NASHVILLE, Tenn. (Jan. 17, 2023) – A bill filed in the Tennessee Senate would establish a state bullion depository. This would not only create a safe place to store precious metals; it also has the potential to facilitate the everyday use of gold and silver in financial transactions in the Volunteer State and set the stage to undermine the Federal Reserve’s monopoly on money.
Sen. Frank Nicely (R) introduced Senate Bill 150 (SB150) on Jan. 12. The legislation would establish a state bullion depository that could operate either “exclusively or non-exclusively” as a precious metals depository to “serve as the custodian, guardian, and administrator of certain bullion and specie that may be deposited with the depository by this state, a political subdivision, or another instrumentality of this state, or by a private individual, party, or other entity.”
The depository could be run by the state or operated privately under the statute.
The bill also includes a provision that would open the door for people to use precious metals stored in the depository in everyday transactions.
The bill is based on a similar law that was passed in Texas and signed into law by Gov. Abbott in 2015. The Texas depository received its first deposits in the summer of 2018. The following year, the state exempted precious metals in these depositories from taxation.
BACKGROUND
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. The legislature took no further action for five years. Finally, in 2021, the legislature passed a bill creating a commission to study the feasibility of creating a state gold depository.
The commission report concluded that “there does not appear to be enough demand for a state gold depository to be viable.” It recommended that the General Assembly should “consider a sales tax exemption for precious metals coins and bullion.”
Gov. Bill Lee signed a bill last year repealing the sales tax on gold and silver bullion, opening the door to increase demand and support a depository.
Allowing a private entity to operate a state-chartered depository also addresses some of the concerns in the commission report. A private company would be better positioned to determine the market viability of a depository.
IMPACT
In a nutshell, through the depository, Tennesseans would eventually be able to deposit gold or silver and pay other people through electronic means or checks. Private individuals and entities would 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, a 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 Tennessee Bullion Depository would also create 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. In a discussion about the Texas Bullion Depository, University of Houston political science professor Brandon Rottinghaus said a state depository can serve a similar function.
“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.”
In most states, debts and taxes must either get paid with 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.
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.”
The creation of a Tennessee Gold Depository would take another step toward that constitutional requirement, ignored for decades in every state. Such a tactic would undermine the monopoly of the Federal Reserve System by introducing competition into the monetary system.
WHAT’S NEXT
At the time of this report, SB150 had not been referred to a committee. Once it receives a committee assignment, it must get a hearing and pass by a majority vote before moving forward in the legislative process.
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