Something is afoot and, for some reason, post-TEXIT monetary policy is on the radar.
I’m not going to pretend that I’m a whiz at monetary policy. In fact, I have publicly stated as often as I can that it is not in my wheelhouse. However, this morning something unusual happened.
You may remember the article that was featured in The Atlantic magazine in their December 2019 issue. It was released, got some traction, and then died down like articles often do.
This morning I received an email from their fact checker that worked on the last article with a list of follow-up questions.
I’m following up to ask you a few questions about Texas Independence that didn’t make it in the story but we’d like to respond as accurately to our readers questions.
I can honestly say that in all of my years of advocating for Texas independence and in thousands of interviews, this has never happened. Oddly enough, the questions are all about post-TEXIT monetary policy.
In the event that this is some new angle for the opposition or represents a new area of inquiry that is about to become prominent in our advocacy, I wanted to be sure that you were armed with enough information to address it. Therefore, I’m attaching the entire excerpt from my book, “TEXIT: Why And How Texas Will Leave The Union”, at the bottom of this article.
Before that, I think it’s important to analyze what this line of questioning could mean. Make no mistake. Questions about post-TEXIT monetary policy are “deep-dive” questions. If the discussion about TEXIT is moving past the usual “it’ll never happen” or “it’s illegal” then we are making significant progress. Advancing the discussion in this manner means that we are winning. We also know that the opposition cannot stand toe-to-toe with us in this arena.
Notice how this discussion is not about how terrible the Federal Government is on currency and monetary policy. Instead, it’s about discussing a future where Texas is asserting its independence and calling its own shots. It’s not about what “they” have done. It’s about what “we” can do.
Below is the excerpt from TEXIT:
One major benefit of Texit is, for the first time, Texas will have the opportunity for full control over our currency and monetary policy. The best part is that we can regain as much control over it as we want at a pace that makes sense for us. There is, however, one important consideration. Minimizing disruption during the transition out of the Union may initially dictate one course of action, while long-term financial stability for the new nation-state will likely require something different.
Right now, as a State, Texas has absolutely no control over monetary policy. While the United States Congress ostensibly has control over fiscal policy, monetary policy is solely determined by the pseudo-governmental Federal Reserve. Without consent or true oversight by elected representatives, they control the supply of currency, the flow of capital, and set the interest rates. In short, even through our participation in the governmental processes of the Union, we still have virtually no say in monetary policy. Texit changes all of that.
Where Texas decides to go depends upon the degree of control that we want over monetary policy. For this, we need to look at how other self-governing nations deal with the issue of currency.
When a nation-state first gains independence, in the absence of its own currency, it will usually unilaterally declare the currency that is common to the region as its official currency. This is called an informal currency union. In the early days of independence doing so provides for economic stability as consumers and businesses can continue to transact business in exactly the same way as they always have.
Where the U.S. dollar is concerned, its status as an international reserve currency have made it attractive to countries that have no desire to adopt their own currency. Many self-governing countries even allow the U.S. dollar to freely circulate in addition to their own currency.
According to a 2014 article on the website Quartz:
“The US dollar is the most widely used currency in the world, with many countries employing it as an accepted alternative to their own currency. But some have simply adopted the currency as their own, notes and all, in what is known as “dollarization.” They don’t have control over the currency—only the Federal Reserve in Washington sets monetary policy.”
To be clear, this can be done completely without the blessing of the United States as it has been in Ecuador, East Timor, El Salvador, Marshall Islands, Micronesia, Palau, Turks and Caicos, British Virgin Islands, Zimbabwe.
If Texas wanted to have a say in monetary policy and still use the U.S. dollar, it would have to negotiate a formal currency union with the United States. Formal currency unions are not uncommon in the world. In fact, there are more than twenty official currency unions throughout the world. While a negotiated currency union with the United States would be desirable, the terms under which such an agreement could be executed would likely not give Texans any more control over monetary policy than we have now.
The most likely scenario is that Texas will adopt the U.S. dollar as its official currency in the immediate aftermath of a Texit vote to encourage stability while seeking a negotiated currency union with the United States. Depending on the terms of any negotiated agreement or in the absence of one, Texas will want to explore moving toward a currency of its own as soon as possible. Given the lack of long-term financial stability in the United States dues to the exploding national debt, a Texas currency should come sooner rather than later.
Closely attached to the issue of currency is that of banking. Banking institutions are already covered by a regulatory regime that makes for a smooth transition during Texit. Existing Federal law already allows foreign banks to operate in the United States through a direct banking office or a nonbanking representative office. Foreign banks also run standard consumer retail banks with their deposits insured by the Federal Deposit Insurance Corporation (FDIC) just like domestic banks. In fact, many large U.S. banks are owned by foreign banks.
In 2015, Bauer Financial, a Florida-based research firm compiled a list of banks in the United States that are at least 25% foreign-owned, and identified 44 different banks operating in the United States. This list included the familiar full-service retail banks Compass and HSBC with 688 and 246 branches respectively.
Conversely, the State of Texas currently allows non-Texas banks to operate in Texas. In fact, Texas goes out of its way to ensure that operating a bank in Texas is as attractive as possible. Article XVI, Section 16(c) of the Texas Constitution provides that Texas chartered state banks have the same rights and privileges that are or may be granted to national banks of the United States domiciled in Texas. This clause essentially gives banks an option to operate under a charter from the United States or from the State of Texas operating under the oversight of the Texas Department of Banking.
In July of 1999, then Governor George W. Bush signed a bill into law which formally opened Texas to interstate bank branching. The bill made Texas bank charters one of the most attractive in the United States to conduct banking business. The bill included what was called the “super parity” provision which provides a framework for a state bank chartered in Texas to conduct any of the activities allowed by any other insured state or federal financial institution anywhere else in the United States. This provision increases the value of existing state charters and increased Texas’ appeal as a central location from which to conduct nationwide banking activities. In contrast, there is no “super parity” provision available to so-called national banks.
With the existing laws and regulations that are already in place, both in Texas and in the United States, banking is likely one of the areas that will be least affected by a Texit.
