PHOENIX, Ariz. (Jan. 23, 2019) – A bill introduced in the Arizona House would require the state to diversify some of its financial holdings into gold and silver. Passage of this bill would build on a foundation laid over the last two years and create another pathway to undermine the Federal Reserve’s monopoly on money.

Rep. Mark Finchem (R-Tucson) filed House Bill 2500 (HB2500). Titled the Sound Money Stabilization Act, the legislation would require the state to hold at least 10 percent of the funds in its Budget Stabilization Fund in specie, or in refined gold or silver bullion graded at least .9999 pure. Specie is defined as coins having precious metals content, or refined gold or silver bullion that is stamped with its weight and purity, and that is valued primarily on its metal content, not its form. The proposed law would require the precious metals to be held in a secure depository.

Arizona’s Budget Stabilization Fund has almost $500 million in assets currently invested in debt instruments and the stock market.

The Sound Money Defense League backs the measure. Sound Money Defense League policy director JP Cortez said the measures would protect the account by insulating it with the only money proven to protect against the ongoing devaluation of Federal Reserve notes.

“Gold and silver do not have the default or inflation risks that bonds and other ‘fixed income’ investments carry. Most importantly, physical gold and silver held in a depository carry no counterparty risk – or risk of failure or default – unlike stocks, bonds, and other financial assets.”

“It’s high time to safeguard the state’s assets and taxpayers against the volatile dollar,” Finchem said.

ANOTHER STEP FORWARD

In 2017, Gov. Doug Ducey signed a bill sponsored by Finchem into law that repealed state capital gains taxes on gold and silver specie.

“What the IRS has figured out at the federal level is to target inflation as a gain. They call it capital gains,” Finchem said during a committee hearing. He noted that the bill would help Arizona residents “protect their conversion of one kind of currency for another.”

Repealing the capital gains tax marked an important first step toward currency competition. If sound money gains a foothold in the marketplace against Federal Reserve notes, the people would be able to choose the time-tested stability of gold and silver over the central bank’s rapidly-depreciating paper currency. The freedom of choice expanded by the tax repeal will help Arizona residents secure the purchasing power of their money.

Last year, Finchem built on that foundation, moving a bill through the legislature that recognizes silver and gold as liquid capital for trust companies.

Passage of HB2500 would take another step toward establishing sound money in Arizona.

BACKGROUND INFORMATION

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” States have simply ignored this constitutional provision for years. It’s impossible for a state to return to a constitutional sound money system when it taxes gold and silver as a commodity.

Finchem’s efforts in Arizona take a step toward that constitutional requirement, ignored for decades in every state. This sets the stage to undermine the monopoly of the Federal Reserve by introducing competition into the monetary system.

Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it could create a “reverse Gresham’s effect,” drive out bad money, effectively nullify the Federal Reserve, and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.

WHAT’S NEXT

At the time of this report, HB2500 had not been referred to a committee. Once it receives a committee assignment, it must pass by a majority vote before moving forward in the legislative process.