States Seek Currencies Made Of Silver And Gold

CNN Money By Blake Ellis February 3, 2012 NEW YORK (CNNMoney) — A growing
number of states are seeking shiny new currencies made of silver and gold .
Worried that the Federal Reserve and the U.S. dollar are on the brink of
collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South
Carolina and Georgia, are seeking approval from their state governments to
either issue their own alternative currency or explore it as an option. Just
three years ago, only three states had similar proposals in place. "In the
event of hyperinflation, depression, or other economic calamity related to the
breakdown of the Federal Reserve System … the State's governmental finances
and private economy will be thrown into chaos," said North Carolina Republican
Representative Glen Bradley in a currency bill he introduced last year. Unlike
individual communities, which are allowed to create their own currency – as
long as it is easily distinguishable from U.S. dollars — the Constitution bans
states from printing their own paper money or issuing their own currency. But it
allows the states to make " gold and silver Coin a Tender in Payment of
Debts." To the state legislators who are proposing state-issued currencies,
that means gold and silver are fair game, said Edwin Vieira, an alternative
currency proponent and attorney specializing in Constitutional law. And since
gold has grown exponentially more valuable, while the U.S. dollar continues to
lose ground, the notion has become increasingly appealing to state lawmakers, he
said. The state gold rush: Utah became the first state to introduce its own
alternative currency when Governor Gary Herbert signed a bill into law last
March that recognized gold and silver coins issued by the U.S. Mint as an
acceptable form of payment. Under the law, the coins — which include American
Gold and Silver Eagles — are treated the same as U.S. dollars for tax
purposes, eliminating capital gains taxes. Since the face value of some
U.S.-minted gold and silver coins — like the one-ounce, $50 American Gold
Eagle coin — is so much less than the metal value (one ounce of gold is now
worth more than $1,700), the new law allows the coins to be exchanged at their
market value, based on weight and fineness. "A Utah citizen, for example,
could contract with another to sell his car for 10 one-ounce gold coins
(approximately $17,000), or an independent contractor could arrange to be
compensated in gold coins," said Rich Danker, a project director at the
American Principles Project, a conservative public policy group in Washington,
D.C. South Carolina Republican Representative Mike Pitts proposed a currency
system that would allow people to use any kind of silver or gold coin —
whether it's a Philippine Peso or a South African Krugerrand — based on
weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors,
that the state is facing "an economic crisis of severe magnitude."
Republican representatives from Washington State followed suit in January,
introducing a bill that would also allow any gold and silver coins to be
considered legal tender based on metal values. Minnesota, Iowa, Georgia, Idaho
and Indiana are also considering similar proposals. Many of the bills would make
it possible for residents to exchange the physical coins for goods and services,
so you could use coins to buy anything from groceries to a car as long as the
store chooses to accept them. However, most people aren't going to walk around
with such valuable coins in their pockets, said Vieira. Plus, calculating the
value of the coins — especially if they come from different parts of the globe
and are of different sizes and shapes — will get tricky. It's more likely
that the states will create electronic depositories and accounts for the coins
to make transactions easier, when and if the initial bills are passed, he said.
Utah Gold & Silver Depository is already developing a system where customers
could use debit cards linked to their gold holdings. When customers swipe their
debit cards to make transactions, physical gold and silver coins would be
transferred between accounts in privately-owned depositories (or vaults) based
on the market value of the metals. Before deciding on a specific form of
currency, some states — including Minnesota, Tennessee, Virginia and North
Carolina — are considering proposals that would first require a committee to
review their alternative currency plan. The future of U.S. currency: The
states' proposals have been gaining steam among Tea Partyers and Republicans,
many of whom also endorse a nationwide return to the gold standard, which would
require the U.S. dollar to be backed by gold reserves. Tea Party "father"
Ron Paul is sponsoring the "Free Competition in Currency Act," which would
allow states to introduce their own currencies, and rival Newt Gingrich is
calling for a commission to look at how the country can get back to the gold
standard. But it will be the individual states that could really get the ball
rolling, said Vieira. Even if several of the current proposals get killed, the
introduction of so many bills at the state level is drawing national attention
to the issue, he said. Of all the state proposals circulating right now,
Republican-controlled states including South Carolina, Georgia, Idaho and
Indiana have the best chance of passing their proposed bills this year, said
American Principles Project's Danker. If just one or two states implement an
alternative currency, it could have a Domino effect, he said. "I think we
could get a couple passed in this legislative session, and that would show this
is mainstream, popular and it would be a justification for more of the
risk-averse states for doing this," he said. There are, of course, many people
who think the recent push foralternative state currencies should be stopped in
its tracks. David Parsley, a professor of economics and finance at Vanderbilt
University, said he thinks state-issued currencies are a "terrible" idea.
"Having 50 Feds" could debase the U.S. dollar and even potentially lead the
country into default, he said. "The single currency in the United States is
working just fine," said Parsley. "I have no idea why anyone would want to
destroy something so successful — unless they actually wanted to destroy the
country."