INDIANAPOLIS, Ind. (Jan. 17, 2024) – A bill filed in the Indiana House would make gold and silver legal tender in the state and establish a state-run bullion depository.
Rep. Shane Lindauer introduced House Bill 1400 (HB1400) on Jan. 11. Passage would set the stage for the people there to undermine the Federal Reserve’s monopoly on money.
SPECIE LEGAL TENDER
Under the proposed law, specie legal tender is defined as, “Specie coin issued by the Federal Government at any time,” and “Any other specie that a United States court, in a final non-appealable judgment, determines to be within state authority to make or designate as legal tender under Article 1, Section 10 of the Constitution of the United States.”
“Specie” is defined as gold or silver bullion that is fabricated into products that are of uniform shape, size, design, content, weight, and purity, and are suitable for, or customarily used as, currency or a medium of exchange.”
HB1400 includes a contract clause under which “a prevailing party in an action for breach of any contract provision that specifically provides for a type or form of specie as tender, regardless of whether specie is recognized as legal tender in Indiana, is entitled to specific performance of the contract provision.”
This wording would reaffirm a court’s ability to require specific performance when enforcing such contracts. If voluntary parties agree to be paid, or to pay, in gold and silver coin, the Indiana courts could not substitute any other thing, e.g. Federal Reserve Notes, as payment.
Practically speaking, making gold and silver legal tender would allow Indianans to use gold or silver coins as money rather than just as mere investment vehicles. In effect, it would put gold and silver on the same footing as Federal Reserve notes.
Passage into law would make Indiana the fifth state to recognize gold and silver as legal tender. Utah led the way, reestablishing constitutional money in 2011. Wyoming, Oklahoma, and Arkansas have since joined.
The effect has been most dramatic in Utah where the legal tender law opened the door for the development of a gold and silver market in the state. With some legal hurdles cleared away by the state, the United Precious Metal Association (UPMA) in partnership with Alpine Gold Exchange set up the state’s first “gold bank.” The Utah Specie Legal Tender Act has also led to the creation of Goldbacks, a local, voluntary medium of exchange. Goldbacks are notes made from fractions of an ounce of physical gold. The company created a process that turns pure gold into a spendable physical form for small transactions.
These provisions are similar to another bill introduced in the Indiana House by Rep. Cindy Ledbetter.
BULLION DEPOSITORY
Provisions in HB1400 would also establish a state-run bullion depository.
A depository account holder would be able to purchase, sell, deposit, or withdraw bullion. It would include “electronic systems” for the purchase and sale of bullion for depository account holders who cannot or choose not to travel to the physical location.
The bill includes provisions for the creation of an electronic currency backed by gold or silver and made available to the public. This would open the door for people to use precious metals stored in the depository in everyday transactions.
In a nutshell, through the depository, Indianans would eventually be able to deposit gold or silver and pay other people through electronic means. 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.
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.
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 to make 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.
WHAT’S NEXT
HB1400 was referred to the House Committee on Financial Institutions where it must get a hearing and pass by a majority vote before moving forward in the legislative process.
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