Bills introduced in the Texas House and Senate would create a state-issued, gold-backed digital currency. Enactment of this legislation would create an option for people to transact business in sound money, set the stage to undermine the Federal Reserve’s monopoly on money and create a viable alternative to a central bank digital currency (CBDC). Sen. Bryan Hughes (R) introduced Senate Bill 2334 (SB2334) on March 10. Rep. Mark Dorazio (R) introduced a companion, House Bill 4903 (HB4903) on the same day. The legislation would require the state comptroller to establish a digital currency that is fully backed by gold and fully redeemable in cash or gold as well. The comptroller would also be required to create a mechanism to use this gold-backed digital currency in everyday transactions. “In establishing the digital currency the comptroller shall establish a means to ensure that a person who holds the digital currency may readily transfer or assign the digital currency to any other person by electronic means.” The state of Texas would hold gold backing the currency in trust on behalf of the digital currency holders. “The trustee shall maintain enough gold to provide for the redemption in gold of all units of the digital currency that have been issued and are not yet redeemed for money or gold.” In practice, individuals would be able to purchase digital currency from the state. The state would then use the money to purchase gold that would be held in the Texas Bullion Depository or another secure vault. Individuals would be able to redeem their digital currency for dollars or gold.
CENTRAL BANK DIGITAL CURRENCIES (CBDC)
A gold-backed digital currency would create an alternative and allow individuals and businesses to avoid a CBDC.
Digital currencies exist as virtual banknotes or coins held in a digital wallet on your computer or smartphone. The difference between a central bank (government) digital currency and peer-to-peer electronic cash such as bitcoin is that the value of the CBDC is backed and controlled by the government, just like traditional fiat currency.
At the root of the move toward a CBDC is “the war on cash.” The elimination of cash creates the potential for the government to track and even control consumer spending.
IMPACT
The creation of a state-issued gold-backed digital currency would create currency competition with Federal Reserve notes and undermine the Fed’s monopoly on money. It would also provide an alternative if the Federal Reserve implements a central bank digital currency.
Broadly speaking, by making gold conveniently available for regular, daily transactions by the general public, gold-backed digital currency would create the potential for a wide-reaching effect. Professor William Greene, an expert on constitutional tender, said in a paper for the Mises Institute that when people in multiple states actually start using gold instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.
“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).
“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”