In 2015, the Texas State government announced plans to create a "gold depository." At the time, we reported this could be a significant step toward wider use of gold and silver as legal tender by essentially creating a parallel banking system based on precious metals.
The basic idea has always been simple: create a place where gold and other precious metals could be stored. The implications, however, are for far ranging in that over time, such an institution has the potential to function as a bank that could potentially offer the ability to facilitate the use of gold as money.
Existence of the depository opens up the possibilities for users creating a new type of currency in which purchases are made electronically with the backing of the gold in the depository. In other words, one could potentially use the depository's infrastructure to make purchases using gold, and to have gold either directly deposited into another's account, or converted to US dollars and deposited in a conventional bank. Arguably, this is just an electronic version of gold-backed money.
And now the Texas Bullion Depository has opened for business. The Ft Worth Star-Telegram reports :
The Texas Bullion Depository opened in Austin Wednesday, three years after state lawmakers signed off on creating an official place for people to store their gold and other precious metals.
“We’re proud that the nation’s first state-administered bullion depository is now a reality — this is a big day for Texans who want to secure their precious metal assets,” said Texas Comptroller Glenn Hegar , who became the depository's first customer this week. “I deposited some gold."
The article notes that gold deposits are verified and insured.
Although administered by the State of Texas, the depository is significant as an institution that provides a means of storing what are potentially highly liquid assets outside the US banking system regulated by the Federal Reserve and the US federal government.
Moreover, as the article notes,
Financial institutions, cities, school districts, businesses, individuals — even other countries — could do business with the depository.
The depository is funded by fees, and in a normal world, this might act as a significant disincentive to using the depository's services. But in a world of enduring near-zero interest rates, the opportunity cost of not keeping money in a bank has become especially low. If banks were paying, say, three percent on savings accounts, cash would look a lot more lucrative. But when banks won't pay even one percent on deposits, you're not missing out on much by putting some wealth in the form of gold into a depository.
Response to the depository in the media has been generally muted outside Texas, although New York lawyer Joe Patrice did see the implications of the depository, and emotionally condemned the idea , claiming that it violated the so-called "supremacy clause" of the US Constitution. Couched placed between several insults directed at Texans, Patrice writes:
Though this does bring us to the actual reason for the bill: a symbolic gesture to convince morons that Texas is an independent realm...Having their own money bin and currency system — writing checks based off stockpiled metals creates, for all intents and purposes, an independent, gold-backed currency — goes a long way toward fluffing the illusion that Texas holds sway over the rest of America.
Of course, the depository doesn't violate any provision of the Constitution, and invoking the phrase "supremacy clause" is just the usual M.O. of people who don't want anyone doing anything anywhere without the explicit approval of the federal government.
If anything, with the depository, Texas is moving in the direction mandated by the US Constitution in which, as Bill Greene notes at mises.org, contains a negative mandate in which “No State shall... make any Thing but gold and silver Coin a Tender in Payment of Debts.”
Not that something is necessarily good because the US Constitution says so. The Constitution was, after all, primarily adopted to increase the power of the federal government. That's why the anti-federalists opposed it.
The state legal tender provision, however, reflects the 18th-century wisdom that government money unmoored to commodity money empowers governments at the expense of ordinary people.
It will be interesting to follow the Texas experience in this regard and see what effect, if any, it has on other state legislatures that have also expressed interest in expanding the use of gold and silver as legal tender. We have already seen a number of states, including Arizona, Idaho, Utah , and Wyoming.
The biggest potential downside, of course, is the risk of the federal government outlawing and seizing gold as it did in the 1930s.
