by Ryan McMaken, originally published at Mises.org.
Last year, we covered a story coming out of Texas in which the state government was planning to institute a state-controlled “gold depository” that would allow individuals to store their gold in a presumably safe place outside the United States banking system.
This proposition was met with emotionally-charged denunciations from Americans in far away northeastern American states where it was claimed this measure was contrary to the “supremacy clause” and just a terrible idea in general because it undermined faith in the US’s central government and the Federal Reserve System.
Well, in spite of the disapproval of New Yorkers, the Texas legislature passed the bill, and the governor signed it into law last June.
“With the passage of this bill, the Texas Bullion Depository will become the first state-level facility of its kind in the nation, increasing the security and stability of our gold reserves and keeping taxpayer funds from leaving Texas to pay for fees to store gold in facilities outside our state,” Abbott said when he signed the bill.
The depository won’t just store state gold and other precious metals. The law requires that individual customers, and even school districts, be allowed to open accounts. Capriglione has described it as a bank that doesn’t do any lending.
Originally, the bill appears to have envisioned Texas tax dollars being used to create the facility, but the bill only passed when it was modified to create what is seemingly a state-chartered gold depository that will be privately owned and paid for via fees for gold storage.
Thus, not surprisingly, several private firms are now trying to become the creators of one of these depositories. The Ft. Worth Star-Telegram yesterday reported:
Saab’s company, one of many interested in being involved with the state’s plan to create a depository, proposes building a potentially $20 million facility — with no Texas tax dollars — on 40 acres of land it has in Shiner, about 250 miles south of Fort Worth.
The original sponsor of the bill, State Representative Giovanni Capriglione appears pleased with the progress being made:
“I am optimistic that the depository will be up and running at the end of this year or the beginning of next year,” Capriglione said. “The most important factor is making sure that the process is completed with considerable thought and care.”
At the depository, Texans will be able to open accounts similar to checking or savings accounts at traditional banks — and monitor them online.
The physical construction of the facility is very humdrum compared to the implications of the creation of a depository of this sort.
Laying the Ground Work for Electronic Gold-Based “Money”
For one, many state politicians hope that the State of Texas will be able to relocate its own gold holdings into Texas from New York where it currently sits. The state spends a million dollars per year on its storage.
Moreover, existence of the depository opens up the possibilities for users creating a new type of currency in which purchases are made electronically with the backing of the gold in the depository. In other words, one could potentially use the depository’s infrastructure to make purchases using gold, and to have gold either directly deposited into another’s account, or converted to US dollars and deposited in a conventional bank. Arguably, this is just an electronic version of gold-backed money.
Ironically, Zero Interest Rate Policy Has Made Gold Depositories More Practical
And now more than ever, the idea of paying fees on gold deposits has become relatively economical thanks to near-zero interest rates on ordinary bank accounts. In ages past when banks actually paid meaningful interest on deposits, one might wonder why anyone would pay a fee to store gold when one could collect interest on cash at a bank.
Thanks to the central banks’ commitment to near-zero or even negative interest rates, though, holding cash in a bank no longer brings any benefit in terms of investment earnings. That is, the opportunity cost of storing gold in a depository is getting lower and lower thanks to central bank policy.
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