Utah Ready to Accept Gold and Silver as Legal Tender: Is the Return of the Gold Standard Next?

For many, gold and silver coins are considered assets. They are hoarded for later. However, in Utah, gold and silver coins might become acceptable as legal tender. (This means that the tax on gold and silver transactions, which sees them as assets, would be done away with.) The measure has passed the Utah state legislature and waits only for the governor’s signature. If he signs, Eagle and Buffalo coins will be accepted as money. (Watch out, though. Foreign gold coins will not be allowed; no spending your Krugerrands at Utah shops.)

The gold and silver coins issued by the government would be recognized for their value to a collector. This means that it goes beyond just the face value of gold and silver coins issued by the federal government. The Salt Lake Tribune reports on the difference between the value of the metal in the coin and its face value:

Rep. Ken Ivory, R-West Jordan, said, for example, that a 1960s John F. Kennedy half-dollar coin — 90 percent silver — would have bought three gallons of gasoline with its face value in the mid-60s. But the value of the silver in it today would buy about five gallons of gas, while the face value of the coin would buy only a fraction of a gallon.

Here in Utah, lawmakers and many citizens are concerned about the Federal Reserve and the way inflation erodes purchasing power with a fiat currency system. So, in addition to accepting gold and silver as legal tender, the bill also arranges for a study on whether or not to establish some sort of metal-backed money system.

Is It Practical To Switch to a Gold or Silver Standard?

Because of inflation, distrust of the Federal Reserve and many other issues, many are wondering if it is time to switch back to a currency that is based on some sort of metal standard — probably gold. The idea is that a gold standard (or even a silver standard) would reduce inflation, and would provide more “real” value for money.

No one would want to carry gold coins in their pockets, but money they did have would have to be covered with gold reserves, or silver reserves, or some combination. There’s only one problem with the idea of putting us on a gold standard: There is too much money already circulating. What we have in circulation so far exceeds current reserves that switching would be utter chaos.

Another issue is that our fiat currency system goes beyond circulating bits of paper. Our monetary system is entirely based upon information. Few of my clients issue my checks. Their banks have a computer that tells them how much money they have. Then, their banks exchange information with PayPal, which in term exchanges information with my bank. Viola! There is “money” in my account.

Trying to back all of the information that passes through our system daily with some tangible asset would be very difficult. The fact of the matter is that right now, our economy is almost entirely based on the perception of money — the idea of it being there. All of our exchange is based on the perception that we will accept the information in the computer as a mode of exchange.

Plus, if you consider that gold is more than $1,400 an ounce, you might find your ability to meet your obligations suddenly curtailed if you had to have everything backed by gold. While Utah’s law adds an element of flexibility to the system — a flexibility that is admirable — I’m not sure that it is actually practical (whether it is right or wrong is another matter) to switch to a gold or silver standard.

What do you think? Should we switch back to some sort of metal-backed currency standard? Or are we too far in to our fiat system to get out with any sort of practicality?