Gold & Silver as Legal Tender AZArizona could soon become the second state in the United States after Utah to recognize gold and silver as legal tender if the Arizona State House of Representatives approves SB 1439 (The Constitutional Tender Act). The bill advanced in the Arizona State Senate with a 17-11 vote in late February and then found approval by the Arizona House Financial Institutions Committee with a 4-2 vote last week. Now, the measure will go to the House Rules Committee before going to a debate and a vote in the Arizona State House.

The Legal Tender bill specifies that legal tender in Arizona consists of all of the following:

  1. Legal Tender authorized by Congress.
  2. Specie (containing gold or silver) coin issued at any time by the U.S. Government.
  3. Any other specie that a court of competent jurisdiction rules by a final, unappealable order to be within the scope of state authority to make legal tender.

If SB 1439 passes in the State House and is signed by Governor Jan Brewer, gold ands silver would become legal tender in Arizona as soon as 2014. That would mean that precious metals would be treated like Federal Reserve notes for taxation and regulation purposes. In other words, if the legislation were approved, trading Federal Reserve notes for gold or silver money would no longer be taxed. Yet, unlike fiat money, nobody would be forced to accept gold or silver currency.

In 2011, Utah became the first U.S. State to recognize U.S. Mint gold and silver coins as legal tender by passing the Utah Sound Money Act. In this case, no capital gains or other state taxes are levied when the coins are exchanged. However, federal taxes still apply. Moreover, gold and silver coins are still only worth their face value despite record gold and silver prices.

The tumultuous global economy of recent years has caused lawmakers in Minnesota, North Carolina, Idaho, South Carolina, Colorado, Indiana, South Dakota and Virginia to debate similar legislation. When the Federal Reserve increased the amount of currency in circulation to combat the debt crisis in the U.S., the value of the dollar decreased. Proponents of gold and silver as legal tender argue that paper money is too vulnerable to government manipulations and that precious-metal-backed money is more resistant to inflation.