CHEYENNE, Wyo. (Sept. 21, 2020) – Last week, Wyoming became the first state to approve a banking carter for digital assets. By chartering a cryptocurrency firm as a bank, Wyoming gives additional support and encouragement for the use of cryptocurrencies in the state. Efforts like this could ultimately undermine the Federal Reserve’s monopoly on money.
The Wyoming Banking Board approved Kraken’s application for a special depository institution (SPDI) charter. With the charter, the San Francisco-based cryptocurrency exchange will be able to offer customers a wider range of services, according to Kraken managing director David Kinitsky.
“By becoming a bank we get direct access to federal payments infrastructure, and we can more seamlessly integrate banking and funding options for customers.”
Kinitsky said the company’s status as a state-chartered bank gives it a “regulatory passport” to move into other states without having to deal with a state-by-state compliance plan. It will also make it much easier to use cryptocurrency in day-to-day transactions.
“We would expect to offer a host of new products as we get established. Those will range from things like qualified custody for institutions, digital-asset debit cards and savings accounts all the way to new types of asset classes. We can engage with securities and commodities and things like that as a bank. So a lot more TBD there.”
Wyoming Governor Mark Gordon praised the move in a tweet.
“Today Wyoming became the first state to approve a banking charter for digital assets. This will allow those using digital assets, like cryptocurrency, to access reliable financial services, protect consumers, and allow businesses a way to safely hold digital assets.”
Another Step Forward
Charting a cryptocurrency bank in Wyoming builds on a foundation set over the last two years. In 2018, Wyoming enacted several laws to encourage and facilitate the use of cryptocurrency and to support the development of blockchain businesses. Last year, Wyoming enacted three more laws to support cryptocurrency in the state. Policymakers in Wyoming have publicly stated they want to position the state to become the national leader in cryptocurrency and blockchain business.
Wyoming’s efforts appear to be paying off. We saw a similar market development in Utah when that state made gold and silver legal tender. 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. The law has also had a practical effect, opening the door for the development of a gold and silver market in Utah. With some legal hurdles cleared away by the state, United Precious Metals Association (UPMA) set up the state’s first “gold bank.”
UPMA offers publicly available accounts denominated in gold and silver dollars. In just a short time, it grew 700 percent in assets under management and makes up about 2 percent of the market for U.S gold and silver coins. You don’t even have to live in Utah to open an account, and an account-holder can conduct business in gold and silver with any other account-holder across the country.
It appears Wyoming’s efforts to open the door to the use of cryptocurrencies is having a similar effect.
Wyoming’s commitment to fostering the broader use of cryptocurrencies takes an important first step toward generating currency competition. If other forms of money, whether it be cryptocurrencies or gold and silver, gain a foothold in the marketplace against Federal Reserve notes, people will be able to choose them over the central bank’s rapidly-depreciating paper currency. This freedom of choice would help allow Wyoming residents to secure the purchasing power of their money.
In a paper published at the Mises Institute, 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.
Cryptocurrencies open up another pathway to this same goal.