Arizona set to OK gold, silver currency

Alia Beard Rau, The Arizona Republic | NationalDesk

PHOENIX -- It may be time for Arizonans who have invested in gold and silver to take their stockpiles of coins out of hiding and get ready to put them to use.

If some of the state's more conservative politicians get their way, someday soon shoppers could conceivably be able to plunk down precious metal to pay for groceries, buy a new car or pay a traffic fine.

Arizona is on track to become the second state in the nation to recognize gold and silver coins as legal tender. It would join Utah as part of a conservative movement arising out of a lack of confidence in the Federal Reserve and a fear that paper money could become virtually worthless as U.S. debt deflates the value of the dollar.

Supporters consider the move a potential financial savior and envision a day when residents can carry debit cards funded by the gold they hold in special depositories.

Miles Lester, who represents a group called Arizona Constitutional Advocates, said during a recent public hearing on legal-tender legislation that "the dollar is on its way out. It's not a matter of if, it's a matter of when."

Economists question the stability of gold and silver as an alternative for currency, noting that the value of gold in particular has tumbled precipitously in just the past week. Opponents call the movement crazy, a waste of legislative time and nearly impossible to implement. Utah has had the law on its books for two years and still has no organized system for spending and accepting gold and silver.

"Stop messing with this thing that does nothing but divide people," Democratic state Sen. Steve Farley said. "We've got real work we should be doing down here."

Senate Bill 1439 would authorize the use of coins or bullion containing gold or silver to pay a debt. The coins must have been issued by the U.S. government or approved by a court, such as the American eagle gold-bullion coin. But no person would be required to use or accept gold or silver as legal tender.

The bill still needs a final vote in the Senate before going to Gov. Jan Brewer. It has not yet been scheduled for a vote, but after being approved by the House, it is expected to pass.

If it becomes law, it would not go into effect after the 2014 legislative session. Republican Sen. Chester Crandell, the bill's sponsor, said that gives the Legislature time to pass additional bills next session dealing with implementation. SB 1439 is just the first step, he said.

"Arizona needs to be proactive in providing opportunities for those who have been saving gold," he said.

Proposed solution

In 2011 Utah passed a nearly identical law recognizing gold and silver coins or bullion as legal tender, but there hasn't been a rush to use them to pay for goods.

"The functional effect of what's been done here is nominal, to my knowledge," said Utah Chief Deputy State Treasurer David Damschen. "The problem is, the population that wants to be able to transact business in this alternative medium is very small."

Damschen said the Utah law was pushed by individuals with concerns that federal reserve policies, particularly printing more money, are making the dollar unstable. He compared it to the immigration debate, where individuals frustrated with a lack of acceptable action from the federal government have pushed individual states to take the matter into their own hands.

"Those are reasonable concerns," he said. "But we're not sure that individual states creating alternative systems is necessarily a good solution."

He said proponents continue to work to develop a medium for exchanging gold or silver, but developing a system statewide to accommodate this small population is proving costly and economically problematic. He said no large banking companies have interest in participating.

The year after Utah passed its law, the influential American Legislative Exchange Council crafted model legislation based on the idea. Dozens of Republican Arizona lawmakers are members of ALEC, which has been criticized for its conferences that connect lawmakers with corporate executives.

Several conservative and "tea party" groups have also begun to advocate for gold and silver as legal tender, including the Washington, D.C.-based American Principles Project. And in the past two years, lawmakers from more than a dozen states have considered similar bills. But none have become law.

Crandell said there is a lot of public sentiment in support of SB 1439.

"The whole thing came from constituents," he said.

Jim Pinkerman, another member of the Arizona Constitutional Advocates group supporting the measure, said in a public hearing the bill is vital to preparing residents for a failing federal reserve system.

"When the dollar is inflated by the Federal Reserve and it loses its value ... we need to be prepared," he said. "We are at the tipping point. Gold and silver keep their value."

Expert input

Arizona economists dismissed the proposal as unnecessary and questioned supporters' statements that gold and silver are more stable than the dollar, particularly as the value of gold has plummeted recently.

"Merchants don't have to accept it, so what's the point?" asked Dennis Hoffman, economics professor at Arizona State University. "Can you imagine going in to buy clothing or a pizza with a lump of gold? The retailer is going to look at you like you are crazy."

Even if the bill becomes law, Hoffman said he doesn't think the idea will take off with more than a small portion of the state's population.

"And the logic that gold is more stable ... gold lost almost 10 percent of its value in one day (recently)," he said. "Why? Because governments in southern Europe are selling."

Hoffman predicts gold will continue to be volatile for the next few years as governments sort out their economic situations.

He said the reason for such legislation is likely either a money-maker for gold sellers or to make a political statement. Neither, he said, is a good reason for investors to put all their financial eggs in one basket — even if there are challenges with the country's current financial situation.

"The Fed is doing their level best to try to restore some stability in the payment system after what was arguably a greater shock than the Great Depression if you look at wealth evaporation," he said. "I'd rather have the Fed and its institution set the amount of currency circulating through our economy than have the value of our currency be dependent on whether or not the Russians wake up someday and decide to sell a third of their gold stock."

Lee Ohanian, associate director for the Center for Advanced Study of Economic Efficiency at ASU, agrees that if there's inflation, the value of gold and silver will rise. But when inflation rises, so do interest rates, which helps people with cash in banks. "A bank account, on average, will protect you as well against inflation as gold and silver will," he said.

Introducing new ways to pay for things will cause more problems than it will solve, Ohanian said.

"It imposes a whole new level of bookkeeping on businesses if they've got to accept dollars and coins and gold and silver," he said.