What Is A Dollar?
Two Texas Bills Bring This Question To The Fore
With little fanfare and on the fringes of debate within the Texas State Legislature, two bills have been brought forward which, if enacted, could directly challenge the Federal Reserve-issued dollar currency as lawful money within the state of Texas.
The first bill, HB4903, calls for the creation of a gold/silver-backed digital currency (known as a “stablecoin”1) with the gold or silver housed at the Texas Bullion Depository.
A second bill, HJR146, is a proposed amendment to the Texas Bill Of Rights ensuring the right of people to hold whatever forms of money they wish—including cash, coin, bullion, as well as digital moneys and even privately produced “scrip”(currency other than legal tender2)—”shall not be infringed.”
As of this writing, HJR146 has passed the House and is awaiting action by the Texas Senate.
Setting aside for now the politics of whether these bills should pass into law (and, in the case of HJR146, amend the Texas Constitution), their existence brings us to a subtle yet important question—who decides what is and is not a “dollar” in the United States? Who decides what we shall use for money?
The Texas Constitution is understandably silent on the matter, as the United States Constitution arguably establishes the legal framework for coin and currency within the United States—for what constitutes a “dollar”, legally speaking.
The power of the US Congress to coin “Money” and establish its uniform value is explicitly granted to the Congress within Article 1, Section 8, Clause 5 of the Constitution:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
Clause 6 empowers the Congress to punishment of any who counterfeit the “Securities and current Coin”.
Similarly, Article 1, Section 10, prohibits to the States the power to declare anything but gold and silver coin as legal tender.
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.
The validity of currency as legitimate “lawful” money and “legal tender” within the United States has more than once come before the Supreme Court, chiefly over the question of whether paper currency was a permissible substitute for specie (coin).
One of the earliest such cases, Hepburn v Griswold3, rejected the notion that currency could automatically substitute for specie when a contract did not stipulate that currency was an acceptable tender—the default presumption within US law prior to 1862 was that payments had to be made in specie.
Contracts for the payment of money, made before the act of 1862, had reference to coined money, and could not be discharged, unless by consent, otherwise than by tender of the sum due in coin. Every such contract, therefore, was in legal import a contract for the payment of coin.
One interesting passage within Hepburn seemingly rejected the potential for currency (e.g., Federal Reserve notes) to be legitimate legal tender within the United States:
It has not been maintained in argument, nor indeed would anyone, however slightly conversant with constitutional law, think of maintaining that there is in the Constitution any express grant of legislative power to make any description of credit currency a legal tender in payment of debts.
It is worth noting that the power of the Congress to issue credit currency—in the present time, Federal Reserve notes—was not at issue in Hepburn, but rather its authority to require such notes be accepted as legal tender in payment of debts contracted before the enactment of statutes authorizing the creation of such notes. In Hepburn, the Court concluded that Congress had no such authority.
We are obliged to conclude that an act making mere promises to pay dollars a legal tender in payment of debts previously contracted, is not a means appropriate, plainly adapted, really calculated to carry into effect any express power vested in Congress, that such an act is inconsistent with the spirit of the Constitution, and that it is prohibited by the Constitution.
The Court would later reverse itself on this point in what has come to be known as “The Legal Tender” cases4—principally Knox v Lee—and declare that Congress could decree credit currency to be legal tender for all debts, regardless of when the debts were contracted.
In the Legal Tender Cases, the Court expressly affirmed that any claimed impairment of contracts—such as what might constitute valid modes of payment for debts—that defeated “legitimate” government power could not withstand, that the power of government in all such instances must prevail.
As in a state of civil society property of a citizen or subject is ownership, subject to the lawful demands of the sovereign, so contracts must be understood as made in reference to the possible exercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of legitimate government authority.
The authority of the government to issue credit currency and to declare such currency legal tender was thus held to supersede any claim of right to insist that contracted debts be settled in specie unless credit currency was deemed acceptable by prior agreement.
This argument rests strongly on the so-called “Elastic Clause” at the end of Section 8, which gives Congress blanket authority to enact any law “necessary and proper” to effectuating the powers explicitly delineated to Congress in the rest of Section 8.
To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.
Thus did the Legal Tender Cases judicially establish the power of the US Government to not only issue credit currency but also to preemptively declare such credit currency legal tender in all circumstances. That such power is not found within the explicit text of the Constitution was not held to be an insurmountable obstacle to the assertion of such power.
While we agree that golden eagles, double eagles and silver dollars were lovely to look at and delightful to hold, we must at the same time recognize that time marches on, and that even the time honored silver dollar is no longer available in its last bastion of defense, the brilliant casinos of the houses of chance in the state of Nevada. Appellant is entitled to redeem his note, but not in precious metal. Simply stated, we find his contentions frivolous.
Thus by 1974 the status of legal tender within the United States had been effectively inverted from the original position of metallic coin being the default legal tender and paper currency being the exception. Paper currency is now the default legal tender and metallic coin is now the exception.
Whether this view of currency and legal tender rests upon a sound reading of the text of the Constitution I leave for readers to decide for themselves.
This established legal status of currency is what is being challenged by the mere initiation of the Texas bills.
HJR146 challenges the current federal view of currency and legal tender directly, by empowering Texas residents to use any form of money they desire, and elevating that desire to a fundamental right under the Texas Constitution:
The right of the people to own, hold, and use a mutually agreed upon medium of exchange, including cash, coin, bullion, digital currency, or privately issued scrip, when trading and contracting for goods and services shall not be infringed. No government shall prohibit or encumber the ownership or holding of any form or amount of money or other currency. Nothing in this section shall be construed as restricting this state from choosing the medium of exchange the state will accept for payments made to the state.
