Texas moves to create gold-backed digital currency

[Hydrogen]

(Kitco News) - As lawmakers in the U.S. introduce bills pushing back against the creation of a U.S.-dollar-based central bank digital currency (CBDC), Texas is opting to go a different route with the creation of a state-issued, gold-backed digital currency.

Based on the text of Senate Bill 2334, which was introduced by state Senator Bryan Huges (R), and House Bill 4903, which was introduced by state Representative Mark Dorazio (R), the legislators are looking to require the state comptroller to establish a digital currency that is fully backed by gold and fully redeemable in cash or gold.

“The comptroller shall establish a digital currency that is backed by gold so that each unit of the digital currency issued represents a particular fraction of a troy ounce of gold held in trust,” the bills state, adding that if needed, a private vendor can be enlisted to help establish the digital currency.

The comptroller would also be required to create a mechanism that would allow the new gold-backed digital currency to be used by citizens for their daily transactions. “In establishing the digital currency the comptroller shall establish a means to ensure that a person who holds the digital currency may readily transfer or assign the digital currency to any other person by electronic means.”

All gold reserves backing the digital currency would be held in a trust with the Texas Bullion Depository that is controlled by the comptroller or another entity appointed by the comptroller. “The trustee shall maintain enough gold to provide for the redemption in gold of all units of the digital currency that have been issued and are not yet redeemed for money or gold,” the bills read.

There will be no limit on the amount of gold-backed digital currency that Texans can purchase. As soon as a purchase is made, the comptroller will be required to “buy a fractional number of troy ounces of gold equal to the number of units of the digital currency issued to the purchaser, and issue to the purchaser a number of units of the digital currency equal to the amount of gold that the comptroller purchases with the money received from the purchaser.”

When someone holding the digital currency wants to redeem it for cash, all they would need to do is present it to the comptroller or a designated agent, who will then sell gold held in the depository account equal to the redemption amount and transfer the funds to the redeemer, minus any fees.

Holders can also elect to redeem the digital currency for gold. The comptroller or one of its designated agents “may manage redemption of the digital currency for gold by the use of bars or coins of standard sizes and may pay fractional remainders in cash as necessary to facilitate the transaction,” the bill states.

The value of each unit of the digital currency will be determined at the time of a transaction and “must be equal to the value of the appropriate fraction of a troy ounce of gold at the time of that transaction.”

And as a way to reassure investors in the fund who are worried about issues like bail-ins, the bill explicitly states that “Money received from the purchase of the digital currency, gold purchased and held under this chapter, and money received from the sale of gold in response to a request for redemption is not available for legislative appropriation.”

All fees generated from the management of the fund will be deposited in an account established in the general revenue fund to help pay the costs.

Both bills end with a line saying, “This ACT takes effect September 1, 2023.” At the time of writing, neither bill had been assigned to a committee. In order to become official law, they must first get a committee hearing, pass by a majority vote, and then be approved in a full vote by the state Senate and House.


https://www.kitco.com/news/2023-04-06/Texas-moves-to-create-gold-backed-digital-currency.html

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Could gold backed digital currencies be the next BTC ?

Some might recall venezuela proposed to create an oil backed blockchain based CBDC around 5 years ago. The concept of backing digital currencies with other assets is definitely not new.

Earlier this year geopolitical analyst Peter Zeihan laughed at russia for using aircraft to ferry gold shipments to conduct cross border transactions. Now it seems texas is poised to implement the digital transaction solutions which Putin may have desperately needed but not been able to secure.

With global concerns of inflation and economic downtrends gaining precedence. Could a trend whereby digital currencies backed by precious metals or commodities eventually replace international reserve currencies like the dollar emerge?

[Nwada001]

With global concerns of inflation and economic downtrends gaining precedence. Could a trend whereby digital currencies backed by precious metals or commodities eventually replace international reserve currencies like the dollar emerge?

A lot of people are already looking for an alternative reserve rather than the US dollar; it won't also be a bad idea for them to go back to the old ways where the majority of all countries reserves were based on physical gold.

