When we think of currency, most people envision money directly from the U.S. Mint. This is a smart assumption, and it’s how the country worked up until relatively recently. An increasing number of states in recent years, however, have recognized gold and silver as currency.
This growing movement has connections to the gold standard, “sound money” movement, modern-day Tea Party, and other ideologies. While the trend has picked up steam in recent years, the foundation for its legality rests squarely in Article I of the United States Constitution.
What is this movement, and what does it mean? In essence, it could change our whole financial system. Even if it falls far short of this intended goal, though, it may have significant effects on those who invest in gold and silver. That’s why understanding the movement is imperative.
Can States Treat Gold and Silver as Currency?
The status quo for a currency has long been “everyone spends what the federal government prints.” The last time there was a major competing currency in America was during the Civil War, and at that point, there were questions as to whether the country even existed at all.
Since that time, there have been some private currencies popping up here and there. The ones that really make waves typically end up with their creators going to jail. With at least a dozen states now moving to treat gold and silver as currency, though, the trend is more than a private matter.
How exactly can states legally create their own currencies? As it turns out, the Constitution allows it. This is obviously only in very specific cases, and no state can produce its own fiat currency. Article I, Section 10 of the Constitution, however, is very clear:
“No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts…”
This section of the Constitution makes a few things plain about states issuing their own currency. First and foremost, they’re typically not allowed to do so. If they do create a legal tender in the form of gold or silver, however, their actions seem completely within the confines of the law.
Of course, this law remained unused for a long time. In fact, the Utah Legal Tender Act of 2011 represented the first attempt by a state to take advantage of the statute. Legal experts who reviewed the new law concluded that it did not violate the U.S. Constitution.
Since that moment over a decade ago, several other states have followed Utah’s lead. Some have been successful in their efforts. Others are still striving to pass laws recognizing gold and silver as currency. Regardless of whether they’re successful, though, the movement is certainly growing.
Why Are States Passing These Laws?
The number of states that allow gold and silver used as currency has certainly grown recently. Even so, they still make up a relatively small number. Of those that have passed such laws, the move relates to a distrust of the federal government’s monetary policy.
These individuals believe it’s fiscally irresponsible to simply print new money when it’s needed. They also feel as if actions from the Federal Reserve will lead to the eventual collapse of the dollar. The primary intent of making precious metals into legal tender, though, is to protect wealth.
They feel this is done by offering an alternative to a dollar they feel is being devalued. The movement started under President Obama and is likely to intensify under a new Democratic administration. Conservatives seem to push for these measures when liberals are in office.
Most of the arguments for this movement fall in line with the benefits of a gold standard:
- Minimizes the government’s ability to cause inflation with excessive currency
- Adds certainty to international trade by creating a fixed exchange rate
- Proponents believe linking money to physical metals will reduce the drive to fund expensive wars
- Linking money to physical metals would reduce the government’s ability to fund trade deficits
Of course, none of the benefits of using gold and silver as currency — or returning to a standard where money is backed by these metals — are guaranteed. Much of the prosperity that occurred during the gold standard was not directly related to the policy itself.
In fact, giving precious metals this much influence on currency intensified the Great Depression. Allowing citizens to use precious metals as legal tender is technically different from the gold standard, but the two are very similar at the core.
The big question people should ask, though, is whether such a move would create real benefits. Most economic experts have said the move would damage the economy, but couldn’t we just look at where the trend has already become law to find out? Unfortunately, it’s not that simple.
What Have Gold and Silver Currency Laws Done?
A significant amount of debate still exists over whether gold and silver as a currency would work. With some states having already made the move, though, couldn’t we just analyze the results? Utah’s law has been in effect for over a decade, so shouldn’t we be able to see the effect?
In reality, very little has changed in those years. For the movement to catch on, the private sector would need to accept and encourage the use of precious metals as legal tender. If they did this, consumers would then need to utilize the system. This simply hasn’t taken place.
Investment News analyzed the movement in its early stages, and it had this to say:
“The measures … are mostly symbolic — you still can’t pay for groceries with gold in Utah. … ‘The legislation is about signaling discontent with monetary policy …’”
Questions of constitutionality also persist. While the Constitution seems to make clear that states allowing gold and silver as currency is legal, provisions regulating state monetary authority may create issues. This raises the question of why nothing has played out in court.
A study of the Utah law explained why this has not yet been an issue: “The Utah Legal Tender Act does not truly create a new form of state legal tender in the traditional sense.” This means that — on top of having no widespread adoption — these moves don’t even create a new system.
If you like the idea of using gold and silver as currency, don’t run off to buy a hoard of American Gold Eagles just yet. Not only are these coins already legal tender, but this movement has seen pushback even from those within the conservative movement.
When Jan Brewer vetoes a law allowing gold and silver as currency — just a year after sticking her finger in President Obama’s face — it’s obvious this trend has opponents on both sides of the aisle.
You Don’t Need a Gold Standard to Invest in Bullion
Experts have long balked at the idea of a return to the gold standard. We’ve also seen such attempts at the federal level fail again and again. There’s no denying the growing trend, however, and what it could mean for precious metal prices.
Of course, this entire movement could amount to nothing. Even in states that allow gold and silver as currency, nothing will change unless private sector adoption occurs. And even if they encourage the use of bullion as currency, it will mean little if consumers don’t also adopt it.
Fortunately, the success of precious metals does not depend on the success of this movement. While gold and silver prices could climb if the trend continues, demand is unlikely to be negatively affected if proponents of gold and silver as currency fail.
This means bullion will remain a solid investment choice. Visit our Precious Metals Sales page today and secure your financial future — regardless of how the movement turns out.