California Assembly Bill AB 1506

This bill, if enacted, will make California IOUs legal tender.

State lawmakers back bill to make IOUs legal tender
(7/7/09 SignOnSanDiego.com)

"SACRAMENTO – Republicans and Democrats alike embraced legislation Tuesday that would make California IOUs legal tender for all taxes, fees and other payments owed to the state.

"A unanimous vote in the Assembly Business and Professions Committee and support from the Democratic majority launched the bill on what could be a quick trip to the governor's desk.

“I think we can get this done in the next two or three weeks if the majority wants to push it hard,” Assemblyman Joel Anderson, R-La Mesa, said after the hearing on his measure, AB 1506."

"... Anderson's legislation simply declares the state must accept its IOUs as payment for any taxes, fees or other payments owed to the state. The state already accepts its IOUs for payment of income taxes."

And why not? The Federal Reserve is issuing IOUs called Federal Reserve Notes against the federal government's debt obligations - Treasury bills, notes and bonds. It's all fiat anyway. As the 10th largest economy in the world, California should be entitled to issue its own "legal tender".

If this becomes law, it will present an interesting conundrum for the federal government. So far, the federal government is determined to teach California a lesson by refusing to bail out the state. But by allowing California to have its own legal tender within the state, the union of the states will be threatened, won't it? What if other states decide to follow California?

After the 2nd Central Bank failed in the US in 1836 and before the National Banking Act of 1864, individual banks used to issue their own currencies, and those currencies used to compete on the strength of the issuing institutions. Currencies from less capitalized, risky institutions were quickly discounted by the market force and driven to extinction. It seems to me to have been a very effective system, until the federal government came butting in to spoil the party (as it always does) and wrestle control (as it always does).

Maybe out of this California mess comes regional, competing currencies issued by anyone, from state government to county to local businesses. Many of them will be fiat currencies like the current Federal Reserve notes, but some may be asset-backed real currencies. Let them compete, and allow the free market to work.

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