More than a year ago today, Texas surprised many by approving the construction of a bullion depository to house the state’s gold reserves within the state of Texas itself, instead of the bullion’s current location at the HSBC Bank in New York.
The TNM-backed H.B. 483 was signed into law by Gov. Greg Abbott on June 19th, 2015, outlining in broad terms the establishment and required operations of such a depository – setting off a brief firestorm of apocalyptic fears and separatist hopes regarding secession from the union, and the creation of a currency to compete with the dollar. Since then, the state comptroller’s office has reached out to and received information and proposals from many interested parties regarding the construction and operation of the proposed depository, even receiving a scale replica of a proposed depository submitted by Texas Precious Metals, a company interested in participating in the project, during the state Republican convention.
On July 29th, 2016 the state comptroller has finally issued the formal RFP No. 218h (Request for Proposals) from “qualified, independent firms interested in providing services related to the establishment, operation and maintenance of the Texas Bullion Depository” which are advised to expect to begin work “on or about December 1st, 2016”.
The state of Texas holds around $1 billion in physical gold, the majority of which belongs to a permanent fund for the University of Texas system – and thus the nominal reasoning for building a depository in Texas – to eliminate the fees being paid for storage of the bullion elsewhere. To offset these fees, the plan is make the bullion depository open to the public – other governments, corporations, businesses, and yes, even the average citizen, and collect fees on transactions to pay for itself.
While some backers of the original law envisioned a separate, even Fort Knox type depository, the RFP specifically states the state will be considering existing facilities to house the gold, and as such several banks and security companies such as Brinks are expected to make proposals for storage.
So will you as a citizen be able to buy and sell goods and services using only the Texas Bullion Depository? Perhaps, but not as easily as one would like.
As far as the creation of a competing currency to the Dollar, the original backers of the depository envisioned everyday people being able to deposit gold and other bullion and be able to access the funds immediately with a debit card – the RFP however only asks for the ability of account holders to transfer balances to other account holders, and to check their balances online, rendering everyday transactions difficult.
In a further blow to a possible competing currency, the RFP specifically mentions, in bold – “The Depository does not have constitutional or statutory authority to extend the State’s credit or its full faith and credit to the Depository, Depository Account Holders, or to others”. So a currency this could well be, albeit not one officially guaranteed by the state of Texas like the FDIC program does for the Dollar, at least for the moment.
Yet another complication, the law did not include any initial funding for the depository – the entire project is expected to pay for itself, from the very beginning. All of those submitting bids to render services for the depository will be in essence gambling on whether the whole project will even work, and profitably at that – “Respondent will recover its investments from revenue generated by the Depository. Respondent’s recovery of its investment is dependent upon the success of the Depository in providing services”. Even with that giant red flag of completely uncertain payment for services, there appears to be no shortage of companies willing to invest – at the right price, of course.
The entire project is in serious danger of being bid up so high to cover the initial investment risk, that the resulting fees to recover those expenses could end up rendering the completed depository so expensive to use that few large depositors outside of the state of Texas find it an attractive storage solution for their own bullion.
In which case, ironically, the state of Texas and the UT system might end up paying even more for storage of their bullion than they are today – in effect setting up a grand scheme in anticipation of handing many times the amount of gold than just Texas has, but having their only client’s being relatively small bullion holders which won’t justify the extent of the project as proposed.
Texas would be wise to allocate some level of minimum funding to ensure this project succeeds – offsetting the obvious risk of the contracting company’s initial investments into a project with no guaranteed repayment with some kind of minimum matching funds in case the project fails completely, in order to attract higher quality (and lower priced) bids.