They say you shouldn’t mess with Texas.
And right now, a handful of legislators in the Texas State Senate and House are putting that belief to the test.
We’ve been talking about how the U.S. will inevitably adopt a digital dollar. And, as regular readers know, there are reasons for concern about your financial privacy.
But the federal government and Federal Reserve are hellbent on moving forward with it.
They’re even launching a digital payment system called “FedNow” as soon as next month.
Despite all of this, there’s still a small “glimmer” of hope in the mix.
That’s where Texas comes in.
Let me explain…
A Texas-Led Digital Gold Rush
A Fed-backed digital dollar wouldn’t be backed by anything real – like gold or silver.
It would also make your money fully traceable.
Meaning, the government could have complete knowledge of – and control over – every transaction you make.
That raises many privacy concerns. And Texas State legislators agree.
They, too, are alarmed about the outsized power of the Fed, a Fed-issued CBDC, and the rollout of the FedNow payment system.
That’s why in April, the State of Texas proposed two revolutionary bills, Senate Bill S.2334 and House Bill. H4903.
Put simply, the bills call for a gold-backed digital currency.
Sen. Bryan Hughes (R-Mineola) introduced Senate Bill 2334 to create the first U.S.-state-created gold-backed digital currency.
His bill would do the following:
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Establish a new gold and silver-based digital currency through the office of the Texas Comptroller of Public Accounts.
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Require each unit of issued digital currency to have a corresponding fraction of a troy ounce of gold or silver held in trust.
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Allow for individual accounts to be created at the Texas Bullion Depository. These would be used to conduct transactions in that gold-backed digital currency.
The proposal, if passed, could give Texans the ability to buy everyday goods with a new digital currency backed by actual Texas gold.
Here’s how it would work in practice:
Individuals would purchase the digital currency from the State of Texas. The state would use the money to buy gold. Then, it would hold this gold in the Texas Bullion Depository.
That means people in Texas would have a direct line to their secured gold. It also means that Texas would have to buy more gold if a gold-backed digital coin became widely embraced.
And other states could follow Texas’ lead.
But states aren’t allowed to issue their own money, so how is this possible?
It’s all thanks to a loophole in the Constitution. It allows states to recognize gold and silver coins issued by the U.S. government as legal tender.
While states can’t issue currency, they can issue gold-backed notes as legal tender. A few states have already done this.
In 2011, Utah passed a law that recognizes gold and silver coins issued by the U.S. Mint as legal tender. Nevada, Wyoming, and New Hampshire followed suit.
That legal tender status means you can use the coins to pay taxes or debt to the state. It also means you can use them to pay for goods or services in any business that accepts them.
Now, the Constitution didn’t prohibit states from issuing gold- or silver-backed digital currency. That’s where Texas saw an opportunity to create one…
Where the Bills Stand
Right now, both bills are making their way through the early stages of the legislative process. And I rate the chances of the Texas Senate passing the bill at about 33%.
That’s because 43 legislators out of 150 members in the Texas House signed House Bill 4903. So there is certainly momentum building behind it.
The other good news is that the Senate bill passed a key hurdle. Last month, the Texas State finance committee brought the bill up for public discussion in its chambers.
The Senate bill still needs to get to a vote. And that vote has not yet been scheduled.
But since it has come up for a House vote already, chances are strong it will come up for a Senate vote this year.
The Start of a U.S. Gold Standard?
The idea of a gold-backed currency might sound familiar…
In August 1971, President Richard Nixon interrupted an evening broadcast of Bonanza to declare that the U.S. would go off the gold standard. That meant that Americans could no longer redeem their paper money in real gold.
Since that day, the U.S. dollar has lost 87% of its purchasing power. You can see that in the chart below.
And recently, as we’ve written, other foreign countries have been stockpiling gold… like China and Russia.
There has also been rising speculation that the BRICS nations could issue some version of a gold-backed currency. That would challenge the fiat U.S. dollar with a real hard asset-backed currency.
But the fact that even one state in our country is legally contemplating a similar idea strengthens the idea of a gold-standard renewal.
That’s a big deal, whether the bill passes or not.
What This Means for Gold and Your Money
Now, even if these bills pass, we won’t see a full return to the days when the gold standard moored the Fed’s ability to print unlimited sums of money.
This is a bill proposed at the state level. It doesn’t impact how the U.S. dollar as a whole relates to gold.
But it could mean a return to the days when gold did back some of our money, whether that’s in Texas or any other state that might adopt a similar gold-backed digital currency.
Either way, it would be a major step in the direction of opening up a new version of a gold standard.
Plus, if state Treasuries start buying more gold to back their digital currencies, this extra demand would elevate the price of gold.
The fact that there’s an elected body in our country even considering a gold-backed digital coin is a milestone in and of itself.
It shows the potential for a new use of gold in the U.S.
And if the bills do pass, or if they get re-introduced, they will keep that idea of physical gold backing a digital currency alive. This only draws more attention to the real value of gold.
So, how do you take advantage? One way is to buy physical gold in either coins or bars as we’ve discussed here before.
You can also buy gold in the form of a gold exchange-traded fund. We like funds like IAU or GLD, which hold physical gold secured in a vault.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. Buying physical gold or exchange-traded funds is a great way to hedge yourself against the rise of the digital dollar.
But investing in individual stocks can offer even more upside. That’s why I’ve identified my No. 1 gold pick for 2023 and beyond… and three “unprintable” plays to take advantage of the Fed’s next major distortion of the financial system.
I put the details in a new video presentation I just released. To watch it, go here.