Recently, I was surprised to read a MarketWatch headline "With Amazon minting currency, Fed at risk Commentary: In future, good money could drive out the bad." In case you missed it, Amazon.com announced last month something called Amazon Coins with which U.S. customers could purchase apps, games, and in-app items on Kindle Fire. Without stating the obvious that "Amazon Coin(s)" (referred to in both the singular and plural by Amazon) are not made of a base metal, I will explain why the Amazon Coin is not a coin and why the Federal Reserve just might be at risk.
Amazon stated, "One Amazon Coin is worth one cent, so if an app costs $2.99 it will cost 299 Amazon Coins." But according to Section 490 of the U.S. Code, "Whoever falsely makes, forges, or counterfeits any coin in the resemblance or similitude of any of the one-cent and 5-cent coins minted at the mints of the United States; or Whoever passes, utters, publishes, or sells, or brings into the United States, or possesses any such false, forged, or counterfeited coin, with intent to defraud any person, shall be fined under this title or imprisoned not more than three years, or both."
Words are important. Amazon could have chosen "Amazon Points," Amazon Bucks" (to the chagrin of eBay), or "Amazon Credits." Money (a store of value), and especially currency (medium of exchange) are supreme symbols that our society uses and "coin" is a subset of both.
So important are these symbols that the secret service in cooperation with eBay banned NORFED Liberty Dollars from eBay. The Mint and Justice Department were very careful in choosing their words to describe the so called Liberty Dollars....They were and are referred to as Medallions: "Justice Determines Use of Liberty Dollar Medallions as Money is a Crime."
Among the charges against NORFED (whose founder Bernard von NotHaus was arrested and convicted): "... the advertisements refer to the product as "real money" and "currency."
Note that Amazon stated, "Amazon Coins are a new virtual currency..." So how does the U.S. Mint define "coin"? As "flat piece of metal issued by the government as money" (also see Legal Tender).
But let us rewind. The MarketWatch article refers to the Federal Reserve and not the U.S. Treasury. The Bureau of Engraving and Printing (a Bureau of the U.S. Treasury) produces (one could say they are outsourced for this endeavor) a debt backed currency known as Federal Reserve Notes on behalf of a quasi governmental cartel of banks known as the Federal Reserve (whose stockholders receive 6 percent dividend per year by law), while the U.S. Mint (also a Bureau of the U.S. Treasury) produces debt free coins directly for the benefit of U.S. citizens (i.e. you could say we are the stockholders...too bad we don't get any dividends).
"The Bureau of Engraving and Printing produces currency and the U.S. Mint produces coins." (See Treasury site.)
So is Amazon a threat to the U.S. Treasury or the Federal Reserve? First, let's dig a little more into definitions using Bouvier's Law Dictionary (1856 Edition):
Coin: commerce, contracts. A piece of gold, silver or other metal stamped by authority of the government, in order to determine its value, commonly called money...
Token: commercial law. In England, this name is given to pieces of metal, made in the shape of money, passing among private persons by consent at a certain value...
Benjamin Weiss at Historical and Commemorative Medals further explains the distinction between a Token and a Medal:
...unlike medals, tokens are often, thought [sic] not exclusively, used as supplements to legal tender coinage. Types of tokens vary considerably and include, among many others, those used as fare for streetcars, buses, and turnstile admittance ... Tokens have also been widely employed as advertisements. As a general rule they are made of base metals ...
Medal: A medal, or more specifically a commemorative medal, is generally a round metallic object which is manufactured to commemorate some person, thing, or event of historical interest and importance.
Unlike coins, a medal has no intrinsic monetary value; its worth is dependent upon its artistic quality, historical importance, age, rarity, condition, size, and metallic composition...
Further, NumisMaster explains that "..Medals differ from coins in that a medal is not legal tender and, in general, is not produced with the intent of circulating as money."
Dr. Sol Taylor explains in the Santa Clara Valley Signal in "Is It a Coin, Medal or Token?" that: "...only government facilities can make coins. (In the case of some smaller countries, coins may be made by large private minting facilities such as the Franklin Mint in Pennsylvania)... A coin is legal tender or, in plain words, "money."... A token is a coin-like item that is made in struck metal, or any other material that has monetary value, but is not legal tender."
And finally Richard Schwary of Coinweek throws his hat in with: "...only a sovereign government can mint a coin and so create legal tender...The rest of the stuff might look like a coin but falls into the broader numismatic area called Exonumia and contains such things as tokens and commemorative medals."
While U.S. code section 490 covers minor coins, it is doubtful that this code had in mind "electronic currency" that can be created by a "magic wand" (into infinity) by a company like Amazon. Perhaps Section 491, "Tokens or paper used as money" is more fitting.
The U.S. Treasury provides Guidance on Monitoring Electronic Money in its Annual Plan Fiscal Year 2013 (OIG-CA-12-007):
"Electronic money is also known as e-money, e-currency, electronic cash, electronic currency, digital money, digital cash, digital currency, or cyber currency. Typically, e-money involves the use of computer networks, the internet and digital stored value systems. Electronic funds transfer, direct deposit, digital gold currency, and virtual currency are all examples of electronic money... We plan to determine if Treasury provided timely guidance for agencies to monitor e-money products, and how Treasury is addressing the vulnerabilities to the financial system with the use of these products."
So what does this mean to the Federal Reserve?
Federal Reserve Governor Laurence H. Meyer explained in a speech from 2001 the ultimate consequence of the expansion of electronic money:
"A decline in the demand for currency... lower(ing) the monetary base and hence reduce the size of the Fed's portfolio of securities. The size of the Fed's portfolio, in effect, determines the seignorage the government obtains through the issue of the monetary base. To the extent that the demand for currency declines, the monetary base and hence the Fed's portfolio would shrink, and the interest earnings on that portfolio would diminish.... The Treasury would lose seignorage even from the first dollar of substitution of e-money for currency. If the Fed were to lose so much seignorage that it could not cover its costs under current arrangements, it would have to look for other arrangements to cover its costs in a way that supported its independence."
Do you use Bitcoin or other virtual currencies? Do you think the Amazon Coin is a coin or is this just a bunch of meaningless semantics? Let us know below!
Update: "Bitcoins now have money-laundering rules," Canada.com - U.S. applies money laundering rules to virtual transactions.
Disclaimer: This is an opinion piece and not an interpretation of law. Authors/Persons quoted in this article do not necessarily agree with this author's opinion and were not consulted prior to publication of this article.
About the Author
Brian Cohen has been an active member of the eBay community since May 1998. He currently trades under the member name Bidofthis.com. His first AuctionBytes article was published in May 2002. Brian can be contacted through his website at BidofThis.com where he always has a "little Bid of This and little Bid of That."