What if Utah breaks from American Monetary Union and introduces its own currency?

The Swiss shock has again led free banking scholars to come out and attack the hallowed world of central banking. The free banking scholars prefer to abandon central banks and let banks introduce their own currencspeaks oaies.

Ryan Mcmacen has this interesting column on the topic. He mentions Utah which did introduce its own currency albeit in a limited way in 2011:

Interestingly, in spite of a century of a totally centralized money supply, and a constitutional prohibition on state-issued currency, some American states still imagine themselves as having a role in the monetary system. In the wake of the 2008 financial crisis, for example, lawmakers from thirteen states suggested their home states take advantage of a loophole in the Constitution (of sorts) and make gold and silver coins legal tender in their states as a hedge against economic disaster. Utah went slightly further:

Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law [in 2011] that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins — which include American Gold and Silver Eagles — are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.

Since the face value of some U.S.-minted gold and silver coins — like the one-ounce, $50 American Gold Eagle coin — is so much less than the metal value … the new law allows the coins to be exchanged at their market value, based on weight and fineness.

While a step in the right direction, this sort of thing is obviously a long way from offering anything actually resembling significant currency competition for the US dollar.

The author goes into a hypothetical world where the state of Utah goes further and introduces its own currency Ute:

Nevertheless, for the sake of argument, let’s say that Utah (which certainly has its own idiosyncratic secessionist history) were to go even farther than this and issue its own currency (called “the ute”) which it declared to be legal tender in Utah alongside the US dollar. Using the old Swiss franc as a model, in this scenario, the Utah Central Bank is also legally obligated by the Utah legislature to ensure that the ute enjoys 20 percent gold backing.

Would everyone immediately flock to using the ute? Probably not. The US dollar would still have the advantage with huge network effects on its side. There’s no reason to believe people nationwide would start hoarding utes any more than Europeans today hoard Swiss francs. Nevertheless, the impact on monetary freedom for many Americans over time could be significant. Americans looking for a safe haven could buy utes, and traveling to Utah to set up accounts denominated in utes would not be practical for most people. Other states would be free to adopt utes also as legal tender or to simply allow people to conduct business in utes.

Through all of this, everyone would still be free to use the US dollar. Those concerned about the ute being “sketchy” or at the mercy of sinister Utah inflationists could simply choose to not use utes.

But even this little bit of competition for the dollar would diminish the monopoly power the Fed now enjoys. While a minor consideration in terms of the immense global economy, the existence of the ute would partially restrain those looking to inflate the dollar freely. Those who understood the impact of Fed’s easy money policies on their dollar holdings could abandon the dollar for the ute. Now regarded as “the Switzerland of North America” the ute becomes a model for some other states as well, and as they adopt their own currencies, or each other’s currencies, the Fed’s monetary monopoly would be impacted even more.

Well, if one has to take the free banking forward, it is much better to have banks issue currencies than have regional currencies..

 

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