My Day in Washington With Ron Paul
August 23, 2012
(This item originally appeared on Forbes.com on August 23, 2012.)
On August 2, at the invitation of chairman Ron Paul, I spoke on a panel before the House Committee on Financial Services, Subcommittee on Domestic Monetary Policy. The topic was “Sound Money: Parallel Currencies and the Roadmap to Monetary Freedom.” My written testimony for the event is here.
Others on the panel included Richard Ebeling, professor of economics at Northwood University, and Rob Gray, of the American Open Currency Standard.
It was an interesting mix of panelists. Rob Gray represented the grassroots, small scale local currency approach, focusing on full-weight metal coins. Professor Ebeling, I would say, had more of a U.S.-centric view, while I am an internationalist by nature. It doesn’t matter too much to me where the first gold-based parallel currencies emerge. It might be a small company in Idaho, but it could also be the government of Panama or Switzerland.
It could be the Hong Kong Bank of China, a private commercial bank, which is already issuing dollar-linked banknotes in Hong Kong, which circulate alongside banknotes from the government and other private banks. If you just substitute “gold-linked” for “dollar-linked,” you would have a new gold-based currency in Hong Kong, complete with small-denomination banknotes and coins, bank accounts, checking, wire transfers, credit cards, and all the other features of a modern monetary system.
Thus, I think there was a little bit of friction between different viewpoints, but I find that they are all completely compatible. That, after all, is the point of “parallel currencies.” You can do a lot of things simultaneously.
There are a few important steps to take toward the creation of a gold-based parallel currency. The most important, in the United States and in most other countries, is a positive declaration that gold, and gold-based instruments (such as gold-based bank accounts and so forth) would be permitted for monetary usage, just as we use dollars or, for that matter, foreign currencies such as Canadian dollars or euros. In practice, those who have attempted to use gold coins as money directly (such as the Liberty Dollar) have run afoul of government suppression.
The U.S. Mint American Eagle gold coins are officially legal tender. However, they are subject to a different tax and regulatory system than other currencies, such as the dollar and even foreign currencies like euros or British pounds, which makes them cumbersome in transactions. “Sales” (transfers) of legal tender U.S. Mint coins are even subject to sales taxes in many states such as California.
Thus, the most important step to take is to recognize gold bullion (at the very least U.S. Mint bullion coins) as legal tender, and then to abolish all taxes relating to transactions with bullion, or related items such as banknotes and bank accounts based on bullion.
The State of Utah passed a law in 2011 which does exactly that at the state level. Now we would need a similar step at the Federal level.
Indeed, we have Ron Paul to thank for what we have achieved so far. The 1985 law that led to the creation of the U.S. Mint legal tender bullion coin was largely his doing, the outgrowth of The Coinage Act of 1983, a bill sponsored by Dr. Paul.
Ron Paul later sponsored the Honest Money Act (HR 2756) of 2007, the Free Competition in Currency Act of 2007 (HR 4683), the Tax Free Gold Act of 2008 (HR 5427), and the Free Competition in Currency Act of 2011 (HR 1098).
The last of these bills would repeal Section 5103 of Title 31, United States Code, which addresses legal tender laws. Also, it would abolish all federal taxes on gold and silver bullion in any form, and ban state-level taxes as well.
Formally legalizing monetary transactions with gold bullion is a big step forward, but it is not the only step towards creating a fully functioning alternative currency system. Even before the introduction of small-denomination notes and coins, gold-based bank accounts could be created. This already exists in China and Japan, although they are apparently structured as investment devices rather than as currency accounts. I have heard that recent gold-denominated savings accounts at large Chinese commercial banks do not yet allow payments between accounts, like a normal checking account, but only withdrawals by the account owner. Adding payment services is very easy to do – it is just an adjustment of ledgers no different than a checking account in yuan. Companies such as GoldMoney have already been offering this service for years.
I doubt that major central banks will unilaterally switch to a gold standard policy unless (or until) the present system is rendered entirely nonfunctional. Governments of the other hundred-plus countries in the world might be friendly toward the idea, but most are effectively locked in to the present dollar-based system due to trade considerations, and the desire to avoid excessive foreign exchange rate volatility.
Thus, the easiest path forward, in today’s environment, is for a government to arrange a legal environment in which a private issuer could create an alternative gold-based currency. That could be the United States, if a bill like Ron Paul’s is passed into law. However, it is more likely to be a place like Hong Kong or Switzerland, or even a place one would have never thought of, like the United Arab Emirates, Ecuador or Tanzania. The governments themselves could also issue the alternative gold-based currency, alongside their present floating fiat currency.
This would set a good precedent, but things really start to get interesting, in my opinion, when large national governments get into the act. China is already halfway to having a parallel gold-based monetary system, with its gold-based bank accounts. With a few legal steps, and the introduction of small-denomination banknotes to trade alongside existing large-denomination bullion coins like the Chinese Panda, we would have a real alternative to the tyranny of the floating fiat dollar.