The American Liberty Dollar (ALD) is a private currency issued in the United States by NORFED, a Nevada nonprofit corporation based in Evansville, Indiana. The Liberty currency is backed by a specific weight of either silver or gold and is denominated to exchange in commerce at a 1:1 rate with US Federal Reserve Notes. It consists of specially-minted .999 pure silver and .9999 pure gold coins, as well as paper certificates (warehouse receipts), and digital eLibertyDollars (digital warehouse receipts), both of which are redeemable for the coins. The currency is not endorsed by the Federal Reserve or the U.S. government and is not designated legal tender.

Purpose
The United States dollar was once defined as a specific weight of gold or silver, but from 1913 to 1971 gradually came to be defined by the Federal Reserve Note (FRN) fiat currency. The Federal Reserve Note has had 96% of its original 1913 value eroded to inflation, according to the CPI. Motivated by a desire to create an inflation-free currency, a retired mintmaster named Bernard von NotHaus created the National Organization for the Repeal of the Federal Reserve Act and the Internal Revenue Code (NORFED) and launched the Liberty Dollar on October 1, 1998, as a political statement for the return to the gold and silver standards.

Currency Exchange
By buying a Liberty Dollar, a person is exchanging one US dollar for an amount of private currency declared equivalent to 1/20th of an ounce of silver or 1/500th of an ounce of gold. The ability to exchange Liberty Dollars back to FRN/USD currency is not guaranteed by NORFED, although merchants sometimes contract with NORFED-endorsed regional currency offices for this service. NORFED claims that such exchanges are counterproductive to its goal of increasing the silver and gold in monetary circulation.

Liberty Dollars are offered for sale by NORFED and its affiliates. Liberty Dollar Associates and merchants can get the currency at a market-driven exchange rate for less than $1USD, depending upon the spot price of silver at the time of exchange. Liberty Dollars are backed by a specific amount of silver or gold, specified by the currency's "silver base". The "silver base" is a unique and controversial feature of the Liberty Dollar.

The Silver Base
The silver base, commonly referred to as the currency's backing, defines the price of an ounce of silver expressed in Liberty Dollars. The silver base is currently $20 (and has been since November 24, 2005), meaning that twenty Liberty Dollars are equivalent to 1 ounce of silver. A person is able to redeem one ounce of silver from the Liberty Dollar warehouse with twenty Liberty Dollars.

Put another way, an ALD$10 certificate with a $10 silver base is "backed" by a half-ounce of silver. An ALD$20 certificate with a $20 silver base is backed by an ounce of silver.

From inception in 1998 to November 23, 2005, NORFED maintained a $10 base. NORFED recently raised the silver base from $10 to $20, because the the Federal Reverve Note has fallen about 50% in value, relative to silver. By doubling the silver base, NORFED adjusted the ALD for the falling purchasing power of FRN's, allowing the currency to remaian on a 1:1 exchange rate witht the FRN. This is to make sure that those holding Liberty Dollars don't lose purchasing power due to inflation.

Marketplace Acceptance
Liberty Dollars are not currently widely accepted. Although they are not legal tender, contracts specifying payment in Liberty Dollars (or any other specie) are legally enforceable. NORFED both encourages the use of Liberty Dollars for all transactions and maintains a website listing merchants who have indicated that they accept them. Many merchants have been known to accept Liberty Dollars without realizing their unofficial, nongovernmental nature.

Legality
There is no law mandating the use of US Federal Reserve Notes for transactions, except that contracted debts not specifying repayment currency can be legally discharged by payment in Federal Reserve Notes at face value.

As with all forms of private currency or corporate scrip, including air miles, acceptance of Liberty Dollars is at the option of the merchant, and at an exchange rate to be determined by the contracting parties.

Just as many states, banks, and local communities once issued their own currency, and a few still do, the Liberty Dollar is a lawful form of currency, not considered counterfeit by the U.S. government. According to NORFED, the currency was submitted to the U.S. Treasury Bureau of Engraving & Printing for review, which verified that the Liberty Dollar is not an attempt to counterfeit under 18 USC 3056.

The US government does not back or authorize the claims of NORFED for the suitability of the Liberty Dollar as a currency, and does not guarantee that NORFED has sufficient silver to back the currency. The backing of the Liberty Dollar is verified by an independent firm with their findings displayed monthly on the NORFED website.

The paper and digital warehouse receipts are governed by UCC Article 7 which deals with warehouse receipts, bills of lading, and other documents of title. Note that the warehouse is a separate legal entity from NORFED, and as with any warehouse receipt, the contract is between the bearer and the warehouse (not NORFED.)

Security
The paper Liberty Dollars include many security features, such as holograms, microprinting, UV fluorescent ink trim, hot gold and silver foil stamping, and an invisible synthetic DNA security thread. NORFED claims that paper Liberty Dollars are more difficult to counterfeit than Federal Reserve Notes. Anyone familiar with the appearance of the certificates can easily spot a counterfeit.

Since the revaluation of the Liberty Dollar on Thanksgiving Day, 2005, the old silver notes and $10 Silver Liberty are obsolete. There is a small reminting fee to melt down old one-ounce $10 Silver Liberties and remint them into $20 Silver Liberties, but the paper notes can be exchanged at no charge.

One feature that certificates shares with the euro but not with the U.S. dollar is that the certificates' size and color varies with the value. However, unlike the euro, only the long dimension varies. The higher the value, the longer the certificate.

The gold and silver Liberty coins, formally called specie, have a similar design except for particulars such as mint date and value. Because gold is denser than silver, the Gold Liberty is smaller, with about 5/6 the diameter of the silver coin. Both coins have milled (rough) edges, like on the U.S. quarter and dime, intended to discourage coin clipping.

