The State of Texas recently signed a five-year contract with a private firm to administer the state’s new bullion depository. Established by law in 2015 and placed under the authority of the Texas state comptroller, the bullion depository aims to make its depository services available not only to businesses and institutions in Texas, but throughout the United States and even internationally. The depository hopes to start operations in 2018, and once operational it could open up new possibilities for the use of gold in financial transactions.
Acceptance for Taxes
One of the keys to the renewed use of gold and silver as money is their acceptance for payment of taxes. Throughout history, governments sought to gain control of gold and silver and replace it with fiat money, often paper currency, as the main means of public exchange. People didn’t want to use the paper money, however, because they weren’t sure that they could use it for anything if they accepted it as payment. So how were their attitudes overcome? By accepting paper money for tax payments.
Merchants were willing to accept paper money as payment because they knew that, even if they couldn’t persuade other merchants to accept the paper money in exchange for goods, they could always make the government take back the paper money as payment for taxes. That way they weren’t left holding paper money of questionable value, and they got at least some use out of it. Throughout history, the successful introduction of paper currency has always been accompanied by governments accepting it as payment for taxes.
It wasn’t any different in the United States, where during the Civil War the introduction of “greenbacks,” unbacked paper money, saw tepid acceptance at first. Later legislation allowed for the use of greenbacks to pay taxes, and use of the new paper money increased.
Now we face the opposite scenario, where over a century of paper money usage has resulted in many people being unfamiliar with gold and silver. They don’t know how to buy it, how to sell it, and if you offer them a one-ounce gold coin for $25, many people don’t know what it is. Unless they’re knowledgeable about precious metals, they see no need to part with their precious Federal Reserve Notes to buy gold or silver coins that they can’t spend at the store.
That’s where the depository comes in.
Gold Accounts for Government and Business
If the depository is allowed to act as an agent for the state revenue department, people could pay their taxes in gold, which would encourage them to accept gold as a normal payment in transactions. Similarly, if businesses are able to open accounts with the bullion depository and deposit their gold holdings with the state, they could accept gold as payment too. By making it easier for individuals and businesses to open gold accounts, gold can gradually regain its role as money and won’t be considered solely as a commodity.
What’s happening in Texas mirrors similar efforts that are underway in Utah and in Tennessee. The more that gold is able to be used in business and the greater its acceptance within society, the better it will be for everyone who holds gold, investors included. As the many benefits of holding gold become apparent, demand will increase, enabling gold investors to get a great return on their investment. Let’s hope that the Texas depository is successful and helps spur even more efforts at the state and federal levels to bring gold back into the mainstream.