Fears of inflation are spurring some to bring gold back to the centre of our financial systems. US states are eyeing metals-backed payments systems in what may become a piecemeal return to the gold standard.
The US Treasury bond is the bedrock of the world’s financial system. It is the risk-free, hyper-liquid foundation on which global markets are built. But some believe cracks are beginning to show. With $39tn outstanding, debt service costs of over $1tn and no plausible means of reversing the debt pile’s expansion, people are beginning to look ahead and prognosticate doom (or at least inflation).
President Donald Trump, with his cavalier attitude to talk of default and haircuts, not to mention his assault on central bank independence in pursuit of low rates, is cheerfully hammering spikes into these cracks. As the perceptions of these cracks widen, the voices of the bond hawks calling for radical solutions grow more strident.
Turning back to gold
Alongside this, gold and precious metals are on a historic run, hitting all-time highs in January and bouncing around in some quite alarming ways. Although prices have since fallen slightly, gold bugs are very happy to explain away recent corrections with technical reasons and to look through what they perceive as noise to a long-term thesis of currency debasement. Their argument is that the inevitable consequence of the US’s debt trajectory is inflation and a continued erosion of the dollar’s purchasing power.
It seems the obvious response is to purchase gold as a hedge against inflation. In fact, the much more obvious response is to purchase, for example, shares of the S+P 500 index. Although gold and the S+P 500 have performed similarly in price terms since the latter’s inception, when you adjust for total return (including the dividends earned by holding shares), then stocks hugely outperform gold.
But if your argument includes the belief that stock market valuations have also been artificially inflated by the cheap debt made possible by a fiat monetary system, then bitcoin might seem like a better option. Many find its volatility and its intangible nature off-putting and for those, gold  offers a traditional refuge.
Not just speculation
Many people spend a great deal of time unpicking the various drivers of the gold price, ranging from speculation to fear. But for the adherents of this thesis, these questions are a distraction. Rather than talk about the volatility of gold prices, they prefer to see gold as a stable value (discounting noise from technical market dynamics) around which the dollar’s purchasing power oscillates widely.
Crucially, many of them don’t want to simply hold gold as a speculative asset, but to see it return to a form of money. Tokenisation, the process of representing ownership of an underlying asset through a digital token usually stored on a blockchain, creates a cryptographically secure form of digital gold much more convenient for use in payments. Essentially, gold is stored in a vault. Tokens, representing a claim on a small amount of that gold (often in the form of a receipt), can be traded and used both as a convenient means of gaining exposure to gold as a speculative asset, and as a means of payment.
Some payment systems allow users to remain fully invested in gold up until the point of sale, whereupon enough gold is sold to cover the purchase and the dollars sent to the seller. Others allow gold to be sent to the seller’s account directly.
Gold as a medium of exchange
These ideas seem heterodox, but they have a growing cohort of important adherents in US state politics. As of July 2026, gold and silver will become legal tender in the state of Florida thanks to a measure that Governor Ron DeSantis backed. Utah did so in 2011 and the state government, emboldened by the success of its precious metals rainy day fund, plans to begin paying vendors in gold and silver. A bill is in the works in Georgia to allow residents to pay their taxes in gold and silver. Texas, Tennessee, Wyoming, Oklahoma, Arkansas and Louisiana are all well on their way down similar roads.
While the Federal Reserve is responsible for managing the money supply in the US, Article 10 of the Constitution says that states may not ‘make any Thing but gold and silver Coin a Tender in Payment of Debts’, which is often taken to mean that they are allowed to make gold and silver coins legal tender.
Although taxes and state vendor payments will remain denominated in dollars for the foreseeable future, there is clearly a strong desire to rely on gold as a store of value and medium of exchange, even if the unit of account is likely to remain the dollar.
A full-blown return to the gold standard seems well outside the Overton window of 21st century monetary policy. It is unlikely to be something on Federal Reserve chair nominee Kevin Warsh’s agenda. But if confidence in US debt sustainability continues to crumble, then we can expect an increasing number of state payments to take place in gold or a digital equivalent. The hawks are on the wing and are finding common ground with the bugs.
Lewis McLellan is Head of Content, Digital Monetary Institute, OMFIF.
OMFIF is creating a Gold and Precious Metals Working Group to examine this topic further. Contact [email protected] for more information.
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