There’s a growing movement to privatize the banking industry. Many are calling for reform. Some want to audit the Federal Reserve, others, such as Representative Ron Paul from Texas want to end the Federal Reserve all together. Others want to get the Federal Government out of the banking industry all together. In a wave of privatization reform, what if the United States Government got out of the currency business all together?

Although the idea of the Federal Government releasing their monopoly on issuing currency is very unlikely, it’s always important to ask the question, “What if the world were different?” Just because we have the system that we have doesn’t mean there aren’t financial systems that might operate more efficiently.

There’s also the possibility that the Federal Government would have no choice in relinquishing its control over currency. If a period of hyperinflation were to happen in the United States because of years of flooding the market with excess currency and a ballooning national debt, citizens fearing that their wealth would disappear would likely move a lot of their money into foreign currencies and non-paper investments such as precious metals. Although it’s unlikely that the dollar will collapse all together, many are buying gold and diversifying their investments overseas because of fears of coming inflation.

If the United States Dollar went away, consumers almost immediately develop some form of alternative currency or accept the currency of some foreign nation. It’s possible that the British Pound or the Euro might gain a foothold in the United States, but it’s also possible that the people would develop their own currency, and in fact, some already have.

A company, called Liberty Services, established a private currency called the Liberty Dollar, which was a private currency backed by silver in the United States. The operation continued successfully for years until the Federal Government decided it didn’t want any competition in the currency market. In 2006, the Justice department issued a press release stating that they had determined that using Liberty Dollars as circulating money is a crime. In November of 2007, the Federal Bureau of Investigation raided the Liberty Dollar offices and seized most of their company’s assets, including the silver that backed the value of the Liberty Dollar.

In May of 2009, a Federal grand jury brought an indictment against Bernard von NotHaus, the man behind the Liberty Dollar, with one count of “conspiracy to possess and sell coins in resemblance and similitude of coins of a denomination higher than five cents, and silver coins in resemblance of genuine coins of the United States in denominations of five dollars and greater.” The case is currently on trial.

Although the Liberty Dollar will likely fade into history, it demonstrated that without government interference, private precious-metals backed currencies can succeed.

If the dollar were to vanish out of existence, there certainly would be some short term panic, but the US economy is resilient. Competing companies and organizations would work quickly to establish their own currencies, backed by whatever commodity they have available. The economy would look a lot different than it does today, but it certainly wouldn’t come to a grinding halt.