U.S. Currency Backed by Gold and Silver? Yes, But the 'U' Stands for Utah

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U.S. Currency Backed by Gold and Silver? Yes, If the 'U' Stands for Utah Earlier this year, the Utah state legislature passed a law making gold and silver coins legal tender. Now, a Salt Lake City-area numismatist hopes to set up a system that will allow Utahans to use those precious metals to pay for anything they want.

Craig Franco, CEO and president of Pacific Rarities, specializes in the evaluation, purchase and resale of rare U.S. coins and collectibles, and plans to open the Utah Gold and Silver Depository on June 1. His business model, according to the Associated Press: "Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings."

"With the state of Utah monetizing gold and silver," Franco told DailyFinance, "the question then became, how do we provide a common vehicle for commerce to transact?"

Franco says he has encountered "a profound amount of interest" in his new service, "coming nationally, not just locally. We have received, in the last 48 hours since the AP article broke, inquiries from the East Coast to the West Coast, from private investors to asset managers."

Some details remain to be decided, including the exact fee schedule the depository will charge. Franco says clients will have 30 days to clear their accounts following transactions. When debiting, he'll use the spot price of the metal in question on the day a transaction is settled. "But the value of the account fluctuates on an hourly basis," Franco explained, "based upon the global market."

Less a Useful Law, More a Libertarian Protest

When it was passed in March, the Utah law was derided as an example of right-wing fringe thinking run amok. Political columnist Dana Milbank denounced it as one of several "curious formulas" mixed by "tea party chemists," akin to a Montana bill celebrating global warming, or an attempt to mandate gun ownership for all adults in South Dakota. Even its backers seemed to admit that its significance was largely symbolic: Rich Danker, a think tank project director who supported the bill, told the AP that it would send "a strong signal to Congress and the Federal Reserve that their monetary policy is failing" -- assuming that Ben Bernanke and the rest of the Fed's Board of Governors care what the Utah state legislature thinks.

And yet a dozen other states, from Virginia to Idaho, are said to be considering similar legislation, though the practical effects are limited: The Utah law, for instance, exempts the sale of gold and silver coins from state taxes, thereby removing one barrier to their increased circulation. But it can't compel businesses or individuals to accept precious metals in lieu of paper money -- or, as its detractors are likely to call it (with contempt), fiat currency.

As a form of libertarian protest, however, such laws make sense: One Florida op-ed writer, urging his fellow Floridians to support a "legal tender reform law" of their own, listed the reasons: "Out-of-control federal budget deficits, costly new entitlement programs (such as health care reform), printing trillions of dollars to prop up the central banking system, and three overseas wars -- all causing mounting inflation."

What's Gold Really Worth?


Whether gold is actually a wise addition to the portfolios of retail investors remains controversial, even as a hedge against inflation: According to The New York Times, an investor holding gold since 1980 would actually be "operating at a loss, without even counting the cost of storing and protecting the gold." But this objection misses the point of the true gold bugs' argument: Like the Floridian cited above, they believe that a period of especially bad inflation is in the offing -- or even a return to 1970s-era stagflation. And they can point to a nearly sixfold increase in the price of gold in U.S. dollars over the last decade.

Hence the popularity, in some quarters, of precious metals as legal tender. As the Utah bill's sponsor, Rep. Brad J. Galvez (R-West Haven), explained, "If the dollar continues to fall, what this [legislation] will do will help stabilize the value of the dollar in Utah, so it helps stabilize the economy."

The argument sounds simplistic, even naive, but Utah attorney Larry Hilton, who drafted early versions of the bill, hopes that his state's innovation will prove the beginning of national movement: "I think if we see more states acting in concert with what we've done, that will probably be a bigger blip on the radar screen."

Hilton thinks of the legislation in terms of the Constitution, in which the states reserve to themselves the right to declare gold and silver legal tender. "There is a very important role for states to play in stabilizing the national monetary system," he says. "When the dollar was backed by precious metals, it maintained its purchasing power over a period of 150 years."

