RALEIGH, N.C. (June 29, 2023) – Yesterday, the North Carolina House passed a bill that would mandate a study to explore the state acquisition of precious metals and cryptocurrency, along with a cost-and-benefit study on creating a state precious metals bullion depository.
Rep. Mark Brody and three cosponsors introduced House Bill 721 (H721) in April. The legislation would direct the Department of State Treasurer to launch a study covering three general topics related to precious metals and cryptocurrency.
- The process of acquiring, securely storing, insuring, and liquidating any investment metal bullion and virtual currency such as bitcoin that can be held on behalf of the state.
- The expected impact of allocating a portion of the General Fund to investment metal bullion and virtual currency to hedge against inflation and systemic credit risks, reduce overall portfolio volatility, and increase portfolio returns over time.
- The costs, benefits, and security of utilizing a privately managed depository or another state’s depository or creating a state-administered depository in North Carolina “to serve as the custodian, guardian, and administrator of certain investment metal bullion and virtual currency that may be transferred to or otherwise acquired by the state” and to provide a repository for investors to use for such assets.
H721 would appropriate $50,000 for the study.
On June 28, the House passed H721.
IMPACT
Holding gold, silver, and/or cryptocurrency would allow the state of North Carolina to shield its assets and hedge against rapidly depreciating Federal Reserve notes.
As Sound Money Defence League policy director JP Cortez noted while testifying in favor of a similar bill in Wyoming, “Proposals encouraging state gold holdings have come before the legislature since January 2019, but no bills have been passed. During the last four years of inaction on sound money, gold bullion, priced in declining dollars, has risen by 50 percent.”
Holding gold and silver in reserve will also create a pathway for North Carolina to maintain financial independence should the U.S. dollar collapse, a very real possibility as the world moves away from the greenback as its reserve currency.
Tennessee enacted a bill authorizing state gold and silver reserves earlier this year.
North Carolina could also 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.”
WHAT’S NEXT
H721 will now move to the Senate for further consideration. At the time of this report, it had not been referred to a Senate committee. Once it gets 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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