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Status Report: Sound Money in the States

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If you want to end unconstitutional, overreaching federal power – end the Fed. It’s the engine that drives the most powerful government in the history of the world.

But Congress will never abolish the central bank. It can’t even come up with the will to audit the Fed.

So what can we do?

There are actually actions that states can take.

Even though state action can’t end the Fed, there are steps states can take that will undermine the Federal Reserve’s monopoly on money. By passing laws that encourage and incentivize the use of gold and silver in daily transactions by the general public, state action has the potential to create a wide-reaching impact and set the foundation to nullify the Fed’s monopoly power over the monetary system.

Over the last two years, a number of states have taken concrete steps in this direction.

REPEAL TAXES ON SOUND MONEY

The first step is to repeal taxes on gold and silver.

Fundamentally, gold and silver are money. But most governments treat precious metals as a commodity. They don’t accept it as payment. Worse than that, they tax it. Think about the absurdity of this policy.

Imagine if you asked a grocery clerk to break a $5 bill and you were charged a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what a sales tax on gold and silver does.

This also creates a barrier to using gold and silver in everyday transactions. Repealing taxes is a crucial first step toward the use of specie as money.

Last year, Kansas and West Virginia both repealed their sales tax on the sale of gold, silver and other precious metal bullion. They joined at least 37 states that have already done the same. This not only benefits investors; it sets the stage for currency competition and breaking the Fed’s monopoly on money.

States also need to repeal capital gains taxes on gold and silver as a number of states have done in recent years.

While repealing state sales taxes on precious metals may seem like a relatively small step, it removes one barrier to owning gold and silver and eliminates a penalty on the use of sound money.

Former Congressman Ron Paul testified during in support of a bill to eliminate capital gains taxes on gold and silver that passed in Arizona in 2017.

We ought not to tax money – and that’s a good idea. It makes no sense to tax money.”

MAKE GOLD AND SILVER LEGAL TENDER

In 2011, Utah became the first state in modern times to formally recognize gold and silver coins issued by the United States as legal tender. In practice, the value is based on the market price of the metal, not the coin’s face value. The impact of this success is multi-tiered. Many forms of gold and silver inside the Beehive State are now recognized to be what they are – legal tender under Article I, Section 10 of the United States Constitution.

The Utah law protects gold and silver’s role as money and fosters their use – creating a first-hand opportunity for the state’s 3 million residents to experience the superiority of sound money. The educational impact of millions of people coming in direct contact with sound money over time cannot be overstated.

Wyoming and Oklahoma have also officially recognized gold and silver as legal tender.

GOLD BULLION DEPOSITORIES

Establishing gold bullion depositories that facilitate the use of sound money is another step states can take to undermine the Fed’s monopoly on money.

Gov. Greg Abbott signed legislation creating the state bullion and precious metal depository in June of 2015. The facility began accepting deposits on June 6, 2018. The depository provides a secure place for individuals, businesses, cities, counties, government agencies, and even other countries to store gold and other precious metals.

The existence of an in-state bullion depository could facilitate establishing gold reserves in Texas and create an avenue toward financial independence for the state. Over the last several years, central banks around the world have been buying gold in part to limit their dependence on the US dollar. Central bank demand came in at 650.3 tons last year. That was the second-highest level of annual purchases for 50 years, just slightly below the 2018 net purchases of 656.2 tons.

You don’t have to be a Texas resident to use the depository. Any American citizen can set up an account online and then ship or personally deliver metal to the facility. The Texas Bullion Depository accepts gold, silver, platinum, rhodium and palladium.

The law also creates a mechanism to facilitate the everyday use of gold and silver in business transactions.

While the depository does not currently have a system in place to facilitate everyday transactions with gold and silver, it remains part of the long-term plan. According to an article in the Star-Telegram, state officials want a facility “with an e-commerce component that also provides for secure physical storage for Bullion.”

Ultimately, depositors will be able to use a bullion-funded debit card that seamlessly converts gold and silver to fiat currency in the background. This will enable them to make instant purchases wherever credit and debit cards are accepted.

By making gold and silver available for regular, daily transactions by the general public, the new depository has the potential for a wide-reaching effect.

In 2019, Texas passed a constitutional amendment and enabling legislation that exempts precious metals stored in the Texas Bullion Depository from certain taxes. Enactment of this law ensures there won’t be any barriers to using gold and silver stored in the depository for everyday financial transactions.

BACKGROUND INFORMATION

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” States have simply ignored this constitutional provision for years. It’s impossible for a state to return to a constitutional sound money system when it taxes gold and silver as a commodity.

These state actions take a step toward establishing gold and silver as legal tender in the state and that constitutional requirement, ignored for decades in every state. This sets the stage to undermine the monopoly of the Federal Reserve by introducing competition into the monetary system.

Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it could create a “reverse Gresham’s effect,” drive out bad money, 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.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people.

For more details on state efforts to undermine the Federal Reserve’s monopoly on money, you can read the State of the Nullification Movement Report published by the Tenth Amendment Center. You can download it for free HERE.

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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