Are you aware that a currently issued Federal Reserve dollar bill is not a constitutional dollar? Perhaps, but if so, do you know what a constitutional dollar literally is? Is it gold? Is it silver? Is it both? Sooner or later, if and when the full power of the Federal Reserve over money is revoked in a constitutional manner, and if and when constitutional coin comes back into use, these questions will need to be asked, answered, and fully understood.
The legal constitutional dollar in the United States is an “historically determinate, fixed weight of fine silver.” The Coinage Act of 1792 is but one source among many others that makes this clearly evident,
The money of account of the United States shall be expressed in dollars or units ..… of the value [mass or weight] of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure ….. silver.
The United States has a legal and constitutional silver standard, although we would not know it today, since the government has illegally and unconstitutionally removed silver as currency and replaced it with the Federal Reserve notes that we know as dollar bills. The term “dollar bills” obscures the actual and tangible meaning of “dollar” as a specific weight of silver.
Federal Reserve notes are not dollars.
Those notes are denominated in dollars, which are the unit of account of the United States money. The Coinage Act of 1792 established the dollar as the basic unit of the United States currency, by providing that the money of account of the United States shall be expressed in dollars or units, dimes or tenths, cents or hundredths . . . 31 U.S.C. Sect. 371. The fact that Federal Reserve notes may not be converted into gold or silver does not render them worthless.
Federal Reserve notes are legal tender currency (31 U.S.C. 5103). They are issued by the twelve Federal Reserve Banks pursuant to Section 16 of the Federal Reserve Act of 1913 (12 U.S.C. 411). A commercial bank which belongs to the Federal Reserve System can obtain Federal Reserve notes from the Federal Reserve Bank in its district whenever it wishes, but it must pay for them in full, dollar for dollar, by drawing down its account with its district Federal Reserve Bank.
The Federal Reserve Bank in turn obtains the notes from the Bureau of Engraving and Printing in the United States Treasury Department. It pays to the Bureau the cost of producing the notes. The Federal Reserve notes then become liabilities of the twelve Federal Reserve Banks. Because the notes are Federal Reserve liabilities, the issuing Bank records both a liability and an asset when it receives the notes from the Bureau of Engraving and Printing, and therefore does not show any earnings as a result of the transaction.
In addition to being liabilities of the Federal Reserve Banks, Federal Reserve notes are obligations of the United States Government (12 U.S.C. 411). Congress has specified that a Federal Reserve Bank must hold collateral (chiefly gold certificates and United States securities) equal in value to the Federal Reserve notes which that Bank receives (12 U.S.C. 412). The purpose of this section, initially enacted in 1913, was to provide backing for the note issue.
The idea was that if the Federal Reserve System were ever dissolved, the United States would take over the notes (liabilities) thus meeting the requirements of [12 U.S.C.] 411, but would also take over the assets, which would be of equal value. The notes are a first lien on all the assets of the Federal Reserve Banks, as well as on the collateral specifically held against them (12 U.S.C. 412).
Federal Reserve notes are not redeemable in gold or silver or in any other commodity. They have not been redeemable since 1933. Thus, after 1933, a Federal Reserve note did not represent a promise to pay gold or anything else, even though the term note was retained as part of the name of the currency. In the sense that they are not redeemable, Federal Reserve notes have not been backed by anything since 1933. They are valued not for themselves, but for what they will buy.
In another sense, because they are a legal tender, Federal Reserve notes are backed by all goods and services in the economy. People accept the U.S. dollar today in exchange for much less than they used to. Since 1933, the U.S. dollar has lost 92 percent of its domestic purchasing power. Even at its moderate 1994 inflation rate of 2.7 percent, the dollar will lose another half of its purchasing power by 2022. In international markets, the dollar has, since 1969, depreciated 65 percent against the Deutsche Mark, 74 percent against the Swiss franc, and 76 percent against the yen.
If there is one section of the Constitution that is almost universally ignored, it is the Article I, Section 10, Clause 1 mandate that our money be backed by gold or silver. Constitutionalists have agitated over the money issue since we lost our gold to government in 1933. However, the public has ignored the constitutionalists since, after all, we can still buy whatever we want with paper money or electronic bank credits, right? So what is the problem?