A concept known as Gresham’s law states bad money pushes out good money. Bad money is an unbacked or partially backed bank note, such as Federal Reserve notes that are not backed by anything. You cannot redeem them for any product. “Legal tender” laws force people in the US to accept these notes as payment. Someone who can pay with worthless FRN’s will not use a backed note. The FRN is like a gift no one wants and one regifted to another.
Even if the US government allows people to use other products as money, FRNs will remain the most common note because of the “legal tender” law. The solution is to repeal this law, and Ron Paul introduced a bill on December 9, 2009 to do just that. H.R. 4248 the Free Competition in Currency Act, will do three things:
1. Eliminate the legal tender laws.
2. Eliminate laws that prohibit the operation of private mints.
3. Eliminate capital gains and sales taxes on gold and silver coins.
Read Ron Paul’s Statement Introducing the Free Competition in Currency Act.