Texas Lawmakers Propose Gold-Backed State Digital Currency
Two Texas lawmakers have introduced identical bills proposing a gold-backed state digital currency, despite objections from several U.S. lawmakers against the introduction of central bank digital currencies.
Introduction
Two Texas lawmakers have introduced identical bills proposing the creation of a state-based digital currency backed by gold, despite objections from several United States lawmakers against the introduction of a central bank digital currency (CBDC). Senator Bryan Hughes introduced Senate Bill 2334 on March 10, while Representative Mark Dorazio introduced House Bill 4903 on the same day. The proposed digital currency would be backed by a fractional equivalent amount of physical gold held in trust.
Background and Details of the Proposed Bills
Senate Bill 2334 and House Bill 4903 propose the establishment of a gold-backed state digital currency in Texas. According to the bills, "Each unit of the digital currency issued represents a particular fraction of a troy ounce of gold held in trust."
The bills further explain that upon the purchase of a certain amount of digital currency, the comptroller would use the money received to buy an equivalent amount of gold. The purchaser would then receive digital currency equal to the amount of gold that the comptroller purchased with the money received from the purchaser. The value of a unit of digital currency must be equal to the value of the appropriate fraction of a troy ounce of gold at the time of the transaction.
To ensure the stability of the proposed digital currency, the bills state that "the trustee shall maintain enough gold to provide for the redemption in gold of all units of the digital currency that have been issued and are not yet redeemed for money or gold." Additionally, a fee might be established "at any rate necessary" to cover the costs of administering this chapter.
Although neither of the bills has been passed or presented for a vote, both state that this act will take effect September 1, 2023."
Opposition to CBDCs in the United States
The introduction of these bills comes at a time when several U.S. lawmakers have argued against the introduction of a CBDC. Florida Governor Ron DeSantis, for example, stated in a March 20 press conference that CBDCs would grant "more power" to the government and provide the government "with a direct view of all consumer activities."
Furthermore, on March 21, Republican Senator Ted Cruz introduced a bill to block the Federal Reserve from launching a "direct-to-consumer" CBDC. Cruz emphasized that it is "more important than ever" to ensure U.S. policy on digital currencies protects "financial privacy, maintains the dollar's dominance, and cultivates innovation."
Potential Implications and Benefits of a Gold-Backed State Digital Currency
The proposed gold-backed digital currency in Texas could have several potential implications and benefits. For instance, it may help strengthen the state's financial system by providing a stable, alternative means of exchange that is not subject to the same inflationary pressures as traditional fiat currencies.
Moreover, the gold-backed digital currency could enhance financial inclusion by providing a more accessible and cost-effective means of conducting transactions for individuals and businesses, particularly in rural or underserved areas. This could help to spur economic growth and development within the state.
Furthermore, a state-based digital currency might also serve as a hedge against potential economic instability or currency devaluation at the national level. In the event of a financial crisis, a gold-backed digital currency could provide a stable store of value and facilitate continued commerce within the state, even if the national currency loses significant value.
Potential Concerns and Challenges
Despite the potential benefits, there are also several concerns and challenges associated with the proposed gold-backed digital currency in Texas. One key concern is the potential for increased government control and surveillance of financial transactions, as highlighted by Florida Governor Ron DeSantis. This could raise privacy concerns and potentially discourage some individuals and businesses from using the digital currency.
