Gold Standard Institute admits: gold useless w/o paper trading money -- What are Real Bills?

The latest issue of the Gold Standard Institute (http://www.goldstandardinstitute.net/GSI/wp-content/uploads/2010/06/TheGoldStandard15.pdf) helps the average confused member of the alt-economics community get to the heart of the matter.     Obviously, the GSI is devoted to the idea of money based on the gold standard.   Naive, Austrian-influenced, amature economists need to understand GSI's position before spouting off about gold as "the only sound money". 

For, you see, the GSI is perfectly upfront about the fact that direct trade in gold is not practical.  As they put it, for example: "Gold on its own cannot support international trade; Bill circulation is essential for a viable Gold Standard." 

The gold standard only works, then admit, when actual trade is in paper.   The paper, which they call Real Bills, is backed by gold, but the paper is essential. 

Real Bills vs Money

Now, the question becomes, what are Real Bills???    Unlike a paper money supply backed by gold, real bills are not issued by a central bank and are not permanent.  Rather, they are issued by private parties, and they have an expiration date. 

They are most like a personal check with an expiration date.  They would say something like "Redeem this bill of sale for $100 worth of gold on July 31st 2012 at XXX Bank".  In practice, that bill could then trade hands among various people right up until the redemption date.    

This is the meaning of Real Bills being "self liquidating".   Unlike a permanent paper money supply, Real Bills are created in response to real economic activity, and are liquidated at the commencement of that activity.  Here is how they describe it: "Bills are drawn against real goods, the goods are delivered, the Bills net out the trade. Then, after doing their job, after being paid off on their due date, the Bills disappear."

The Necessity of a Clearing House

The only thing they left out of their description is the necessary role of a clearing house.  The clearing house keeps track of accounts upon expiration of the bills.  If necessary, on the date when accounts are settled, actually physical gold would then trade hands.  But the whole point of Real Bills is to allow multilateral trades in paper certificates, rather than actual gold. 

The clearning house has to function as the gold storage vault, as well as an accounting service, to clear and pay accounts of settling day.  If Real Bills are drawn on multiple banks, the individual banks would have need of a central clearing house to clear their accounts.  In practice, that would work like the way cheques are cleared by multiple banks. 

Advantages of Real Bills

Because they aren't permanent, Real Bills can't be used to fund speculation.  It is also nice because they don't disrupt the productive economy with the inflationary or deflationary effects of a permanent money supply.   Real Bills are always matched perfectly to the real productive economy. 

Nor are they centrally-controlled.  Real Bills are like a democratically-issued money supply.   People issue Real Bills on the wealth they possess.  Under this system, the function of banks is simply accounting and wealth transfer.   Presumably, the banks are funded on a fee-for-service basis.