Gold and silver were once the main assets that supported the world economy. But as the world’s population grew and became more interconnected, their use declined with the introduction of fiat currencies.
A handful of U.S. states, however, recently began recognizing gold-backed currencies as monetary assets, leaving many Americans wondering if a national transition back to the gold standard might be possible.
Understanding The Concept of Fiat Money
Fiat currencies are government-issued financial instruments backed by confidence in the country issuing the currency and its economy, as opposed to physical commodities such as gold or silver. Fiat currencies are the most widely used form of currency in the world today.
Compared to physical precious metals, this type of currency offers several advantages:
- Fiat money is lighter than gold coins, making it more convenient for daily use, as it is available in both physical and digital forms.
- Governments can control the supply of fiat money to promote economic growth, giving them flexibility.
Although fiat money has some advantages due to its ease of use, there are also some disadvantages:
- Critics argue that fiat currencies are unstable and prone to inflation because central banks can print money as needed. This can lead to currency devaluation and even hyperinflation.
- The ability to manipulate fiat currencies can lead to unforeseen results and even economic disasters.
Gold And Silver’s Monetary History
The international monetary system used the gold or bimetallic standard from the 1870s – 1932 and then from 1944 – 1971 when the US ended dollar-to-gold conversion. The move towards fiat currencies led critics to argue that it caused greater financial instability and inflation.
Economists suggest returning to precious metals could reduce inflationary pressures due to rising production costs. Implementing strict regulations on gold purchasing for countries may increase stability, according to some critics.
Reasons For The U.S. To Recognize Gold And Silver As Monetary Assets
While introducing a gold-backed currency in a digital world may sound like an impossible task, there are actually a number of ways the U.S. economy could benefit.
Inflation Prevention
Inflation prevention or management would be one of the main reasons for the United States to consider recognizing gold and silver as monetary assets.
Inflation occurs when prices rise either because of an increase in the supply of money or because demand exceeds supply. Because the value of gold is backed by supply and demand, it usually maintains its value, if not increases in value, during periods of high inflation.
This makes it a stable option to prop up the dollar when the U.S. economy is down, giving governments greater control over the economy in terms of recovery. In addition, governments can also benefit from the tax revenue generated from the sale of these metals.
Stabilize The Dollar And Foreign Exchange Rates
The reinstatement of the gold standard would stabilize the U.S. dollar because it would be backed by a real asset, not just an abstract concept such as inflation or other economic forces. The value of the U.S. dollar would be determined by the price of gold, which is less susceptible to sudden fluctuations than stock markets and other assets. This could protect investors from large losses due to market collapses and provide a much-needed sense of financial security during uncertain times.
Since there would be no need for fractional reserve banking or expansionary monetary policy, interest rates could remain low and constant for an extended period of time. This would help stabilize the overall economy and give companies planning certainty in their investment decisions.
In addition, the value of a country’s currency could remain more stable relative to other currencies if it were backed by tangible assets such as gold or silver instead of fiat money with no intrinsic value. This would ultimately help prevent exchange rates from becoming too volatile and avoid damaging economic consequences.
A Long History Of Acceptance As A Form Of Payment
Gold and silver were accepted as currency in many cultures around the world. Gold and silver coins were used for centuries by great civilizations such as the ancient Greeks, Romans, Chinese, Indians, and Egyptians. This tradition has continued into modern times, with various countries still using gold or silver coins as legal tender.
Although these precious metals are now largely replaced by paper money, their long-term acceptance shows how much people have trusted them to facilitate trade and the movement of goods over the centuries. Recognizing gold and silver as a means of money provides a solid alternative should problems arise with our current system.
States That Already Recognize Gold And Silver
Utah, Nevada, and New Hampshire have recently taken the bold step of recognizing Goldbacks as legal tender. Goldbacks are a type of currency backed by physical gold reserves and are issued through gold-backed cryptocurrency companies.
These states have declared that Goldbacks can be used for everyday purchases in their jurisdictions. This is part of a larger trend toward embracing digital assets as an alternative to traditional fiat money, with other states considering similar measures.
While there are still only a handful of states that are recognizing Goldbacks as currency, there have been rumblings about more states coming around to the concept.
Legal Tender Status States
Utah was one of the first states to recognize gold and silver as legal tender when it passed a law in 2011 allowing residents to utilize precious metals as currency.
Louisiana also recognized gold and silver as legal tender in 2011 when it allowed the sale or exchange of gold and silver bullion to be exempt from state sales tax. This law was intended to encourage using precious metals as currency and promote economic stability within the state. In 2017, Arizona passed the same law as Louisiana. Supporters hailed the move as a step towards sound money and a return to fiscal responsibility.
Wyoming followed suit in 2018, enacting a law recognizing gold and silver as legal tender and eliminating all state taxes on selling and purchasing precious metals. Advocates of the law argue that it will help protect citizens’ wealth and provide an alternative to the U.S. dollar in times of financial crisis.
West Virginia, Kansas, and Oklahoma quickly followed a couple of years later, with Texas and Indiana implementing their precious metal laws in 2021. Each state has different laws and regulations governing how precious metals can be used as payment for goods and services.
Generally, these are intended to give individuals more options when making payments rather than relying solely on the U.S. dollar.
States With Regulatory Depositories Established
Louisiana, Utah, and Texas have established regulatory depositories that allow citizens to store gold and silver in an approved facility. These depositories are regulated by the state government or financial institutions, ensuring the security of any deposits made.
By providing investors with secure storage options for their investments, these states show that they recognize precious metals’ value.
Not only does this provide more choices for citizens, but it also shows confidence in alternative currencies, which could lead to other states following suit and setting up similar regulations to gain additional stability within their economies.
Diversify Your Portfolio With Gold And Silver
If you’re considering getting ahead of the curve and investing in precious metals like gold and silver, you’ll have quite a few options available to you. One of the more popular options is to buy physical precious metals like coins and bars and store them at home or in a depository.
Another option that many investors may not be aware of is investing in a gold-backed IRA. Similar to a standard IRA, gold IRAs offer a variety of long-term benefits for retirement planning as well as short-term tax benefits. Best of all, you can still own physical gold in your IRA.
If you’d like to learn more about investing in gold, contact Noble Gold today to speak with a member of our team. Our representatives are ready to answer any questions and help you start the process.
