– May 22, 2017

Texas declared it wants to repatriate its gold, sending beams through the monetary world. Is this the long-awaited new day for alt-currency devotees or another false dawn?

The Lone Star State is in the process of creating a gold-bullion depository that will enable it to repatriate $1 billion from vaults in New York, according to Texas Governor Greg Abbott. New York Stock Exchange President Tom Farley visited Abbott in April, but it appears the subject of gold didn’t come up. Instead they toasted the 270 Texas companies on the NYSE.

The gold depository pleases libertarians and others fed up with the Federal Reserve’s currency monopoly and its ongoing erosion of the paper dollar’s purchasing power.

But don’t expect a Texas quarter to be slipped into your supermarket change anytime soon. The current crop of Texas political leaders aren’t speaking in such terms.

Still, Texans are likely more open to gold-backed money than most Americans, said William L. Greene, assistant chair of the political science department at South Texas College in McAllen. By contrast, “sound money” legislation in Georgia met stiff resistance, he noted.

“I’m cautiously optimistic that Texas is laying the groundwork that the feds won’t be able to counter, and we’ll be able to put the Fed out of business over time,” said Greene, who is writing a book titled “Nullifying The Fed.”

Sound-money advocates have been pointing to the importance of gold ever since the government began watering down the currency with the creation of the Federal Reserve in 1913. The gold standard took a severe beating from FDR as he ballooned the size of government amid the Great Depression. Bloodied and altered, the gold standard managed to survive until 1971, when President Nixon officially closed the gold window and turned the dollar into a fiat currency.

Gold has been a more reliable store of value than fiat money, although government economists including former Fed Chairman Ben S. Bernanke say the gold standard creates a deflationary bias in the economy and makes it harder to bounce back from recessions.

Ludwig von Mises was among those that supported the gold standard, seeing it as an imperfect way to guard the currency from party politics and government meddling. A fixed exchange rate forces the government to guard the currency’s value and keeps a leash on government’s spending appetite.

“The Denationalization of Money,” written by F.A. Hayek, collaborator with Mises in refining the views of the Austrian school of economics, instead advocated competitively issued private currencies in place of a government money monopoly upheld by legal tender laws. Hayek predicted competing currencies would reverse Gresham’s Law, with good money driving out bad.

Hayek’s idea took hits including from fellow free marketeers. Milton Friedman declared his support for removing restrictions on the use of gold as money but predicted the United States would default to the paper standard because of its relative ease.

In a review of Hayek’s book published 40 years ago in the Journal of Monetary Economics, economist David Howard posited that Hayek’s scheme might lead to a money monopoly much like the existing system.

In addressing the related idea of e-money possibly replacing central banks, Federal Reserve Governor Laurence Meyer said multiple currencies could create an “extremely inefficient” system with multiple price levels, depending upon on the currency, and a number of cross exchange rates.

“Although technology may reduce costs of multiple handling of multiple currencies and prices, we are not at the point where the costs of doing so are negligible,” he said in a 2001 lecture at Swarthmore College in Pennsylvania.

More promisingly, then, the Texas depository might turn out to be a watershed in the alternative-currency movement. But public officials supporting it aren’t billing it as that.

A flier titled “Take Back Texas Gold!” written by the two members of the Texas legislature that led the push for the depository, touts the facility as enabling “state agencies, political subdivisions of this state, state affiliated investment organizations and private individuals to store precious metals in a secure state-of-the-art depository.”

In signing the legislation, Abbott said the depository will reduce fees paid for out-of-state storage. Bank HSBC has between $600 million and $700 million in gold belonging to UTIMCO stored in its New York vaults, Texas officials say. UTIMCO is the investment corporation that oversees the endowments of the University of Texas and Texas A&M systems.

The first-in-the-nation state-level gold depository is exciting average Texans with a mixture of freedom legends and worries about their valuables, said Chris Bryan, spokesman for Comptroller of Public Accounts Glenn Hegar. The comptroller’s office is to administer the depository, which is expected to be built by a private entity in or near Austin, the state capitol.

Following its liberation from Mexico, Texas was its own country for 10 years prior to becoming a U.S. state. The spirit of those times still roams the landscape.

“The image of the Texas Ranger holding a gun is comforting to many people,” Bryan said. “There are concerns about security. Some people are uncomfortable having it (gold) in their homes. They would like to be able to come and visit their gold.”

Abbott signed the legislation, known as House Bill 483, in 2015 although a measure that passed the House on May 5 of this year is pending before the Senate Finance Committee. The latest measure (HB 3169) was called a “clean-up bill” by Katy Aldredge, capitol director for state Representative Giovanni Capriglione, lead sponsor of both HB 483 and 3169.

A depository’s procurement process, which Bryan called “pretty complex,” has been going on for about a year and is being handled by a committee, he said. The committee is headed toward the end of its deliberations, but Bryan said he couldn’t say when the builder of the depository would be selected.

“They’ve decided to do things right rather than quickly,” he said.

James Mosher


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