Still, that sentiment has lingered in certain parts: The U.S. dollar just isn’t what it used to be prior to the 2008 financial crisis.
The weak-dollar outlook has taken hold in a couple Western states. Arizona is on track to become the second state (after Utah in 2011) to allow gold and silver coins as legal currency. Although some say the move will likely be more of a symbolic than a practical one, the bill’s primary sponsor says he is responding to demand from his constituents.
“We did a telephone town hall [on the subject] and there were over 9,000 people in the state that tuned into that – there’s obviously some interest in being able to utilize gold and silver,” says Sen. Chester Crandell, a Republican.
In Utah, the state’s Gold & Silver Depository is developing a system where customers could use debit cards linked to their holdings. If Arizona’s bill, which has already passed the House, is approved by the Senate and signed by the governor, it would take effect in 2014.
Crandell said he envisions Arizonans being allowed to deposit gold coins in the bank, just like they do with their dollars. The account holder would be authorized to use gold from that account as payment for debts and bills.
Ditching dollars for gold has become a popular notion among some conservative leaders and pundits (perhaps most notably Glenn Beck) in recent years. The dollar, they say, is too volatile and too entertwined with actions by the Federal Reserve. If it the rate of inflation were to increase dramatically, conservatives fear the dollar would lose its value.
Crandell says his bill isn't meant to be an outright condemnation of the Federal Reserve. But he does have his concerns: “Certainly the Federal Reserve is not as solid as needs to be, and the ability to print more dollars in the system at will raises some concern,” he says.
Economists say moves like the one in Arizona are more about politics than economics. “There’s a worldview that’s embodied in these types of policies,” says Anirban Basu, president and CEO of Sage Policy Group. “I think what’s happening here is a certain number of policymakers have decided they need to protect their own citizens from their own Federal Reserve. ... There’s been a lot of discussion around the country about the creation of money supply and about triggering hyper-inflation and what would happen to household wealth if that occurs.”
The push in Arizona comes, ironically, at a time when the market value of gold is falling sharply. In the last six months, the value of one ounce of gold has fallen by $300 (more than 17 percent) to about $1,427 per ounce as of Wednesday. Silver has fallen by more than 28 percent in the last six months, to $28 per ounce on Wednesday.
Those numbers suggest that gold and silver aren't any less volatile than the dollar, Basu says. While the dollar is vulnerable to turmoil at home, the value of gold is subject to demand abroad, particularly in Asia. “So you can own an asset that varies depending on global conditions, or an asset based on policy decisions in Washington, D.C.” he says. “Neither one sounds attractive when you put it that way.”
Still, more states have been pondering what heavy metal can do for them. In addition to Utah and Arizona, 15 other states have considered similar legislation in recent years, according to the website Constitutional Tender Act, which advocates only using gold and silver as legal tender.
So far, gold and silver currency laws are limited to actual minted gold and silver coins. So anyone with visions of depositing their grandmother's gold necklace as cash in the bank should think again. “That’s certainly not going to happen,” Crandell said.
