PHOENIX, Ariz. (Aug. 3, 2018) – Today, an Arizona law goes into effect taking another step toward establishing gold and silver as money. The new law supplements Federal Reserve notes with honest money that has stable, constitutionally protected value.
Rep. Mark Finchem (R-Tucson) sponsored House Bill 2013 (HB2013). The new law recognizes silver and gold as liquid capital for trust companies.
Practically speaking, the bill does two things.
- Modifies the definition of “liquid capital” to include legal tender for trust company certification. (Sec. 1)
- Defines legal tender as a medium of exchange, including specie, that is authorized by the U.S. Constitution or Congress for the payments of debts, public charges, taxes and dues. (Sec. 1) Specie is defined as coins having precious metal content.
Trust businesses act as “fiduciaries.” A fiduciary is a person who holds a legal or ethical relationship of trust. Typically, a fiduciary handles money or other assets for another party. A trust company in Arizona must maintain $500,000 of liquid capital reserves in order to operate. The new law authorizes trust companies to count gold and silver specie as part of their liquid capital.
Under the current law, liquid capital is defined as capital in the form of certificates of deposit issued by banks, savings banks or savings and loan associations that do business in Arizona. These certificates of deposit are insured by the FDIC. HB2013 expands the definition to include gold and silver. Finchem explained the impact of the bill.
“This would fortify the capital asset reserve of trust companies in Arizona. Since the FDIC only insures up to $250,000 of personal deposits in an FDIC insured bank, and they can take up to 99 years to pay a claim under federal law, this move permits investors in trust companies to place hard assets on deposit as ready, liquid capital reserve without converting the real money to fiat currency and then digital currency as in a deposit in the ACH system.”
From a broader perspective, the passage of HB2013 recognizes hard money as a legitimate risk reducer. It also expands the role of gold and silver as money in Arizona, and further undermine the Federal Reserve’s monopoly on money.
The House passed HB2013 by a 33-24 vote. The Senate approved the measure 17-13. With Gov. Ducey’s signature in March, the new law went into effect on midnight Aug. 3.
ANOTHER STEP FORWARD
Last year, Gov. Doug Ducey signed a bill into law that was sponsored by Finchem repealing state capital gains taxes on gold and silver specie.
That new law removed the amount of any net capital gain derived from the exchange of one kind of legal tender for another from the gross income on an individual’s state income tax. In other words, the purchase of gold or silver bullion, or utilizing gold and silver in a transaction, is no longer subject to state taxes on the exchange.
“What the IRS has figured out at the federal level is to target inflation as a gain. They call it capital gains,” Finchem said during a committee hearing. He noted that the bill would help Arizona residents “protect their conversion of one kind of currency for another.”
Repealing the capital gains tax marked an important first step toward currency competition. If sound money gains a foothold in the marketplace against Federal Reserve notes, the people would be able to choose the time-tested stability of gold and silver over the central bank’s rapidly-depreciating paper currency. The freedom of choice expanded by the tax repeal will help Arizona residents secure the purchasing power of their money.
Passage of HB2013 builds on this foundation and further expands the role of sound money in Arizona.
BACKGROUND INFORMATION
Currently, all debts and taxes in Arizona must be paid with either Federal Reserve Notes (dollars), authorized as legal tender by Congress, or with coins issued by the U.S. Treasury — very few of which have gold or silver in them.
But 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.”
Laws expanding the role of gold and silver take a step toward that constitutional requirement, ignored for decades in every state. Such a tactic would undermine the monopoly or 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. Nullifying the Fed on a state by state level can get us there.