Each piece of currency (whether paper or specie) bears, in addition to its specific weight and its denomination in Liberty Dollars, a toll-free US phone number (800-NEW-DOLLAR) and a web URL (www.libertydollar.org) intended to allow bearers to make contact with NORFED or a local Liberty Dollar representative.

NORFED has also issued limited-edition coins in $10-base denominations of $1, $5, $20, and $50, but they are not intended to circulate and cost more per ounce of specie than the regular denominations above.

eLiberty Dollars
NORFED also offers an electronic online version of Liberty Dollars called eLibertyDollars, which are intended to be used for online transactions such as eBay auctions. These are identical to Liberty Dollars except the currency exists as online trading credits rather than as paper currency. They can be purchased with US dollars but can only be redeemed for silver (not gold) certificates or coins.

Criticism of Liberty Dollars
The Liberty Dollar does not have the liquidity generally associated with a currency, such as the ability to easily convert to other currencies, and the ability to deposit in savings or checking accounts in conventional banks. Moreover, critics believe the NORFED claims that the currency is "inflation proof" to be false. Instead, it is hedged against inflation since generally silver and gold retain their values in high inflationary periods, but can lose value in periods of deflation or low inflation.

The widest criticism of Liberty Dollars is that they are not backed with silver in an amount equivalent to the dollar-denominated face value of the currency based on current prices of silver. The Liberty Dollar is backed by a certain amount of silver (or gold), not by US dollars or any other fiat currency. Thus, this criticism is based on a misunderstanding of how Liberty Dollars are backed. The labeling of Liberty Dollars in terms of fiat money exacerbates this misunderstanding.

A related criticism is that Liberty Dollars can only be exchanged for silver coins (currently, a 1 ounce coin per every $20 in Liberty Dollars) through NORFED representatives who have signed up to become associates or regional currency offices. Essentially this means that a business accepting Liberty Dollars, and unable to deposit them in a bank as with U.S. Dollars, can only cash in Liberty Dollars by selling them on the open market. The ease and practicality of doing this depends on whether there is a NORFED representative in one's local area, the ability of the merchant to locate buyers for the currency, and the availability of buyers at any point of time. NORFED encourages merchants to offer the Liberty Dollar as change to their customers, but it is unclear how many merchants actually do so.

These criticisms have been made by many who would otherwise support the idea of an alternative currency, including Carl Watner who publishes the individualist anarchist newsletter The Voluntaryist, and Las Vegas libertarian writer Vin Suprynowicz, who asserts that NORFED is a multi-level marketing system.

Some of the critics, including Watner, agree with the concept of hard money but disagree with NORFED's currency implementation. In particular, they note that NORFED's "silver base" is extremely rigid compared to the spot price of silver, and recommend instead the use of generic silver rounds as currency. Furthermore, critics assert that by stamping a dollar amount on the Silver Liberty, NORFED defeats the purpose of measuring money in terms of weights of specie. Also, the design of the piece may confuse some people into thinking that the Liberty Dollar is legal tender, and unscrupulous dealers may use this confusion to pass Liberty Dollars to those who don't realize that they are not getting official government currency.

While NORFED specifically points-out that Liberty Dollars are a currency, not an investment, the Liberty Dollar does not deliver to the investor as much silver per USD as buying generic silver rounds or junk silver does. Since the silver Liberty Dollar is essentially a branded silver round, it is at least as liquid as other silver rounds, and perhaps more liquid due to brand recognition and reputation. Silver had a spot price of USD 8.15 per ounce on November 23, 2005. Comparing this with the silver markup on silver rounds shows that the seignorage on the Liberty Dollar is higher, since major bullion sellers charge approximately 10% premium, at least for quantity buys: a Silver Liberty costs USD $20, while silver rounds would sell for about USD $9.00 if you buy 100 at a time.

Due to the recent change in silver base, the mark up on a Liberty Dollar is currently higher than the retail prices of American Silver Eagles, and comparable to collectable limited edition coins. Current spot prices on Silver Eagles are around $10.50 USD for one, but wholesale run under USD $10. Before the revaluation, silver Liberties cost about the same as Eagles.

Differences From Other Alternative Currencies In The United States
The United States currently has a number of alternative currencies in circulation, including the NORFED Liberty Dollar. Two primary differences exist between Liberty Dollars and most of the other alternative currencies. Liberty Dollars are backed 100% by silver (since they are defined in terms of silver.) Most other alternative currencies in the United States are based on the Time Dollar theory, in which the the currency is unbacked and easily inflated. The value of the local currency is tied to a specific unit of time; the most common being currency denominated in "Hours", 1 hour = $10 USD, so depends on people in the future willing to swap their labor time, regardless of the amount of currency issued. The other main difference is the other currencies are intended as local currencies to be used in a specific city or region. Liberty Dollars are intended as an alternative national currency, but can also be used as a local currency at least until they are widely accepted.

Liberty Dollars and the other alternative currencies all share the fact that very few businesses accept them presently, some who do accept them only accept them for partial payment. Ithaca, New York's local currency has been relatively successful because Ithaca Hours are depositable in one of the local banks.

There are also a number of alternative online currencies such as e-gold, as well as other online payment services such as PayPal, which eLiberty Dollars hopes to compete with. Primary differences are that PayPal exchanges actual U.S. Dollars which can be charged to a credit card or deposited in a bank account. e-gold exchanges gold, silver, and other precious metals, and can be redeemed through various online services at the actual spot price of the metal. eLiberty Dollars can be redeemed for silver rounds or for paper Liberty Dollars, but unlike e-gold they cannot be redeemed for silver at the current spot price, rather they are redeemed at the silver base ratio, currently a one 1-ounce silver round per $20.