AUSTIN, Texas (Nov. 20, 2024) – Two bills filed in the Texas House would create 100% backed gold and silver-backed transactional currencies that would serve as legal tender in the state. This would create a foundation for the people to undermine the Federal Reserve’s monopoly on money.
Rep. Mark Dorazio filed House Bill 1049 (HB1049) and House Bill 1056 (HB1056). The language in both bills is nearly identical but they add the provisions to different sections of the Texas code.
Under the proposed law, the Texas Comptroller would issue gold and silver specie (coins) through the Texas Bullion Depository and also establish gold and silver transactional currency defined as “the representation of gold and silver specie and bullion held in the pooled depository account.”
The Depository would be required to hold enough gold and silver to back 100 percent of the issued currency.
Holders of gold and silver specie and currency would be able to use them as “legal tender in payment of debt” in the state of Texas. The gold and silver-backed currency would be electronically transferable to another person.
Gold and silver-backed currency would be redeemable in specie or at the spot price of gold in U.S. dollars minus applicable fees.
In practice, the passage of HB1049 or HB1056 would allow any person to conduct business transactions using gold or silver.
IMPACT
The passage of this legislation would create a sound money alternative to U.S. dollars in both physical and electronic form.
Using gold and silver-backed transactional currency, any person or entity would be able to do business using a debit card that seamlessly converts gold and silver to fiat currency in the background. Private individuals and businesses would be able to purchase goods and services using assets held in the Texas Gold Depository in the same way they use dollars held in a bank today.
Gold and silver-backed transactional currency would give people a way to shield themselves from the rapid loss of purchasing power inherent in the fiat dollar.
Over time, making gold and silver available for regular, daily transactions by the general public could have a wide-ranging impact. Professor William Greene is an expert on constitutional tender and said in a paper for the Mises Institute that if 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 legal and tax 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.
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 transactional gold and silver currency 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
HB1049 and HB1056 will be assigned to House committees when the 2025 legislative session begins on Jan. 14.
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