Gold is coming back as a currency in U.S.?

Arkansas law now recognizes gold and silver legal tender in the state. And 23 more states are aiming for similar legislation. If gold is coming back as a currency in U.S., it will have serious implications for dollar’s global role. It is clear that U.S. citizens are losing faith in the dollar.

Impact: Dollar’s fall –> ???

News as on FXStreet.com –

Little Rock, Arkansas (April 18, 2023) – Sound money advocates are rejoicing as House Bill 1718, the Arkansas Legal Tender Act has become the law in the Natural State.

Backed by the Sound Money Defense League, Money Metals Exchange, and sound money advocates and supporters throughout the state, HB 1718 reaffirms gold and silver as legal tender, as well as ends all taxes on purchase, sale, or exchange of specie, including state capital gains taxes.

To remove any doubt of the legislature’s intent, HB 1718 explicitly states, “the exchange of one type or form of legal tender for another type or form of legal tender shall not give rise to any tax liability,” and, “the purchase, sale, or exchange of any type or form of specie shall not give rise to any tax liability.”

Arkansas had ended sales tax on gold and silver in 2021, and is now the 11th?state in U.S. also to end capital gains tax on silver and gold.

Taxes on precious metals create barriers to using gold and silver as money by raising transaction costs. These tax repeals will now undermine the Federal Reserve’s monopoly on money by eliminating one hurdle in use of gold and silver in everyday transactions.

Understanding the impact of this development

Key Points:

• Banks are unsafe – see previous posts –?post 1,?post 2
• Inflation is going to stay high for years – see this?previous post
• Dollar is unsafe – Both the above points clarify that dollar is unsafe. Either banks will fail and depositors will lose money, or the banks will be bailed out by government and dollar further loses its purchasing power. So, either way holding dollars means losing money. People will convert it to something safer like gold. The run on banks has already started in US, the bank deposits have sharply declined to historically low levels. End of dollar hagemony is a work in process now.
• People are realizing dollar is unsafe – the reason behind U.S. states adopting gold as a currency
• People will move away from dollars to gold – dollar will fall in value
• Declining dollar will fuel further inflation – inflation will lead to recession

Bad money vs good money

Constitutional tender expert Professor William Greene stated in a paper presented at the Mises Institute that if people in multiple states started using gold and silver instead of Federal Reserve Notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

As residents of the state use both Federal Reserve notes (dollars) and silver and gold coins, the fact that the coins retain their value more than the dollars will result in a “reverse Gresham’s Law” effect, in which good money (gold and silver coins) will drive out bad money (dollars). As a result, a chain reaction of events can begin, including the flow of real wealth towards the state’s treasury, an influx of banking business from outside the state – as people in other states carry out their desire to bank with sound money – and, eventually, an outcry against the use of dollars in any transactions.

It has already started happening and dollar’s global hegemony is going to end.

Impact

The sad part of this development is that as dollar declines in values, it fuels inflation. And dollar being the world’s reserve currency, this inflation becomes a global phenomenon. Most of the international commodity trade is done using dollars, so if it falls, commodity prices rise. The countries which are heavy importers of commodities like oil, gas, metals, food grains etc. will suffer the most from this development. And the commodity exporting countries will be the biggest gainers from dollar’s decline – this is the reason that countries like Brazil, Saudi Arabia, and Russia are most active towards dedollarization.

Once the world is free from dollar hegemony, there will be a lot more stability in terms of inflation – assuming that there is no fiat money as a reserve currency.

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