If you spend enough time researching Bitcoin and the legitimacy of a form of money beyond government control, sooner or later you will come across a reference to Executive Order 6102 issued by the President of the United States in 1933. So what was it Executive Order 6102? and why is the Bitcoin community so hot under the collar?
- Executive Order 6102 – Prohibition of hoarding gold
- Which led to the need to confiscate the gold
- Advance payments and the threat of CBDC
- Self-care to avoid the threat of decay
What was Executive Order 6102?
On April 5, 1933, US President Franklin D Roosevelt signed Executive Order 6102 which “prohibited the hoarding of gold coins, gold bars, and gold certificates in the continental United States.”
An Executive Order (EO) is a special prerogative of the President of the United States to bypass the often slow process of gaining support for legislation from both houses of Congress and immediately take a very concrete measure of national importance.
In the case of Executive Order 6102, Roosevelt wanted to privately seize gold at a flat rate of $20.67 per troy ounce (a unit of measurement for precious metals).
While the EO did not exclude gold coins, jewelry, and gold sales professions worth less than $100, all other gold coins, bars, bars, and certificates had to be turned in under threat of a $10,000 fine. (equivalent to more than $200,000 today) and/or 10 years in prison if you don’t qualify.
The most obvious question about Executive Order 6102 is “Why?”
The Gold Standard and the Golden Age
The period after the end of the American Civil War and the beginning of World War I is associated with rapid industrialization and prosperity in America, which is why it is often referred to as the Golden Age.
The rapid expansion of railroads and the growth of heavy industry – coal mines and factories – led to mass migrations to the new urban economies of the United States from rural communities and abroad, particularly from Europe.
This was also the era of the gold standard, when national currencies were backed by physical gold. The Bitcoin Standard, one of the most influential books on the importance of Bitcoin, establishes a clear connection between the prosperity of the period – which encompassed all of Europe – and the monetary policy constraints of the Gold Standard.
Gold became the clearest representation of wealth during the Gilded Age, fueled in part by two great gold rushes, the California (1848-55) and the Klondike (1896-99), which played a large role in reviving the American economy.
Despite the obsession with gold, its use as a circulating currency ceased in the late 19th century, so it served instead as a popular form of investment: a store of value.
While the period is associated with rapid economic growth, the benefits were not uniformly felt and the era is also known for growing inequality, ostentatious wealth and a shift in investor behavior towards much more speculative activities such as trading of shares.
However, the good times didn’t last as World War I forced the Gold Standard to a halt. Then came the Great Depression, a decade-long period of economic woe in the United States triggered by the Wall Street Crash of October 1929, when a stock market bubble violently burst.
Reasons for Executive Order 6102
In 1933, the effects of the Great Depression were still being felt, but Roosevelt’s efforts to stimulate the economy by adding money were limited by the legal requirement that the US dollar supply be 40% gold.
Simply put, Executive Order 6102 was a bill of exchange. The government allowed a huge bubble to grow and burst, but the bailout was to fund those citizens who had been cautious and had built up an efficient supply of gold.
Once their gold was seized at a fixed rate of $20.67, the government devalued the dollar against gold, valuing it at a steep rate of $35 per troy ounce.
This cunning accounting ploy immediately gave the government a paper profit of $2.8 billion (at 1934 levels), much of which was then used to stabilize the US dollar exchange rate. The success of the approach led to the idea of financing larger institutions to promote monetary stability, such as the International Monetary Fund (IMF), which emerged at Bretton Woods after World War II.
The dollar value of gold remained fixed until 1971, when Richard Nixon ended the last vestiges of the Gold Standard era by ending the exchange of US dollar reserves for gold. The Nixon shock also marked the beginning of the era of fiat money: money had nothing but faith in government.
How can CBDCs facilitate debt relief?
Central bank digital currencies (CBDCs) can lay the groundwork for debt restructuring. According to CBDCtracker.org, nine out of ten central banks are currently exploring the creation of permitted registries to manage stablecoin versions of the national currency.
While there are some clear benefits to using a CBDC, such as making it easier to pay benefits and collect taxes, improve financial inclusion, and protect financial independence, there have also been caveats about the ease with which Governments can access the digital version of Executive Order 6102.
There are several ways a CBDC could work in practice, but in the simplest version, citizens would be banking directly with the government, rather than with private financial institutions where the government currently authorizes intermediaries.
This allowed pensions and social security benefits to be deposited directly into the CBDC e-wallet, while taxes and fines could be withheld directly.
Even if CBDCs could remove a tremendous amount of costly money-transfer friction between the government and its citizens, what’s stopping the government from deciding that we should all cut our hair off to pay for it and automatically pull the money out of our CBDC wallets? confiscate?
This may all sound like a conspiracy theory fueled by Bitcoin preppers and maximalists, but there are more recent historical precedents for bailing out both traditional finance and the cryptocurrency itself.
Executive Order 6102 and the Self-Care Case
What Executive Order 6102 highlights is the case for bitcoin storage, such as using a hardware wallet. Combining cold storage with the best practices of using only new addresses for each transaction and respecting bitcoin’s pseudonym would keep funds out of government reach and make it difficult to use on-chain analytics to trace bitcoin and identify holders.
The alternative to self-custody, leaving bitcoins in the hands of exchanges and custodial wallets, would make government confiscation much easier, since exchanges are centralized entities that governments can issue mandatory seizure orders. You can see the direction of the proposed EU legislation to ban freedomless wallets.
There is also a precedent of exchanges forcing debt restructuring, as Bitfinex did in 2016. Insolvent after the theft of 120,000 BTC, the Hong Kong exchange imposed a 36% write-down on customers receiving in exchange change them. in the form of BFX tokens.
The bailouts are also seen as a democratic way for DAOs to deal with hacking losses, which is exactly what Badger DAO did in 2021 when it lost $120 million in user funds. The problem is that not all users have been affected equally, so this type of recovery may not be a universal approach.
It has already been suggested that CEFI’s revenue-generating platform Celsius Network, which suspended withdrawals in June 2022 due to market conditions, could follow the same path for its 1.7 million customers to avoid default.