The True Intrinsic Value of Euro 'Money'

Tuesday, November 08, 2011

Ever wondered about the true intrinsic value of Euro banknotes?
Prudent Investor blog reader Kurt Lindlgruber from Austria sent me this pragmatic approach, pulling up the calorific value of such notes once they have lost their purchasing power as did all fiat currencies in history.
Lindlgruber's calculations contradict French philosopher Voltaire's famous quote that
'Paper money will always return to its intrinsic value. Nothing.'
It is not all that bad. Your soon-to-be worthless Euros will at least keep you warm for a few minutes.
Here is his calculation:
The minimum value of paper money after the Euro crash corresponds with its calorific value.
A €5 banknote weighs 0.6 grams. The calorific value of one kilogram European fiat money (= 1,667 €5 notes) is 5 kilowatt hours (kWh).
You can fare much better with gold:
Based on Monday's Euro gold price of €1,260/oz one ounce will buy you 21 metric tons of wastepaper (current price €60/ton) which has a calorific value of 105,000 kilowatt hours.
The average heat energy consumption of a single family detached house is around 5 kWh. So 21 tons will heat a house for 21,000 hours or 2.4 years.
If you hold on to your Euros instead of gold, 252 €5 notes (=€1,260), they will deliver a calorific value of 0.76 kWh
(252 x 0.6 x 5 / 1000 = 0.76 kWh) 
will keep you warm for a mere 9 minutes instead of 2.4 years.

This is the calculation for 'paupers' who hold such small denominations.
If you happen to be a wealthy money bag, drug dealer or tax evader, who all tend to stash the handy €500 notes, you will likely be much worse off despite their higher weight of 1.1 grams per banknote.
Rounding up the Euro gold price to €1,500 (I expect to see this price within a few weeks) your wealth will make you long for a thick blanket much sooner. Here is the calculation based on €500 notes:
3 x 1.1 x 5 / 1000 = 0,016 kWh
that will keep your house inhabitable for only 10.8 seconds.
To sum it up, here are your choices after the Euro crash:
Hold the monetary equivalent of one ounce gold

  • in €500 notes and you can heat your house 10.8 seconds,
  • in €5 notes and you can heat your house for 9 minutes,
  • in 21 tons wastepaper and stay warm for 2.4 years,
  • but 1 ounce gold based on James Turk's price expectation of €11,000/oz will keep your house heated for 23 years. 

I haven't come across a more specious argument pro gold for the coming hard times in Europe.
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