If this bill should pass, and if the requisite referendum before the people should pass come November, then Texans arguably are declared to have the right to decide for themselves what is and is not “money” for them. “Legal tender”, within the language of this proposed amendment, becomes whatever two contracting parties agree to accept as legal tender.
Superficially, the current state of federal law regarding legal tender arguably does not preclude contracting parties agreeing to payment in terms other than cash6.
The purpose and function of legal tender is for courts to determine whether it is a satisfactory payment for monetary debt. Each jurisdiction can define its specific limits of what is legal tender but generally it is anything when offered (tendered) and accepted in order to pay off the debt. Although the original creditor who is owed money is not necessarily obligated to accept the tendered payment, the specific act of tendering the payment absolves the debt.
However, HJR146 would also preclude any subsequent declaration by the Congress that legal tender was exclusively a specific currency or monetary form—including perhaps the rightly derided Central Bank Digital Currency, commonly known as a “digital dollar”.
For the Congress or the Federal Reserve to unilaterally require US citizens to use either a traditional dollar or a digital variant would demand that this proposed amendment to the Texas Constitution be voided. There is no way the Congress could impose a digital dollar and allow the text of HJR146 to remain embedded in the Texas Constitution.
Similarly, HB4903 leans heavily on the exception within Article 1 Section 10 of the Constitution for states to make gold and silver coin legal tender within their boundaries.
ESTABLISHMENT. (a) As authorized by Section 10, Article 1, United States Constitution, to the extent the comptroller determines practicable, the comptroller shall:
(1) establish and provide for the issuance of gold and silver specie; and
(2) establish and issue a digital currency based on gold and silver that represents a particular fraction of a troy ounce of gold or silver, as applicable, held in trust as provided by this chapter.
Per Section 10, states may not coin their own money—Texas cannot set up its own mint and strike its own metallic coin for use as legal tender—but, inasmuch as they are barred from declaring anything but gold and silver coin to be legal tender, the obvious implication is that states can explicitly declare gold and silver coin to be legal tender.
Can a digital currency based on a specified amount of gold or silver evade the prohibition upon coining money and still fall within the permissibility of a state declaring gold and silver coin to be legal tender?
The one thing about this that is certain is that the text of the US Constitution must prevail in every instance. The Supremacy Clause in Article 6 makes this plain.
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Neither HB4903 nor HJR146 may stand if they are in violation of the US Constitution. One need only recall Chief Justice John Marshall’s memorable rhetoric from Marbury v Madison7 to understand why this must be:
Certainly all those who have framed written Constitutions contemplate them as forming the fundamental and paramount law of the nation, and consequently the theory of every such government must be that an act of the Legislature repugnant to the Constitution is void.
Are the Texas bills “repugnant” to the US Constitution? Should they pass into law there will no doubt be those who will argue that they are, that the Constitution reserves the power to decide what is and is not money to the national government and not the state governments.
Yet even the most legalistic of such arguments ultimately must bend to the reality that “money” will be whatever people choose to accept in the ordinary transacting of ordinary business. Indeed, the documented apathy most peoples around the world have displayed towards CBDCs is absolute proof that the ultimate declaration of what is and is not “money” will always lie with the people.
However, we should note that with the advent of crypto currencies and their central banking cousins, CBDCs, “currency” is morphing into a concept that embraces electronic/digital forms as well. Still, even digital currencies, crypto or otherwise, work as currencies because people are willing to accept them as currencies. If a proposed form of currency is rejected as “unacceptable” by the greater mass of people, it will fail as a currency, no matter how coercive or repressive the regime which attempts to implement it
We do not need to wonder if this is so. We have the evidences of the failures of the digital yuan in China, of the e-Naira in Nigeria, as well as the historical examples of peoples from Russia to Venezuela at various times opting to hold US dollars rather than their own local currencies, simply because they viewed the US dollar as the more trustworthy currency (a reality many critics of US monetary policy will no doubt find rich in irony).
Where people do not accept a particular currency, there is no power of government able to compel them to do so. If totalitarian China has been unable to force widespread use of its digital yuan, no outwardly democratic nation, whose government arguably has specified limits to its authority, has any hope of doing so.
Would the people of Texas accept a digital stablecoin backed by gold and silver? There is, of course, no way to fully answer that question short of passing HB4903. Yet the advancement of that bill through the legislative process suggests that there is at least some desire on the part of Texans for such an alternative.
That HJR146 is advancing through the legislature and may very well be a ballot item within the state of Texas come November strongly suggests that, at a minimum, Texans wish to decide for themselves what they will and will not accept as money, the Federal Reserve and its monetary madnesses be damned.
The current state of the law in this country is that the Federal Reserve decides what is and what is not valid “currency” within these United States. The Federal Reserve, for better or worse, defines what is and is not a “dollar”.
With bills such as the Texas bills being given consideration within a state legislature, the future state of the law may be something very different. Indeed, while the possibility is still extremely remote, if bills such as the Texas bills become commonplace, “de-dollarization” will not happen outside of the US, but within it.
Hayes, A. “Stablecoins: Definition, How They Work, and Types”, Investopedia. 4 Oct. 2022, https://www.investopedia.com/terms/s/stablecoin.asp.
Kenton, W. “Scrip: Definition, Types, Common Examples, and Uses”, Investopedia. 30 Nov. 2020, https://www.investopedia.com/terms/s/scrip.asp.
Mobley M. Milam, Appellant, v. United States of America et al., Appellees, 524 F.2d 629 (9th Cir. 1974)