Real Money in Ari­zona

Last week, Ari­zona Gov. Doug Ducey signed a bill into law that takes another step toward estab­lish­ing gold and sil­ver as money. The new law sup­ple­ments Fed­eral Reserve notes with hon­est money that has sta­ble, con­sti­tu­tion­ally pro­tected value. Rep. Mark Finchem (R-​Tucson) intro­duced House Bill 2013 (HB2013) on Jan. 9. The new law rec­og­nizes sil­ver and gold as liq­uid cap­i­tal for trust companies.

Prac­ti­cally speak­ing, the bill does two things.

Mod­i­fies the def­i­n­i­tion of “liq­uid cap­i­tal” to include legal ten­der for trust com­pany cer­ti­fi­ca­tion. (Sec. 1)
Defines legal ten­der as a medium of exchange, includ­ing specie, that is autho­rized by the U.S. Con­sti­tu­tion or Con­gress for the pay­ments of debts, pub­lic charges, taxes and dues. (Sec. 1) Specie is defined as coins hav­ing pre­cious metal content.

Trust busi­nesses act as “fidu­cia­ries.” A fidu­ciary is a per­son who holds a legal or eth­i­cal rela­tion­ship of trust. Typ­i­cally, a fidu­ciary han­dles money or other assets for another party. A trust com­pany in Ari­zona must main­tain $500,000 of liq­uid cap­i­tal reserves in order to oper­ate. The bill would allow trust com­pa­nies to count gold and sil­ver specie as part of their liq­uid capital.

Under the cur­rent law, liq­uid cap­i­tal is defined as cap­i­tal in the form of cer­tifi­cates of deposit issued by banks, sav­ings banks or sav­ings and loan asso­ci­a­tions that do busi­ness in Ari­zona. These cer­tifi­cates of deposit are insured by the FDIC. HB2013 expands the def­i­n­i­tion to include gold and sil­ver. Finchem explained the impact of the bill.

This would for­tify the cap­i­tal asset reserve of trust com­pa­nies in Ari­zona. Since the FDIC only insures up to $250,000 of per­sonal deposits in an FDIC insured bank, and they can take up to 99 years to pay a claim under fed­eral law, this move per­mits investors in trust com­pa­nies to place hard assets on deposit as ready, liq­uid cap­i­tal reserve with­out con­vert­ing the real money to fiat cur­rency and then dig­i­tal cur­rency as in a deposit in the ACH system.

From a broader per­spec­tive, the pas­sage of HB2013 rec­og­nizes hard money as a legit­i­mate risk reducer. It also expands the role of gold and sil­ver as money in Ari­zona, and fur­ther under­mine the Fed­eral Reserve’s monop­oly on money.

Last month, the House passed HB2013 by a 3324 vote. On March 14, the Sen­ate approved the mea­sure 1713. Gov. Ducey signed the bill into law Fri­day. It will go into effect 90 days after the leg­is­la­ture adjourns sine die.

ANOTHER STEP FORWARD

Last year, Gov. Doug Ducey signed a bill into law that was spon­sored by Finchem repeal­ing state cap­i­tal gains taxes on gold and sil­ver specie.

That new law removed the amount of any net cap­i­tal gain derived from the exchange of one kind of legal ten­der for another from the gross income on an individual’s state income tax. In other words, the pur­chase of gold or sil­ver bul­lion, or uti­liz­ing gold and sil­ver in a trans­ac­tion, is no longer sub­ject to state taxes on the exchange.

What the IRS has fig­ured out at the fed­eral level is to tar­get infla­tion as a gain. They call it cap­i­tal gains,” Finchem said dur­ing a com­mit­tee hear­ing. He noted that the bill would help Ari­zona res­i­dents “pro­tect their con­ver­sion of one kind of cur­rency for another.”

Repeal­ing the cap­i­tal gains tax marked an impor­tant first step toward cur­rency com­pe­ti­tion. If sound money gains a foothold in the mar­ket­place against Fed­eral Reserve notes, the peo­ple would be able to choose the time-​tested sta­bil­ity of gold and sil­ver over the cen­tral bank’s rapidly-​depreciating paper cur­rency. The free­dom of choice expanded by the tax repeal will help Ari­zona res­i­dents secure the pur­chas­ing power of their money.

Pas­sage of HB2013 builds on this foun­da­tion and fur­ther expands the role of sound money in Arizona.

BACK­GROUND INFORMATION

Cur­rently, all debts and taxes in Ari­zona must be paid with either Fed­eral Reserve Notes (dol­lars), autho­rized as legal ten­der by Con­gress, or with coins issued by the U.S. Trea­sury — very few of which have gold or sil­ver in them.


Secret $1.8 Mil­lion Cryp­tocur­rency Script

But the United States Con­sti­tu­tion states in Arti­cle I, Sec­tion 10, “No State shall…make any Thing but gold and sil­ver Coin a Ten­der in Pay­ment of Debts.”

Laws expand­ing the role of gold and sil­ver take a step toward that con­sti­tu­tional require­ment, ignored for decades in every state. Such a tac­tic would under­mine the monop­oly or the Fed­eral Reserve by intro­duc­ing com­pe­ti­tion into the mon­e­tary system.

Pro­fes­sor William Greene is an expert on con­sti­tu­tional ten­der and said when peo­ple in mul­ti­ple states actu­ally start using gold and sil­ver 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.

Once things get to that point, Fed­eral Reserve notes would become largely unwanted and irrel­e­vant for ordi­nary peo­ple. Nul­li­fy­ing the Fed on a state by state level can get us there.
Michael Mahar­rey [send him email] is the Com­mu­ni­ca­tions Direc­tor for the Tenth Amend­ment Cen­ter, where this arti­cle first appeared. He proudly resides in the orig­i­nal home of the Prin­ci­ples of ’98 – Ken­tucky. See his blog archive here and his arti­cle archive here. He is the author of the book, Our Last Hope: Redis­cov­er­ing the Lost Path to Lib­erty. You can visit his per­sonal web­site at MichaelMa​har​rey​.com and like him on Face­book HERE

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