By making gold and silver available for regular, daily transactions by the general public, gold depository laws have the potential for wide-reaching effect. If people in multiple states start doing this, it will create serious competition with Federal Reserve notes, an essential step towards sound money.
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Texas took this step in 2015. When it opens, a person will be able to deposit gold or silver, and then make or accept payments in precious metal.
The existence of a state gold depository will certainly provide security for state assets and solidify Texas’ independence, but it has the potential to do something much bigger. If enough states follow Texas’ lead, it could ultimately change the way Americans transact business. As bill sponsor, Rep. Giovanni Capriglione, pointed out during an interview, it has the potential to undermine the Federal Reserve’s monopoly on money.
“The really interesting part about this depository, which hasn’t been getting a lot of press, is that with this depository, private individuals and entities will be able to purchase goods, and will be able to use assets in the vault the same way you’d be able to use cash.”
In other words, Texans will be able to conduct transactions with sound money, backed by gold or silver stored in the state depository, bypassing the dollar and the US central bank completely.
That’s real power.
Constitutional tender expert Professor William Greene wrote a paper for the Mises Institute arguing that enough states start transacting business in sound money, 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.”
The Texas gold depository creates a mechanism to begin this process, and provides a blueprint for other states to follow. Consider the ramifications if other states follow suit. If the majority of states controlled their own supply of gold, it could conceivably make the Federal Reserve completely irrelevant.