NASHVILLE, Tenn. (April 22, 2021) – Earlier this month, the Tennessee Senate passed a bill that would create a commission to study the feasibility of creating a state gold depository. A state bullion depository would not only create a safe place to store precious metals; it would also facilitate the everyday use of gold and silver in financial transactions in Tennessee and set the stage to undermine the Federal Reserve’s monopoly on money.
Sen. Paul Rose (R) introduced Senate Bill 279 (SB279). Rep. Bud Hulsey (R-Kingsport) introduced the companion, House Bill 353 (HB353). The legislation would require the Tennessee advisory commission on intergovernmental relations (TACIR) to study the feasibility of creating a state gold depository, including whether other states or jurisdictions have created a gold depository, and to report its findings to the speakers of the senate and house of representatives no later than January 1, 2022.
The Tennessee Senate passed SB279 by a 32-0 vote.
In, 2016 Tennessee Gov. Bill Haslam signed HJR516, a resolution in support of creating a state gold bullion depository. Both houses of the legislature passed the measure unanimously. Passage of SB279/HB353, five years later, would take a second step forward in the pursuit of sound money.
Tennessee could follow the lead of Texas. Gov. Greg Abbot signed a law creating a state gold bullion and precious metal depository in the summer of 2015. The depository received its first deposits in the summer of 2018. The following year, the state exempted precious metals in these depositories from taxation.
In a nutshell, through the depository, Texans will be able to deposit gold or silver and pay other people through electronic means or checks. Private individuals and entities will be able to purchase goods and services using assets in the vault in the same way they use cash today. Doing so has the potential to open the market to sound money in day-to-day transactions. 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. Professor William Greene is an expert on constitutional tender and said in a paper for the Mises Institute that when people in multiple states actually start using gold and silver 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?
The key is in making it easier to use gold and silver in everyday transactions. The reason bad money drives out good is that governments put up barriers to using sound money in day-to-day life. That makes it more costly to spend gold and silver and incentivizes hoarding. When you remove barriers, you level the playing field and allow gold and silver to compete head-to-head with Federal Reserve notes. On an even playing field, gold and silver beat fiat money every time.
The Texas Bullion Depository also creates an avenue toward financial independence. Countries around the world, including China, Russia and Turkey, have been buying gold to limit their dependence on the U.S. dollar. University of Houston political science professor Brandon Rottinghaus said a state depository can serve a similar function for Texas.
“This is another in a long line of ways to make Texas more self-reliant and less tethered to the federal government. The financial impact is small but the political impact is telling, Many conservatives are interested in returning to the gold standard and circumvent the Federal reserve in whatever small way they can.”
SB279 has now moved to the House, where it will continue on in the legislative process.
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