Texas Eyes a Gold-Backed Digital Currency
Bills seeks to chisel away at Federal Reserve’s monopoly on money.
A pair of legislators in Texas are proposing a novel way for residents of that state to protect themselves against rampant inflation — creating a digital dollar backed by gold that holders could use to purchase everyday goods in much the same way that, at the moment, they use cash or credit cards.
A Republican state senator, Bryan Hughes, and Mark Dorazio, a Republican representative from San Antonio, have introduced companion bills that would allow the state comptroller to create a digital currency similar to bitcoin that would be fully backed by gold. It would create a mechanism for holders of that digital currency to transfer it to anyone else via their computer or smartphone.
The state of Texas would hold, potentially in the existing state-affiliated Texas Bullion Depository or another secure vault, as much gold as needed to provide for the redemption of all the units of digital currency that have been sold. Mr. Dorazio says that despite the creation of the depository in 2015, Texas has no official mechanism for citizens to purchase, store or practically use gold as they go about their normal business.
“Constituents in my district have expressed an interest in buying gold, as well as having the ability to use it in everyday transactions,” Mr. Dorazio told the Sun. “It’s one way to protect Texans from out of control inflation.”
A model for the effort, Mr. Dorazio said, is Glint, a company based in Switzerland that allows users to purchase gold and store it in a vault in that country. Customers can spend the dollar equivalent of that gold’s value with a Glint-issued Mastercard on everything from a cup of coffee at Starbucks to family vacations. “I have a friend who invested $500 in gold with Glint, used a little over $200, and had $317 left over because of the price of gold,” Mr. Dorazio said.
The measure being eyed in Texas comes at a time when the value of the greenback, as measured in gold, has plummeted to less than a 2,000th of an ounce of gold. That is a near-record low. It also comes at a time when inflation is running at levels not seen since the late 1970s, which followed the collapse in 1971 of the post-World War II monetary system known as Bretton Woods, which featured a link between the dollar and gold at $35 an ounce.
The Constitution prohibits states from issuing their own currencies or making anything other than gold or silver coins legal tender. It does allow them to use gold and silver in coin form to pay debts or conduct business. The question open to debate is whether a digital currency backed by gold would be considered a coin by a court of law.
In recent years, dozens of states have begun efforts to maneuver around the constitution’s limitations on the issuance of currency by another than the Federal Reserve and allow citizens to use gold and silver as they conduct business. Most have done so by eliminating sales taxes on the purchase of bullion, eliminating the state-level transaction costs of using gold or silver as a legal tender.
Utah passed legislation in 2011 that allowed for the creation of the United Precious Metals Association, which allows customers to open accounts denominated in gold and silver dollars with debit cards linked to them that can be used for everyday transactions.
Proponents of these measures ultimately want to end the Federal Reserve’s monopoly on the creation of money in America that has allowed it to print and borrow money unfettered by the gold standard that backed the dollar until 1971. That borrowing ability is a primary cause of inflation, which is now hovering at an annual rate of about five percent, down slightly from the 8.5 percent annual inflation late last year.
The Texas measure proposed by Messrs. Hughes and Dorazio is also seen as a hedge against the creation of a Central Bank Digital Currency, a currency already existent in Communist China and several other countries and an option being explored by the Federal Reserve and the Treasury Department. In recent weeks, conservatives have expressed concern that a government-issued digital dollar could erode the anonymity afforded by hard currency and give government control over how, when, and where those digital dollars are spent.