Fears over where the dollar is headed – especially with continued money printing from the central bank – has pushed safety-seekers into investing in silver and gold. Demand has also pushed gold and silver prices to new highs.
The idea of using gold and silver as an alternative currency has spread as the metals have grown more valuable.
In fact, worries that the US dollar is on the cusp of a collapse have lawmakers from more than a dozen states (up from just three in the past few years) seeking approval from their state governments to either issue their own alternative currency or use gold and silver as a currency for settlement of state-related transactions.
Rep. Glen Bradley, R-N.C., who introduced a currency bill in 2011, told CNN Money, "In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System... the state's governmental finances and private economy will be thrown into chaos."
Fourteen States & Counting
While the US Constitution bans states from printing their own paper money or issuing their own currency, it does permit states to make "gold and silver Coin a Tender in Payment of Debts."
The first state to introduce its own alternative currency was Utah. Gov. Gary Herbert signed a bill into law in March that recognized gold and silver coins issued by the US Mint as an acceptable form of payment.
Under the law, the coins, which include the hugely popular American Gold and Silver Eagles, are treated the same as the US dollar for tax purposes, eliminating capital gains taxes. The new law allows the coins to be exchanged at their market value, based on weight and fineness.
Rich Danker, a project director at the Washington, D.C.-based conservative public policy American Principles Project, explained to CNN Money, "A Utah citizen, for example, could contract to sell his car for 10-one ounce gold coins (roughly $17,000), or an independent contractor could arrange to be compensated in gold coins."
These other states have similar policies:
- Georgia has also introduced the Constitutional Tender Act, which proposes that banks offer gold and silver coins and accept them in segregated accounts and that state debt payments be made only in gold and silver coins.
- In 2010, the Idaho House Bill proposed the use of gold and silver as currency.
- Indiana's 2009 bill includes provisions for using electronic gold-based accounts, which had already been in use for years from several companies. The Hoosier state bill also recognized Canadian Maple Leafs, pre-1965 silver currency and American Gold and Silver Eagles as acceptable legal tender coins in place of US dollar.
- In 2009-2010, the South Carolina General Assembly advocated a return to gold and silver as legal tender.
- A 2009 Washington State House Memorial Bill called for the eventual dissolution of the Federal Reserve and acceptance of gold and silver as money. The bill underscored the fact that the dollar was to be a silver coin and not a paper issue.
- Missouri, in August 2009, advocated the use of gold and gold electronic currency in the payment of state taxes, fees, fines and other obligations.
- New Hampshire introduced a bill in 2005 which recognized several coin issues as acceptable payment in lieu of the dollar and included provisions for electronic gold currency.
- The Colorado Honest Money Act proposed the use of gold and gold electronic currency for payment of state obligations.
Other states that are seeking similar state approvals include Minnesota, Montana, Iowa, and Tennessee. Virginia announced in January it had commissioned a study of using gold and silver as an alternative currency. Most likely of having their proposed bills passed this year are the Republican-controlled states of South Carolina, Georgia and Indiana.
Since it's not practical or safe for people to tote heavy gold or silver bullion coins around, the Utah Gold & Silver Depository was established. It allows people to deposit their precious metal bullion coins there and receive a debit card to make transactions with. The price of the gold and silver bullions is based on the closing prices in US dollars in London every business day, thus establishing the exchange rate used on the debit card.
While still a long way off from becoming mainstream, trading dollars for coins has won over more and more Americans who have never seen the national debt climb so high.
"Never in history have we run debts and deficits to this magnitude," Lance Roberts, chief economist at StreetTalk Advisors, told USA Today. "We've never been here before."
The ballooning US debt, some $15.6 trillion (including Social Security and Medicare) has scores of Americans anxious the US monetary system is out of control, fearing inflation and clamoring for a return to the gold standard.
Silver would be an alternative to the gold standard, using a metal that's more plentiful and affordable.
Increased demand for such a move could ring in a new era of investing in silver.
Diane Alter is a contributing writer with Money Morning.