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As Recession Concerns Continue, Two Texas Lawmakers Suggest a New Gold-Backed Digital Currency

American and Texas flags in front of Texas Capitol

Sometimes, one of the best ways to look to the future is with an eye on the past.

On April 7, 2023, The New York Times wrote, “It’s clear that [Federal Reserve] policymakers recognize that there is a good chance of a sharp [economic] slowdown soon. Their own policies are at least partly responsible for making that happen.” Meanwhile, two lawmakers in Texas are suggesting a new state-owned digital currency backed by physical gold.

But what do these two events have in common, and what could this mean for your portfolio?

Concerns of another global recession persist.

Analyst examining financial data

When it comes to my financial future, I strongly believe in keeping an ear to the ground and an eye on financial headlines. I don’t ever put my trust in a single source, but rather like to get a general idea of what market analysts are saying.

On April 10, 2023, for example, Reuters reported on a new client note from BofA Global Research claiming, “[There are] meaningful risks of a contraction in GDP in 2Q.” Reuters noted that the economic data reviewed by BofA “hinted that the Federal Reserve’s aggressive interest rate hikes were cooling the economy,” with U.S. manufacturing activity in March 2023 falling to its lowest level in nearly three years.

While economic cooling is the goal of the Federal Reserve’s interest rate hikes, as well as hikes by other central banks, concerns persist that the world may be in for another economic recession. In fact, on April 10, 2023, MarketWatch reported on BofA’s so-called “dirty dozen” recession indicators—12 charts that “show a global recession has already begun, even if stock-market [professionals] have yet to take notice.”

If another recession is on the way (or already here), I want to make sure I’m someone who acts rather than reacts. I don’t want to wait for my portfolio to take a significant hit and then update my diversification strategy. This is why I like to stay informed—the more I know and the sooner I know it, the sooner I can make moves to help protect myself and my loved ones. For myself and many others, that may include holding physical gold.

Texas lawmakers are proposing a new gold-backed digital currency—with a twist.

Gold bars stacked in front of a Texas state flag

I’ve written on the possibility of a new gold-backed currency before, but that potential currency was coming from outside our borders, not from within. But on April 10, 2023, Forbes reported on two legislators here in Texas—one senator and one representative—introducing identical bills to create a new digital currency backed by physical gold. The twist? The currency would be owned by the State of Texas.

According to the proposed legislation, an individual would purchase a specific quantity of the digital currency, which would then lead to the comptroller using those funds to purchase a comparable amount of physical gold, which would then be held by a trustee. It’s an interesting idea, but I have to wonder: Why not just purchase and hold the physical gold yourself? After all, one of the benefits of owning physical gold is that you can store it as you see fit, without any government interference.

But what I find more interesting, though not surprising, is the idea that if any part of the United States were to introduce a digital currency, some believe it should be backed by physical gold. We’ve been using gold as a store of wealth for centuries, and it’s an asset that Americans have turned to again and again during times of economic or political uncertainty.

A cooling economy or a new gold-backed digital currency could benefit portfolios with an allocation in the precious metal.

It may not be a coincidence that gold prices have historically risen during periods of economic volatility. Similarly, it may not be a coincidence that these Texas bills proposing a new gold-backed currency are being introduced while analysts continue to warn of another recession.

The reasons these may not be coincidences is simple: When faced with uncertainty, many Americans turn to gold. Even when looking at the possibility of turning our wealth into digital currency, many of us will always connect the idea of wealth to hard, physical assets. And that’s why I believe gold is here to stay—and why I plan to continue including it as part of my portfolio.

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