Those days are gone, he says, the gold standard having been eroded by pressures such as world wars and the dollar's status as the international reserve currency. With nothing backing the dollar up -- except the increasingly strained full faith and credit of the U.S. government -- some citizens fear a calamitous drop in its value, potentially touched off by a sudden loss of reserve currency status. For Hilton, the proper exercise of the states' constitutional power could help check the federal government's undermining of its own currency on the international stage through domestically-directed programs like the stimulus and quantitative easing. "By doing so," he adds, "states can essentially create localized stimulus by expanding the monetary base without dollar inflation."

Franco, denying any ideological motivation, explains the bill's importance in practical terms. "The purpose, as I understand it, has never been to send a message to the Fed. It's really all about this state being prepared to have an alternative currency if it's needed, for whatever reason. What happens if there is some kind of catastrophic event that shuts down the financial system? The citizens here want to be in a position to conduct commerce."

Whether gold and silver coin accounts can fill that role remains to be seen. A formal signing ceremony, and informal sound money summit, is planned at the state house on June 2.

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161 Comments

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uglyassbeatsodh

so Ultimately the value of the U/S. Dollar is backed by our national government’s gold reserves. ?

November 27 2011 at 6:12 PM Report abuse rate up rate down Reply
maa2626

my mistake, I meant lee, put my reading glasses on after the cup of coffee. again I apologize

June 01 2011 at 7:16 AM Report abuse rate up rate down Reply
1 reply to maa2626's comment
maa2626

poor mike, he has never run a small business.

June 01 2011 at 7:15 AM Report abuse rate up rate down Reply
savemycountry911

Mike has an agenda. He must be selling gold and silver.

May 30 2011 at 4:29 PM Report abuse +1 rate up rate down Reply
4 replies to savemycountry911's comment
bigwave48

The real problem is in the Federal Reserve and our banking system. Banks need to function more locally .
Banks have gotten so big, they are dictating policy. That's dangerous. Break up these large banks, have
strict regulation, guard against conflict of interest, get rid of dangerous loans, derivitives and exotic loans,
that are just scams to create a larger market for profits. We can control our money supply by a system that
is partially controlled by the government. Quantity of money is the key to effective control, at this point in
time the Federal Reserve can create inflation and deflation, that has got to change.

May 30 2011 at 9:12 AM Report abuse rate up rate down Reply
1 reply to bigwave48's comment
bggdg

What makes you imagine banks "are dictating policy"? And what do you mean by, "conflict of interst........dangerous loans.......and exotic loans"?

May 30 2011 at 11:05 AM Report abuse rate up rate down Reply
Tyrone

The Utah law is really just plain stupid, and shows how mathematically and economically illiterate politicians (and the average voter) really are. Even if the US had all of the gold in the world, there isn't enough gold to cover the amount of cash in circulation (http://tinyurl.com/USMoneyvsGold), much less cover the National Debt (http://tinyurl.com/GoldUSDebt).

What that means is that for the US to go back onto the Gold Standard (and give up control of its economy), the Us Dollar would have to be devalued by a very large about. Think earning the same wages you do now, but everything costing about ten times a much.

May 30 2011 at 7:37 AM Report abuse rate up rate down Reply
LEE Resolution

your BS ing about bartering coins for gas is getting old. Moreover, no one in their right mind believes it. Your gas station friend (if he's got a special deal with you), is stealing and you 're complicit in the theft.

May 29 2011 at 5:59 PM Report abuse rate up rate down Reply
bigwave48

What gives value is quantity , to much gold in one's hand and not in the market place, value increases, same with
silver. These metals are easy to control value. If they become common place , the value can be controlled, by rich investors. Paper money , printed by the Government and controlled quantity, can be of great value. The Federal Bank controls the money, They are the cause of the deficit. Banks lend money with no assets to back up loans. Until we stop the Federal reserve and abolish all large banks, we will always be a slave to debt. And they will control all aspect of debt.

May 28 2011 at 11:16 PM Report abuse rate up rate down Reply
1 reply to bigwave48's comment
scottee

it SHOULD stand for U.S.A.

May 28 2011 at 11:02 AM Report abuse rate up rate down Reply
gerrybokas

Utah is right in not taxing "gains" on gold and silver, in that they are only inflationary. Such should be considered for ALL capital gains.

May 28 2011 at 9:53 AM Report abuse rate up rate down Reply