Utah became the first U.S. state last month to recognize gold and silver coins minted by the federal government as legal tender. More than a dozen other states are considering similar measures, and are expected to follow Utah's example. The move, proponents say, is caused by declining faith in the U.S. monetary system and concern about rising inflation.
The gold standard, a monetary system in which the dollar is valued against a certain weight of gold, lasted until the Great Depression, when the Federal Reserve confiscated gold held by the public. President Nixon abolished the conversion of dollars to gold at a fixed rate in 1971.
It doesn't literally mean people would pull out gold coins at the cash register. Instead, the Federal Reserve would be required by law to make their notes redeemable for gold and hold gold coins and bullion as reserves. The printing of U.S. dollars would also be weighed against the value of gold.
The last time the gold standard was seriously considered was during President Ronald Reagan's administration. Reagan appointed a commission in 1981 to study the role of gold in the U.S. monetary system, but the group mostly came out against it -- except for two members, including now-Rep. Ron Paul, R-Texas, a champion of the Tea Party movement.
Despite continued calls by proponents like Paul to consider the gold standard, it had mostly stayed under the radar, until now.
The Tea Party's growing momentum and rising inflation is giving new life to the issue, as evident in Utah.
"We are just now starting to see some interest. These actions by state legislatures are mostly symbolic -- declaring that people can use a one-ounce federally-minted gold coin at its face value of $50 doesn't really give people a reason to do that. But it's a statement by the state legislators that they are concerned by the state of the dollar," said Lawrence H. White, a professor of economics at George Mason University who has published several reports on the topic.
State lawmakers are "concerned about the future of the dollar, worried that [worse] inflation is coming," White said. "People need to have an alternative if the dollar melts down."
Economists Pay Attention
With the exception of Paul, the system has few vocal supporters in Washington, D.C., but it is starting to get more attention from economists amid surging inflation in the United States and around the world.
In February, J.P. Morgan Chase announced it would allow its clients to use gold as collateral for some loans.
Kansas City Federal Reserve President Thomas Hoenig said in January the gold standard is "a very legitimate monetary system" that could provide a longer period of price stability. He said, though, that it wouldn't necessarily prevent a crisis or help boost employment.
Late last year, World Bank president Robert Zoellick said countries should consider "employing gold as an international reference point of market expectations about inflation, deflation and future currency values" to build a more cooperative, international system.
Proponents of the system argue that implementing a gold standard in the United States would lower the risk of the continuing fiscal crisis. The move by Utah, they say, sends a message to the federal government that states have more fear and little confidence in the U.S. monetary system.