Legislation requires state treasurer to create secure bullion repositories
BY: TIM CARPENTER. Kansas Reflector
TOPEKA — Rep. Michael Murphy argued it was peculiar a bill had to be introduced in the Kansas Legislature to authorize use of gold and silver as legal tender for everyday expenditures within the framework of a state-created alternative to the U.S. dollar.
“These precious metals were used for thousands of years and indeed they backed our currency until 1973. Since then, fiat currency has been used with the U.S. dollar being the world’s reserve currency,” he said.
Murphy, a Republican from Sylvia located west of Hutchinson, told the House Financial Institutions and Pensions Committee that the decision of the United States to step away from the “gold standard” and rely on printed dollars as the basis of currency contributed to inflation and economic instability.
Over the years, he said, people such as himself tried to bring “sanity and reality” back to the money supply, create financial security and a hedge against inflation by embracing a system based on gold and silver assets.
Technology advances opened a door for states to finally make use of precious metals as backing for electronic transactions, Murphy said. House Bill 2729 and Senate Bill 513, under consideration by the Senate Federal and State Affairs Committee, would clear the way for electronic transactions within Kansas backed by gold and silver coins, rounds, bars or ingots that were minted domestically or in countries minted around the world.
No one could be compelled to accept silver or gold as legal tender in Kansas under the legislation, but it could be used to cover private debts, taxes and fees levied by the state or any political subdivision of the state.
The legislation — not acted upon Monday by either Senate or House committee — would forbid state taxation of exchanges in these precious metals, except in terms of a retirement account tied to the alternative currency. Under the Senate and House bills, no bullion would be characterized as personal property for taxation or regulatory purposes.
Murphy said the idea wasn’t radical nor did it have partisan overtones: “This is not a ‘left’ or ‘right’ issue. It is a Kansas issue.”
Alex Orel, representing the Kansas Bankers Association, said a state currency tied to bullion would be a complex and risky business that the state of Kansas should avoid.
“This is a lot more complicated than it may sound, as evidenced by the fact that no great platform currently exists. There are layers of security, processing speed, reliability and even customer service that all have to be perfected. The currency has to be usable and also not hackable,” he said.
Orel said the Commodity Futures Trading Commission warned “virtual currencies are commonly targeted by hackers and criminals who commit fraud. There is no assurance of recourse if your virtual currency is stolen.”
“The virtual currency world is still a wild west,” Orel said. “While virtual currency may be a risk that a savvy consumer feels safe taking on, is our state ready to assume that risk as well?”
He compared the idea of creating a state-by-state patchwork of currencies to the Civil War era when states established independent currencies and struggled to conduct trade.
State Treasurer Steven Johnson would be responsible for setting rules and regulations of state’s own currency system as well as development of state-controlled, vault-protected bullion depositories. Individuals, corporations and associations would be allowed to establish accounts in the Kansas depositories. In addition, the state’s Pooled Money Investment Board would be allowed to invest up to 20% of government assets in gold or silver.
“This bill raises many questions for our office, especially the cost to administer these programs,” said Johnson, who formally took a neutral position on the legislation. “We also have concerns about how this bill would interact with federal banking regulations and the potential to subject the state to federal regulatory agencies.”
He said storage and transaction issues associated with possessing gold and silver had potential to be costly to Kansas taxpayers given security precautions necessary to protect precious metals.
“We have consulted with other state treasurers who also have questions about similar proposals in their states. In addition to the concerns raised above, it is also likely there are unknowns that we have not contemplated,” Johnson said.
Michael Murray, executive director of the Kansas Credit Union Association, said the organization objected to the legislation. He said the concept of electronic currency backed by specie — precious metal coins or bars authorized by a sovereign entity — had been studied in other states.
However, he said, the proposal in the Kansas Legislature, if enacted, would be the first time currency was placed under control of one elected public official — the Kansas state treasurer.
“Concentration of such power with one government office is concerning and could see wide disparities in the handling of the currency depending on each election cycle,” Murray said.