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Article 1 Section 10 prohibits the states from coining Money (printing fiat currency) and also requires the states not to accept anything other than Gold or Silver coin as a tender in payment of debts. Historically this has been carried out in three ways
1) Allow banks to keep gold reserves (coin) and issue notes that can be redeemed for coin upon demand (bank notes) at the respective banks. The states operate on a paper money basis, but with assets backing the notes.
2) Allow the Federal Reserve to keep gold reserves (coin) and issue notes that can be redeemed for coin upon demand (United States Notes). Almost identical to option 1, but the asset holder is the Federal Government.
3) Ignore the gold/silver requirement altogether and issue notes that can be only be redeemed for “the full faith and credit of the US government” (Federal Reserve Notes – current money)
In order to allow monetary ties between states and the Fed (not the Federal Government, the Federal Reserve Board) to be severed states all that states would need to do would be to reinstate option 1 as a valid option. That is, the states would allow banks to hold gold or silver reserves and issue notes against those reserves. An accrediting body would periodically check the reserves and also check the security of the paper notes (to prevent counterfeiting). The states would accept the notes of any bank passing accreditation, and also serve as a market for the notes by issuing bonds in terms of the bank notes. I would suggest an accrediting agreement where the participating states agreed to allow as currency notes from any bank that achieves accreditation from a multi-state body (similar to collegiate accreditation). Then OK, TX, ID, and several others all agree to accept notes issued from banks located in any of the states as long as they pass accreditation.
If (when) Bernanke and the Fed completely debase the dollar (again) there would be a replacement currency managed not by the Federal Government, but through the marketplace.
Several potential problems:
1) Too many banks issuing notes for any note to be trustworthy (if 1,000 banks issue notes no merchant would be able to validate any particular note) – Solution: Limit accreditation to 10 banks at most. Enforce the limit by limiting accreditation to 10 year time frames with 1 body allowed to seek accreditation each year and that contract for accreditation approval going to the highest bidder. If the entity seeking accreditation fails the process then the next year the central body would auction off 2 positions (one for 9 years, one for 10 years). Auction would probably include Visa, MasterCard, American Express, Bank of America, GE Capital, and others (big players that would like the leverage, but have incentive not to go bankrupt).
2) Bank runs – A banking crisis could cause people to try to pull all their money out of a bank, or exchange their notes for bullion at that bank. Right now this is prevented by an unlimited ability of the Fed to print money, and willingness to do so during a run. Solution: Issue insurance for banks similar to the FDIC and managed by the central accrediting agency. However, there would be spigot on how fast assets could flow out of the insurance company. Bonds (IOU’s) would be issued immediately against the full cash value of the account by the accrediting body while hard assets (coin) would be issued only on the first business day of each month and in limited quantities (maybe $10B per month regularly, and $50B per month in the event of a crisis). Any bank having to use the insurance would lose their accreditation status, and a percentage of the banks other (non-coin) assets would be taken as collateral.
3) Government cannot ease monetary policy during economic downturns. During economic downturns the Fed can change interest rates, reserve requirements, and other levers in the market. Without this power their ability to mitigate crises would be limited. Solution: I don’t care. The fed was a big part of the problem in 2000 and 2006 anyway. Stop easing policy and diverting capital into tech and housing bubbles. Set a stable policy and allow capital to move appropriately. When the horseshoeing industry falls there will be economic downturns. DO NOT try to prevent this with monetary policy, it only pushes money back into horseshoeing.
4) Government borrowing during war times would be limited preventing a full engagement in necessary and expensive wars. Solution: Doesn’t matter, monetary policy goes out the window during any major war. Look at Pound and Dollars during each of the major wars over the last 250 years, they have always been inflated and the monetary price paid only after victory is achieved. Don’t restrict a policy based on periods when it would be disregarded anyway.
For those claiming this is insurrection or secession – it is not. I understand the last diary might have sounded that way, hopefully this clears it up. This option cuts no political, economic, cultural, or military ties and leaves the Union fully in tact. This merely reinstates the monetary policy used in the US for half of our history. It doesn’t even shut down Federal Reserve Notes, but it does allow a dual currency system with one system backed by the “Full Faith and Credit” of the US government, and the other backed by bullion reserves distributed among several large commercial entities. It would then be left to individual actors to decide how best to safeguard their investments. Most capital would still be held in non-dollar assets (bonds, houses, stocks, infrastructure, bank accounts, etc.) and the decision of whether to denominate those assets in Fed Dollars or “Bank Silvers” would be left up to each individual.