The digital part is where I actually don't think most people will buy the idea; making it digital means they will have to lock off the physical gold and make it digital as the USDT is pegged to the physical dollar. How long will it retain the same value as the real-world gold market? What will happen if the blockchain where it's been minted breaks down? To me, these are a few factors people might consider before considering it as a national reserve.

[Darker45]

Although this may seem a much nicer idea than a CBDC, will the federal laws allow states to create their own currencies?

I did a quick research on Google whether there are laws pertaining to this. I found out that it may even be unconstitutional. The constitution itself prohibits this. Section 10 of the constitution "denies states the right to coin or to print their own money."^[1] I presume this prohibition extends to digital currencies. The country will only have a single national currency.

[1] http://www.let.rug.nl/usa/essays/general/a-brief-history-of-central-banking/money-and-the-constitution.php

[Hydrogen]

Although this may seem a much nicer idea than a CBDC, will the federal laws allow states to create their own currencies?

I did a quick research on Google whether there are laws pertaining to this. I found out that it may even be unconstitutional. The constitution itself prohibits this. Section 10 of the constitution "denies states the right to coin or to print their own money."^[1] I presume this prohibition extends to digital currencies. The country will only have a single national currency.

[1] http://www.let.rug.nl/usa/essays/general/a-brief-history-of-central-banking/money-and-the-constitution.php

Its a state sovereignty issue.

The US federal government illegalizes cannabis. While US states like california legalize it.

The Constitution was authored in an era preceding digital currencies and prohibits the printing of paper money and physical coins. It cannot comment much on digital currencies as they did not exist at the time the document was written.

[odolvlobo]

Although this may seem a much nicer idea than a CBDC, will the federal laws allow states to create their own currencies?

I did a quick research on Google whether there are laws pertaining to this. I found out that it may even be unconstitutional. The constitution itself prohibits this. Section 10 of the constitution "denies states the right to coin or to print their own money."^[1] I presume this prohibition extends to digital currencies. The country will only have a single national currency.

Definitely illegal according to Article 1, Section 10 of the U.S. Constitution:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Unless they can convince the Supreme court that "bills of credit" is referring specifically to paper.

[joniboini]

Isn't this basically fiat in a digital form? At the very least, the idea of issuing currency backed by gold is not new. I guess technicalities will be the place where it differs from others. CMMIW. It's kinda interesting to see the idea proposed by so many altcoin projects is now being developed by some government bodies.

The digital part is where I actually don't think most people will buy the idea; making it digital means they will have to lock off the physical gold and make it digital as the USDT is pegged to the physical dollar. How long will it retain the same value as the real-world gold market? What will happen if the blockchain where it's been minted breaks down? To me, these are a few factors people might consider before considering it as a national reserve.

Verification could also be an issue. Although I don't think the amount of distrust toward this kind of currency will be similar to how people view USDT as being shady. Can't be helped since they never publish their details explicitly anyway.

[odolvlobo]

Isn't this basically fiat in a digital form?

It's not fiat because it is backed by gold.

[Darker45]

Although this may seem a much nicer idea than a CBDC, will the federal laws allow states to create their own currencies?

I did a quick research on Google whether there are laws pertaining to this. I found out that it may even be unconstitutional. The constitution itself prohibits this. Section 10 of the constitution "denies states the right to coin or to print their own money."^[1] I presume this prohibition extends to digital currencies. The country will only have a single national currency.

[1] http://www.let.rug.nl/usa/essays/general/a-brief-history-of-central-banking/money-and-the-constitution.php

Its a state sovereignty issue.

The US federal government illegalizes cannabis. While US states like california legalize it.

The Constitution was authored in an era preceding digital currencies and prohibits the printing of paper money and physical coins. It cannot comment much on digital currencies as they did not exist at the time the document was written.

I'm afraid this isn't a state sovereignty issue in that the constitution itself prohibits it. The constitution, being the highest law of the country, overpowers any state law. Even federal laws will have to abide by the constitution. In the first place, state sovereignty is not absolute. They're free within structures.

