In the last couple of years, an increasing number of state legislatures across the country have introduced bills to allow gold and silver to be used as legal tender. In 2011, Utah became the first state to introduce its own alternative currency to the U.S. dollar.
That state’s governor, Gary Herbert, signed a bill in March 2011 that essentially allows coins from the U.S. Mint (…namely Gold and Silver Eagles) to be used as a form of payment. For tax purposes, the new law treats these coins the same as U.S. dollars, which essentially eliminates capital gains taxes on the popular bullion coins in Utah.
The new Utah law also allows the coin’s to be traded for their market value based on their weight and fineness. Face value for a 1-oz American Gold Eagle is $50 but as we all know, the value of the metals is well over $1600.
With concerns about the Federal Reserve and the U.S. dollar being on the brink of collapse, lawmakers from 12 other states have introduced measures to allow competing currencies, issue their own alternative currency or study the feasibility of issuing their own currency.
Many of the proposals will allow residents of the respective state(s) to exchange physical coins for goods and services.
For example, in Utah, a resident can contract with another to sell his car for ten 1-ounce gold coins (approx. $16,000-$17,000). Or, an independent contractor can facilitate the transaction and arrange to be compensated in gold or silver coins.
Other states considering similar measures to Utah’s include – Georgia, Tennessee, South Carolina, North Carolina, Virginia, Indiana, Iowa, Minnesota, Colorado, Idaho and Washington state.
Many of these proposals would allow residents to use gold and silver coins to pay for anything from groceries to an automobile, provided the merchant accepts them.
Does this mean people will be carrying around these valuable coins in their pockets?
Absolutely not!
It’s more likely states will create electronic depositories where residents will have an account with their bullion in it according to Edwin Vieira, a proponent of alternative currencies and a Constitutional law attorney.
For example, the Utah Gold & Silver Depository is developing a system that will link a customer’s bullion holdings to a debit card. When a customer swipes their card to pay for goods or services, the physical gold and/or silver will be transferred between accounts.
Just three years ago, only 3 states were considering a move to an alternative currency in their state. As the dollar has continued its downward trend, more and more states are considering some sort of currency to compete with or replace the U.S. dollar.
The issue of competition in currencies has also been a hot topic at the federal level too.
Texas congressman and presidential candidate Ron Paul is the prime sponsor of a bill entitled the “Free Competition in Currency Act,” which would allow states to issue their own currencies. Paul has consistently argued for the need of competing currencies, both as a congressman and in the debates during the Republican nomination contest. Former Speaker of the House and presidential candidate Newt Gingrich called for a commission to examine how the U.S. can return to a gold backed dollar.
Not everyone is hot on the idea of states issuing their own currencies though.
David Parsley, a professor of economics and finance at Vanderbilt University, claims such a move would be very destabilizing for the U.S. economy. “Having 50 feds” he says could lead to a debasement of the U.S. dollar and potential default for the U.S.
It’s certainly interesting to see how the idea of an alternative to the U.S. dollar, a fiat currency with no intrinsic value, has gained such transaction in recent years. Some merchants like a gas station in Oregon have already begun accepting 90% junk silver quarters and dimes as payment.
Perhaps soon, we’ll be seeing a lot more establishments that will accept precious metal coins for payment of goods and services.
