PHOENIX, Ariz. (Feb. 20, 2024) – Yesterday, a second Arizona Senate committee passed a bill that would establish a gold and silver specie-backed transactional currency and a bullion depository.
Sen. Jake Hoffman introduced Senate Bill 1633 (SB1633) on Feb. 5. The proposed law would establish the Arizona Bullion Depository. The facility would serve as safe storage for precious metals and would facilitate the issuance of state-minted gold and silver coins, along with a specie-backed transactional currency.
On Feb. 19, the Senate Rules Committee approved SB1633 as “proper for consideration,” moving the bill to the full Senate for further consideration.
The depository provisions are 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 bullion depository would serve as the “custodian, guardian and administrator of certain bullion and specie that may be transferred to or otherwise acquired by this state or an agency, a political subdivision or another instrumentality of this state.”
The proposed law specifies that the state treasurer “may deposit a portion of state monies in the depository in the form of bullion, and that bullion deposit is considered part of this state’s financial reserves.”
Private individuals and businesses would also be able to deposit bullion into the depository.
TRANSACTIONAL CURRENCY BACKED BY GOLD OR SILVER
Under SB1633 the Director of the Arizona Department of Insurance and Financial Institutions would be required to issue specie and establish a transactional currency “as the director determines to be practicable.”
Specie is defined as “a precious metal that is limited to gold and silver and that is stamped into coins of uniform shape, size, design, content and purity that are suitable for or customarily used as currency, as a medium of exchange or as the medium for purchase, sale, storage, transfer or delivery of precious metals in retail or wholesale transactions.”
A transactional currency is defined as “a representation of actual precious metals, specie and bullion held in a depository account by a depository account holder that may be transferred by electronic instruction and that reflects the exact unit of physical precious metals, specie or bullion in the pooled depository account in its fractional troy ounce measurement.”
The depository would manage the transfer of the digital transactional currency between parties and ensure it is 100 percent backed by physical gold or silver held there.
In effect, individuals and businesses would be able to transact business electronically using currency backed by gold and/or silver held in the depository.
“A person or this state that holds the transactional currency may use that transactional currency as legal tender to pay a debt or may assign the transactional currency to another person or this state.”
They would also be able to transact business with physical gold or silver coins minted by the state and issued by the depository.
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 was 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.
BACKGROUND
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.” Currently, all debts and taxes in most states are either paid with Federal Reserve Notes (dollars) which were 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 Federal Reserve destroys this constitutional monetary system by creating a monopoly based on its fiat currency. Without the backing of gold or silver, the central bank can easily create money out of thin air. This not only devalues your purchasing power over time; it also allows the federal government to borrow and spend far beyond what would be possible in a sound money system. Without the Fed, the U.S. government wouldn’t be able to maintain all of its unconstitutional wars and programs. The Federal Reserve is the engine that drives the most powerful government in the history of the world.
Making it easier to do business using sound money in the form of gold and silver takes a step in the process of abolishing the Federal Reserve system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the state and local levels, and setting the stage to undermine the Federal Reserve monopoly by introducing competition into the monetary system.
WHAT’S NEXT
SB1633 will move to the full Senate for further consideration.
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