This is something someone once suggested to me and I’ve been mulling it over for a couple of days now with no real understanding of how it could work. Article I, Sec. 10 of the Constitution states that State cannot “make anything but gold and silver coin a tender in payment of debt.” From what I understand this means the States could establish their own gold or silver “currency”. I had also read an article a few days ago about a State who asked their attorney general to rule on whether or not they could indeed issue silver backed certificates. The attorney general agree they could. I can’t find the article or remember the State (I think it was Colorado).
Anyway, if a State decided that they would begin issuing silver backed certificates how would they go about doing it? What would be the most efficient? I was thinking the State would simply trade some fiat Fed notes for some silver bullion and use that as the backing of the certificates that they produce and allow for a “free silver” system where people could trade their silver for an equal amount of certificates or simply spend their silver coins.
Your thoughts.
PS. We aren’t talking about IF it could be done but HOW it could be done so lets lose the defeatist attitude and focus on the how of it please.
At one point states did produce their own coins, but this was stopped for reasons unknown to me (most likely because using federal paper to pay your debts is much more appealing in the short-run). Convincing an entire state to produce its’ own gold and silver is a big challenge. Why not start with a small town or city? I am not aware of any rule that prohibits cities or towns from creating a hard money system. The city could allow both fiat paper, commodity backed certificates, and actual metal to circulate in parallel. It seems like a city or town could also be so bold as to ban the practice of fractional reserve banking within its’ boundaries. Why not? One of the cities near me prevents people from owning snakes longer than 6ft. A bank that lends out money it doesn’t have is committing fraud and can do much more harm than an overgrown snake.
www.downsizedc.org
Making something legal tender is not the same as issuing a currency. Notes issued by a private bank can be made legal tender if the legislature wants to do so.
The thing that precludes competing forms of currency is the tax law. Fluctuations in the value of another currency relative to the dollar are treated as taxable income. The government doesn’t miss a trick.
By the way, it’s not just competing currency per se that the government is zealous in stamping out. There was a big scandal some years back involving grain elevators acting like banks with frational reserve lending.
How would a state go about creating it’s own silver certificate though?
I guess the fastest way is for the state to simply take some of the Fed notes and convert them into silver and begin issuing the silver certs. to who ever wants them. Simply trade your Fed notes for silver notes. I would guess businesses would start to accept them because the state is saying “yeah, they’re good for spending. you can take them.”
Your thoughts?
In practice governments usually make a new currency valid for paying taxes and other debts to the state, so as to establish an immediate guaranteed taker for the new notes. They may also declare the new notes legal tender.
In our case, it would have to be a private bank that issues the notes with the state backing them because the constitution forbids the states from coining money or issuing bills of credit (see Article I section 10).