When the constitution was authored is immaterial. If there are certain provisions that won't fit or aren't anymore applicable to the modern world, it can be amended. Until then, it remains as the supreme law.

~snip~

Definitely illegal according to Article 1, Section 10 of the U.S. Constitution:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Unless they can convince the Supreme court that "bills of credit" is referring specifically to paper.

Probably not. I assume those specific letters in the constitution aren't literal.

However, I'm curious: is a digital currency backed by gold valid considering that the constitution exempts gold and silver in its prohibition of states to issue their own currency?

[tbct_mt2]

Could gold backed digital currencies be the next BTC ?

It will be a digital version of Gold standard.

Gold-backed digital currencies will not be the next Bitcoin because they don't have limited supply like Bitcoin. If they buy more gold for their treasure, they can mint more digital gold currencies (tokens).

We will have to trust audits about their gold reserve in vault. Trust no one is what I think I will do.

That idea is not new and a few years ago, we have a Digital gold-backed token (GOLD). That project advertised in Bitcointalk too but it is from a commercial company, not from a state.

https://gold.storage/en/home
ANN thread in bitcointalk.
Audits.

[SamReomo]

Could gold backed digital currencies be the next BTC ?

The idea of backing up digital currencies with gold is truly innovative and if done properly then we will see some coins that could be trusted and the volatility of such coins may be low as compare to current digital currencies. Although, it's a unique concept in the world of crypto-currencies, but still it won't be able to compete with Bitcoin in the world of crypto-currencies. The new form of crypto-currency will be controlled by the banks and the government and will be 100% centralized while Bitcoin is famous for its decentralized nature.

I'm very sure that if such currencies are even get listed on current crypto-exchanges, they will still have some limitations. The exchanges might put some limits on trading of such pairs and that will be posed on those exchanges in order to protect the price of the coin. Whatever the result of such currency be, but it's truly exciting news to see such currencies in real world.

[Don Pedro Dinero]

Although this may seem a much nicer idea than a CBDC, will the federal laws allow states to create their own currencies?

I did a quick research on Google whether there are laws pertaining to this. I found out that it may even be unconstitutional. The constitution itself prohibits this. Section 10 of the constitution "denies states the right to coin or to print their own money."^[1] I presume this prohibition extends to digital currencies. The country will only have a single national currency.

Definitely illegal according to Article 1, Section 10 of the U.S. Constitution:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Unless they can convince the Supreme court that "bills of credit" is referring specifically to paper.

The first thing I thought about is what Darker45 says, and I see that in principle they would have it banned because of what odolvlobo said, but I'm sure they have some legal basis for it. I don't think they are simply crazy.

On what basis can a company in Texas create a shitcoin? Because as far as I know shitcoins can be created in the USA.  Maybe if they can't, the Texas government can hire a private company and there's a loophole there.

[Onset]

Yeah Venezuela tried doing that but AFAIK it was a super sketchy project that wasn’t even blockchain-based but they rather created a fake blockchain-looking database that was highly centralized and weird. The concept itself isn’t new but it hasn’t really been put to the actual test. I think there’s so much more progress from CBDCs of big states of the world than the sketchy thing Venezuela did.

I’m really really curious to find out if this mexican thing is just a thing to attract investors or they’re actually finally doing something legitimately on a blockchain. Interesting anyway.

[348Judah]

With global concerns of inflation and economic downtrends gaining precedence. Could a trend whereby digital currencies backed by precious metals or commodities eventually replace international reserve currencies like the dollar emerge?

The first question to ask is that will thia global digital currency backed by gold be a cryptocurrency or fall under fiat as CBDC, or is there any other form from which we are expecting this to come, we must also consider tge interest of the people and what they want, knowing that the little challenge that could come with using gold could comes from gold being a centralized asset and requires KYC procedures to acquire it in most cases, we cannot talk for gold backed digital currency to be the global reserved currency for bow since it is not yet established, we can majorly focus on bitcoin for now since that's the only most recognized digital currency fully decentralized that we have today.