Bitcoins to Become Legal Currency in California; Bill Awaits Signing by Gov. Brown; Commodities vs. Currencies

California Bill AB-129 Lawful Money passed the California Senate on June 19, and the Assembly on June 23. The bill now awaits signing by Governor Jerry Brown.

Existing law prohibits a corporation, flexible purpose corporation, association, or individual from issuing or putting in circulation, as money, anything but the lawful money of the United States. AB-129 would repeal that provision.

Coindesk reports California’s Bill to Make Bitcoin ‘Lawful Money’ Heads to Governor.

AB-129, authored by Assembly Member Roger Dickinson, would recognize digital currencies – along with a host of other commonly-issued forms of value including points and coupons – as lawful alternatives to the US dollar. The state-backed currency would still have legal superiority, as Californian residents are not required to accept forms of lawful money.

Dickinson recently commented that the law is primarily designed to allow California consumers the ability to continue using a variety of common payment methods, and to remove penalties currently on the books for their usage.

Comments from Bill Author

Let's tune in to what Roger Dickinson has to say in his Bitcoin Press Release.

Assembly member Roger Dickinson’s (D-Sacramento) bill AB 129 addressing alternative currencies passed the Assembly.  Modern methods of payment have expanded beyond cash or credit card.  AB 129 repeals an outdated restriction on the use of "anything but the lawful money of the United States."  The literal meaning of the restriction indicates that anyone using alternative currency is in violation of the law.  However, people commonly use digital currency, community currency, and reward points without penalty.

“In an era of evolving payment methods, from Amazon Coins to Starbucks Stars, it is impractical to ignore the growing use of cash alternatives,” Dickinson said. “This bill is intended to fine-tune current law to address Californians’ payment habits in the mobile and digital fields.”

Bitcoin, a growing digital currency, has gained recent media attention as businesses have expanded to accept Bitcoins for payment. Long before the introduction of digital currencies, various businesses created point models that allow consumers to use points to pay for goods or services. Many communities have created "community currencies" that are created by members of a community and the merchants who agree to accept the alternative currency. These "community currencies" are created for a variety of reasons, some of which include encouraging consumers to shop at small businesses within the community or increasing neighborhood cohesiveness.

Commodity vs. Currency

Three cheers to Dickinson. At the federal level, we need a more commonsense ruling that bitcoin is a currency, not an ordinary commodity like copper.

By the way, money is a commodity as well as a currency.

In Man, Economy, and State, Murray Rothbard explains "Money is a commodity that serves as a general medium of exchange."

What About Oil?

Some believe oil should be money. The idea is silly. Oil is not easy to store, not easy to transport, not easily divisible, and most of all, oil is used up.

What About Gold?

In contrast to oil, bitcoin has no commodity use other than to facilitate trade. Similarly, gold has very little industrial use. But unlike bitcoin, gold cannot be manufactured out of nothing.

Gold's overwhelming role is still as a currency even though it is not in general use as money. After all, central banks still cling to it. They don't cling to copper, oil or even silver.

Many think gold cannot be money again "because there isn't enough of it". Others believe  "the production of gold does not expand fast enough for the economy".

Both statements are easily proven false.

On page 29 of What Has Government Done With Our Money, Rothbard explains: "An increase in the money supply, then, only dilutes the effectiveness of each gold ounce; on the other hand, a fall in the supply of money raises the power of each gold ounce to do its work. We come to the startling truth that it doesn’t matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the gold-unit. There is no need to tamper with the market in order to alter the money supply that it determines."

I strongly recommend people read  the above link from start to end. It is easy read, easy to understand, and does not contain any mathematical equation gibberish.

In case you missed it, please also see Truly Inane Bloomberg Analysis On Gold.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com