State Legal Tender
Both Federal and State governments play important roles in setting and maintaining sound monetary policy.
Constitutional Checks and Balances.
The United States Constitution provides that “Congress shall have Power . . . To coin Money, [and] regulate the Value thereof”,[1] and that “No State shall … coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts”.[2]
Federal law further provides that "United States coins [including gold and silver] and currency (including Federal reserve notes [FRN] and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."[3] Thus, arguably under the supremacy clause, it is incumbent upon the several States to accept U.S. minted gold and silver coin as a form of payment.[4] Indeed, under the Constitution, such coinage constitutes the only medium of exchange a State can Constitutionally recognize as legal tender.
Current Forms of United States Legal Tender.
Today the U.S. Treasury issues five distinct kinds of legal tender U.S. dollars, each with diverging purchasing power in the real world economy, namely, the specie legal tender gold, silver, platinum, and palladium dollars, together with the fiat base metal dollar, to which the FRN is pegged.[5] It is important to bear in mind, that the U.S. has been issuing specie coinage, since its founding, with the exception of the relatively short mintage moratorium,[6] ended during the Reagan Administration,[7] and an expanding number of States have formally recognized such coinage as legal tender.[8] Intelligent choice in currency among and between these various kinds of U.S. dollars is the prerogative of each citizen, and a profound benefit to the economy and society as a whole.
U.S. Treasurer’s Duties Relative of Specie Currencies.
The U.S. Treasury is statutorily required to: (a) “maintain the equal purchasing power of each kind of U.S. currency”;[9] (b) provide that FRNs may be “redeemed in lawful money on demand at the Treasury Department of the United States”;[10] and (c) ensure that “amounts received from the sale of gold shall be deposited by the Secretary in the general fund of the Treasury and shall be used for the sole purpose of reducing the national debt".[11]
The first two of these statutory imperatives can be achieved either by: (1) actually maintaining the equal purchasing power of each kind of dollar; or (2) more pragmatically, recognizing the fiat and various specie dollars as separate currencies, each with their own distinct characteristics and purchasing power within the U.S. economy. Florida is well positioned Constitutionally to impose this latter check on Federal monetary authority by formally recognizing the divergent purchasing power of the fiat, gold, and silver dollars.[12]
With regard to the Treasury’s final monetary duty listed above, by formally recognizing the gold dollar as legal tender, States claim the moral authority to insist that proceeds from the sale of U.S. gold coinage actually be applied to reducing the national debt. While this duty has likely been neglected in the past, under the current administration, with urging from Florida and other sound money States, Reagan’s Golden Rule for reducing the national debt may well finally become a reality within the foreseeable future.
Citizen’s Safe Harbor From Potential Liability.
Care should be taken not to expose citizens to the bullion boobytraps lurking in federal law. For example, taxes on “property other than money”[13] used as a medium of exchange imposes an extraordinary computational and Federal capital gains liability burden upon taxpayers. Under U.S. law, taxpayers are required to calculate and then remit tax payments on the capital gains realized on barter transactions, e.g., buying groceries with bullion. Recently, the IRS has imposed this onus on transactions in crypto currencies. Bullion transactions could be next in line for such treatment.
Moreover, “[w]hoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.[14] Under this statute, within the past dozen years or so, Federal prosecutors have indicted, convicted, and imprisoned those circulating bullion currencies in the United States.
While State law could be enacted to authorize non-U.S. specie legal tender gold and silver for the payment of taxes,[15] passing such currencies for any other purpose, or in any other U.S. jurisdiction, would expose hapless citizens to potential Federal criminal liability. So when a recipient of a non-legal-tender-denominated precious metal currency passes it to another, both the capital gains and criminal liability risks arise.
The simple solution to these problems would be to adopt U.S. gold and silver dollars as legal tender, instead of bullion products. While bullion may not be recognized as legal tender, by eliminating the taxes on the exchange of bullion for specie legal tender, the precious metal economy is expanded and stabilized. Moreover, negotiable instruments, which are authorized in every State of the Union under the Uniform Commercial Code, overcome these obstacles as well. The popular Goldback®, currently launching a Florida series, is a good example of this approach, by which a bullion currency can freely circulate throughout the U.S. without fear of capital gains or criminal liability for passing the same.
On a related note, with regard to the gold dollar in particular, it would be advisable to standardize on the one-ounce, fifty-dollar denomination as legal tender, because of the higher premiums imposed by the U.S. mint on smaller denominations. This issue does not affect the silver dollar, which is only minted in the one-ounce, one-dollar denomination. However, pre-1965 “junk” silver coins could be a real source of confusion to consumers. Moreover, the IRS has been taxing junk silver at the 28% collectibles rate.[16] Thus, identifying one fiftieth of a one-ounce U.S. minted gold coin as constituting one gold dollar (GD), and a one-ounce U.S. silver coin as one silver dollar (SD) has been found to be the most workable approach, adopted by UPMA’s 50,000+ membership for more than a decade. Digitally, these dollars can be easily subdivided into gold/silver cents, mils, decimils, and centimils, in other words, five degrees of precision, eg. 0.00001 GD, which today would be worth about 0.059¢. For physical transactions, change can be made in base metal coinage, FRNs, or Goldbacks®.
