by Michael Maharrey, Schiff Gold:
On May 2, a Texas House committee passed a bill to create 100% reserve gold and silver-backed transactional currencies. Enactment of this legislation would create an option for people to conduct business in sound money, set the stage to undermine the Federal Reserve’s monopoly on money, and possibly create a viable alternative to a central bank digital currency (CBDC).
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Rep. Mark Dorazio (R) introduced HB4903 on March 10 and it has since garnered a bipartisan coalition of 42 cosponsors. The legislation would require the state comptroller to establish and provide for the issuance of gold and silver specie and also establish digital currencies that are 100% backed by gold and silver, and 100% redeemable in cash, gold, or silver.
Specie is defined as “a precious metal stamped into coins of uniform shape, size, design, content, and purity, suitable for or customarily used as currency, as a medium of exchange, or as the medium for purchase, sale, storage, transfer, or delivery of precious metals in retail or wholesale transactions.”
In establishing gold and silver specie, the comptroller would be required to authorize the Texas Bullion Depository as issuer and ensure that the holder of the specie may use the specie as legal tender in payment of debt and readily transfer the specie to another person.
The comptroller would also be required to create a mechanism to use 100% backed gold and silver digital currencies in everyday transactions.
In establishing the digital currency under Subsection (a)(2), the comptroller shall provide a means to ensure that a person who holds the digital currency may:
1. Use the digital currency as legal tender in payment of debt; and
2. By electronic means readily transfer or assign the digital currency to another person.
Physical gold and silver backing the digital currency would be stored in a pooled account at the Texas State Bullion Depository.
“The trustee shall maintain enough gold and silver specie or bullion to provide for the redemption of all units of the digital currency issued but not redeemed.”
In practice, individuals would be able to purchase transactional currency representing the smallest fractions of physical gold or silver. The money would be used to purchase gold or silver that would be held in the already-open Texas Bullion Depository. Individuals would be able to redeem their transactional currency for dollars, gold, or silver on demand.
On May 2, the House State Affairs Committee passed HB4903 by a 7-6 vote.
In an outpouring of strong support from the grassroots in Texas, a 78-page document – representing hundreds of messages of support for the bill – was presented to the committee members during a hearing last month.
IMPACT
This is one of several bills introduced in the Texas legislature this year to promote sound money, including legislation to establish state gold and silver reserves, and a bill to make gold and silver legal tender in the Lone Star State.
The creation of state-issued gold-backed and silver-backed digital currencies would create currency competition with Federal Reserve notes and undermine the Fed’s monopoly on money. It would also provide a sound money-backed competitor if the Federal Reserve implements a central bank digital currency.
Broadly speaking, by making gold and silver conveniently available for regular, daily transactions by the general public, gold and silver-backed digital currency would create the potential for a wide-reaching effect. Professor William Greene, an expert on constitutional tender, said in a paper for the Mises Institute that when people in multiple states actually start using gold instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.
“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).
“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”
Gresham’s Law holds that “bad money drives out good.” For example, when the U.S. government replaced silver quarters and dimes with coins made primarily of less valuable copper, the cheap coins drove the silver out of circulation. People hoarded the more valuable silver coins and spent the less valuable copper money. So, how do you reverse Gresham?
