texas flag gold bullion

Joining a movement that is gaining in popularity in numerous states, Texas legislators are considering a measure that would take significant power away from the Federal Reserve. They’ve introduced a bill that would establish the status of gold and silver as legal tender in the state: SB 2097. 1

If passed, the legislation would make the use of gold and silver coins free from any tax or charge and good for exchange with the current U.S. dollar (the Federal Reserve note). Additionally, the bill proposes that the state would be prohibited from seizing individual holdings of the precious metals. Texas already took an aggressive position on this important matter when it created a state-level depository for gold. 2

Constitutional Right

Since the nation’s founding, the U.S. Constitution has guaranteed states the right to designate gold and silver as legal tender. Specifically, Article I, Section 10 of the U.S. Constitution states, “No State shall … make any Thing but gold and silver Coin a Tender in Payment of Debts.”

In spite of this, Texas and other states now make it necessary to pay all taxes and debts with the Fed notes. Since the implementation of the Federal Reserve in 1913, the use of the fiat currency has been accepted as the norm.

Federal Reserve Monetary Policy

Growing alarm over the national debt and Federal Reserve monetary policy has spurred a movement to revisit the use of gold and silver as currency. The underlying motivation of these efforts is to provide the citizens of a state with a sound alternative to continually debased paper currency.

Utah passed such a bill in 2011, and Arizona is currently evaluating HB 2014 a similar proposal. Several other states have bills pending or in discussion. Supporters of these efforts often refer to the stand of Dr. Ron Paul, and his statements that the Fed is “Enemy Number One.”

Aside from providing immediate benefits to citizens of states that enact such legislation, there are other motives in play with such laws. The Tenth Amendment Center is one leading organization that points to such state laws as a way to neutralize what they see as dangerous Federal Reserve policies.

Limiting the Fed

One expert in the field of Constitutional tender, William Greene, asserts that if the law was passed, it would have the effect of displacing Fed notes with gold and silver coins because their value–unlike the notes–cannot be manipulated.

If such predictions prove accurate, states would regain much of the financial power they lost to the Fed. At the same time, such strength would limit the options of the Fed to use monetary policies and fiat currency to support deficit spending and unsustainable government debt.

For long-term investors in gold these moves bring yet another validation of their fundamental conviction. That belief, proven throughout history, is that the underlying value of gold provides the best protection of their purchasing power against irresponsible government financial policies.