Federal Model for Currency Translations.
Under U.S. law, taxpayers are entitled to designate gold or silver dollars as the functional currency of their qualified business unit (QBU)[17] whose transactional activity is conducted significantly in that currency. For purposes of remitting taxes,[18] QBUs are entitled to translate their functional currency into fiat dollars at the average exchange rate over the tax period in question.[19] Prudence would dictate the harmonization of Florida law with this existing, long-established, currency translation methodology.
Thus, operating in their respective Constitutional lanes, Congress coins money, while States make gold and silver coin a tender for payment of debts. In the monetary sphere, with an aim towards consumer protection and economic growth, government should focus on regulating, competitive, free market, private sector solutions, not establishing subsidized monopolies at taxpayer expense.
ENDNOTES
1. U.S. Constitution Article. I, § 8, Clause 5.
2. US Constitution, Article I, §10, Clause 1 (emphasis added).
3. 31 USCA § 5103 (emphasis added); see also, 31 USCA §§ 5112.
4. US Constitution, Article VI, Clause 2.
5. 31 USC §§ 5103 & 5112.
6. Historically, Federal courts have maintained the fiction that “a dollar is a dollar, regardless of the physical embodiment of the currency.” Crummey v. Klein Independent School District (Unpublished Opinion, U.S. Ct. App. for the 5th Circuit, No. 08-20133, 2 October 2008), see also, Thompson v. Butler, 95 U.S. 694, 696 (1877): “A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law knows no difference between them.” This judicial treatment equating a $50 dollar gold coin with $50 in Federal Reserve notes, while perhaps consistent with wholly neglected statutory duties of the Treasury, is economically nonsensical and a recipe for mischief. And, not surprisingly, item 13 of Internal Revenue Bulletin 2010-17 entirely rejects this judicial precedent.
7. U.S. Constitution, Article I, § 10; U.S. Coinage Act of 1792; The Gold Bullion Coin Act of 1985, Pub. L. No. 99-185, 99 Stat. 1177 (Dec. 17, 1985), codified at 31 United States Code (“USC”) § 5112.
8. U.S. minted gold and silver coin is formally recognized as specie legal tender in: Arizona Revised Statutes §§ 6-851 and 43-1121(22); Arkansas Code Annotated § 4-56-106 et seq.; Utah Code Annotated (“UCA”) § 59-1-1501.1 et seq.; and Wyoming Statutes Annotated (“WSA”) § 9-4-1303. Colorado Revised Statutes Annotated § 11-61-101, Oklahoma Statutes Annotated § 62-4500, and Louisiana Statutes Annotated § 6:341 provide that gold and silver coins issued by the United States government are legal tender, and in Missouri silver U.S. minted coins only, pursuant to Missouri Revised Statutes § 408.010.
9. 31 USC § 5119(a).
10. 12 USC § 411.
11. 31 USC § 5116(2), Reagan’s Golden Rule.
12. Since the 1960s the London Bullion Market Association (“LBMA”) has been setting daily fixing prices, at which major banks transact in gold and silver. For more than a decade the United Precious Metals Association (“UPMA”) has been publishing daily exchange rates for gold and silver dollars at noon Eastern, weekends and holidays excepted.
13. 26 USCA § 1001(b). Fla. Statutes Annotated § 671.201 defines “Money” as “a medium of exchange that is currently authorized or adopted by a domestic or foreign government.”
14. 18 USC § 486.
15. Supreme Court recognized in Lane County v. Oregon, 74 U. S. 71 (1868) that in the performance of its “essential functions” a State possesses broad powers to specify acceptable tender for the payment of taxes:
If, therefore, the condition of any State, in the judgment of its legislature, requires the collection of taxes in kind, that is to say, by the delivery to the proper officers of a certain proportion of products, or in gold and silver bullion, or in gold and silver coin, it is not easy to see upon what principle the national legislature can interfere with the exercise, to that end, of this power, original in the States, and never as yet surrendered.
Exercising such authority, Utah passed specific provisions in 2012 regarding the collection of sales tax on transactions consummated in specie legal tender. See UCA § 59-12-107(3)(h).
16. 26 USC § 1(h)(4).
17. 26 USC § 985.
18. 26 USC § 989; 26 CFR § 1.985-1. These regulations make it reasonably clear that a Qualified Business Unit (“QBU”) is to have a single functional currency, into which any other currencies employed by the QBU are to be translated.
19. 26 USC § 989(b)(4); 26 CFR § 1.989(a)-1 and (b)-1.