For some time I have been meaning to put something together in response to contributor Jeremiah Newhall's excellent legal analysis of the recent currency legislation in Utah. I hope that the lack of immediacy of my response doesn't make it any less interesting for our readers. To those who missed this early-summer story, Utah passed a law recognizing 'gold and silver coins that are issued by the federal government as legal tender in the state.' At that same time as he was able to uncover some fairly shoddy reporting by much of the media on this topic, Mr. Newhall was also able to boil the 'mostly symbolic' bill down to two fairly simple points:
1. The bill is essentially a tautologic recognition that federally-issued legal tender is legal tender in Utah, and;
2. It provides a state (but not federal) tax break on capital gains which will essentially only benefit collectors of oversized commemorative coins which can 'only be purchased in blocks of 5 due to high call volumes'
In short, the Utah bill amounts to much ado about nothing and will not impact the day to day lives of a vast majority of Utahns. However, while the bill will have little immediate impact, there is another section to the bill which received little to no attention in the media which could be of interest in the future. Section 4 establishes a 'Revenue and Taxation Interim Committee' to explore the possibilities for using alternative forms of legal tender in the future. The committee is tasked with recommending model legislation for the 2012 General Session if such an alternative currency system turns out to be feasible.
It is possible that the members of this committee will take a look at the Constitution and Mr. Newhall's analysis and decide that the promulgation of alternative currencies is not possible for states. They would be correct to draw this conclusion; it would be impossible under the current framework for a state to legally create its own, separate currency system. On the other hand, if they wanted to be a bit more creative, the members of the committee could look to a small program in Western Massachusetts for guidance and inspiration and conclude that an alternative currency system in their state might be both desirable and constitutionally viable. From the BerkShares website:
'BerkShares are a local currency for the Berkshire region of Massachusetts. Dubbed a "great economic experiment" by the New York Times, BerkShares are a tool for community empowerment, enabling merchants and consumers to plant the seeds for an alternative economic future for their communities. Launched in the fall of 2006, BerkShares had a robust initiation, with over one million BerkShares having been circulated in the first nine months and over 2.7 million to date. Currently, more than four hundred businesses have signed up to accept the currency. Five different banks have partnered with BerkShares, with a total of thirteen branch offices now serving as exchange stations. For BerkShares, this is only the beginning. Future plans could involve BerkShares checking accounts, electronic transfer of funds, ATM machines, and even a loan program to facilitate the creation of new, local businesses manufacturing more of the goods that are used locally.'
So this alternative currency is connected to the local banking system, boosts local business and could even facilitate a form of micro-lending in the future if the ambitions of the program are met. Now, BerkShares are most certainly not issued by the federal government. So how is this program, well-publicized enough that it has caught the attention of the New York Times and NPR possible? Blawgconomics emailed Co-Founder Susan Witt who was kind enough to respond with the research they have based the regime on (also available on the BerkShares website here).
For anyone who doesn't have the time to read Professor Lewis D. Solomon's excellent work on the matter, it boils down to this: the federal government, through the Constitution as well as subsequent statutes and case law, is the only body which can issue coinage (deemed to be more trustworthy at the time most of these laws were being written). Although this would appear to leave the door open for the issuance of paper money, the settled law adds that individual states cannot issue legal tender.
The conclusion of this story can be found here.