “fifty” instead of “twenty-five.”  Now is a great time to stock up on your barter tokens.

We encourage all new and existing member businesses to start accepting barter tokens at a value of fifty instead of twenty-five.  The good news for our early members is that all the tokens you accepted at twenty-five have now doubled in value to fifty.

What happens if the price of silver goes back down?

Some people predict that silver has run up so quickly that it is bound to sharply correct.  If this happens and AOCS has not completed the moveup, then the face value will remain at 25.  At this point we at NCCB can decide to go back to the face value of 25 or we can keep it at fifty.

In the end it doesn’t really matter.  The important thing is that the value at which silver trades in a barter network needs to remain substantially higher than its melt value (or spot price).  The other important thing is that all businesses in the network accept the tokens at the same value, whether that value be fifty or twenty-five.  While the spot price of silver may correct back to below $41.50 per ounce, it is unlikely that it will drop back down to below $30 an ounce, and therefore it will still be too expensive for us to be able to work well with a face value of 25.  Even if it does briefly correct, there are so many current events putting upward pressure on the price of silver that any price drops are likely to be short lived.

It makes a lot more sense to double the value now and leave it there, and that is most likely the course NCCB will take.

This leaves us with a token you have to spend all at once that’s now worth fifty, rather than twenty-five.  Most people find it difficult or undesirable to spend $50 all at once.

For this reason, NCCB is about to introduce a new barter token.  This one will look very similar to the current half ounce token we use, only it will weigh 1/10 ounce and be valued at ten (although it will say “five” for at least the next few months).  It will be available for sale at Copoco’s Honey in a few weeks.  Business owners can purchase them to use as “change” in increments of ten.  Or, they can offer ten dollars worth of product for one of these tokens directly.  This will allow people to spend tokens at more comfortable amounts.

When AOCS finally completes the moveup of the barter tokens, everyone who owns barter tokens will be able to exchange them for new ones with the updated face value.  At that point the value of the token will go back to being what it says.  In the mean time its value is twice what it says until further notice.

The overarching purpose of Northern Colorado Community Barter is simple:  to keep and build wealth in the community by circulating intrinsically valuable barter tokens.  This wealth building happens one transaction at a time.

Let’s all work together and do our part to make each transaction a positive experience for everyone!

Last Updated (Thursday, February 24, 2011 — 2:54 AM)