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Gold Confiscation: Will it happen again?
Exception for Collectors of Rare and Unusual Coins
The President's gold confiscation order specifically excepted "gold coins having a recognized special value to collectors of rare and unusual coins." The reason for the exception had nothing to do with sympathy for owners of numismatic gold coins, but rather with the provisions of the Constitution's Eminent Domain Clause. Twelve words provide the protective barrier: "nor shall private property be taken for public use, without just compensation." Since the confiscation of rare coins would be a taking of private property, just compensation would have to be paid.
When gold bullion was confiscated, the government had no difficulty asserting that payment in paper currency at the official gold price was just compensation. What had occurred was arguably a mere exchange of component parts of the monetary system, i.e.: bullion for currency. But just compensation for rare gold coins – manifestly not part of the monetary system – would have been a very different situation. The government would have been forced to determine compensation on a coin-by-coin basis, an impossible administrative and logistical burden.
The Road to Legalization of Private Gold Ownership
From 1933 forward, private possession and ownership of gold was illegal for U.S. citizens. During the period following the Second World War, American dollars were backed in international commerce by gold reserves exceeding 60 percent of the world's total gold stock. By the 1960s, however, U.S. balance of payments problems and international inflation began to cause a severe outflow of U.S. gold reserves.
In an attempt to halt the outflow of gold, in 1961, President Eisenhower restricted the holding of gold overseas by U.S. citizens. In 1962, President Kennedy prohibited Americans citizens from owning gold bullion overseas and required those who already held gold abroad to sell it.
However, since foreign central banks had the ability to redeem dollars for gold, the continued decline in the value of the dollar was bound to produce more and more requests for conversion from dollars to gold. As the U.S gold holdings dwindled, foreign central bankers' urge to exchange dollars for gold grew more pressing. By 1971, the gold reserves of the United States could cover only about one-third of the dollars then held by foreign central banks. Faced with the threat that those foreign central banks would all demand that their dollars be converted into gold, President Nixon announced on August 15, 1971, that the United States would no longer redeem U.S. dollars in gold.
At the end of 1971, the dollar was devalued by eight percent. It now took $38 dollars to buy one ounce of gold. On February 12, 1973, the dollar was devalued again, this time by 11 percent. It now took $42.22 to buy one ounce of gold. By March, the price of gold on private markets was almost $90.00 per ounce. On March 12, 1973, all links between the dollar and gold were officially abandoned.
Also in 1973, Congress passed legislation giving the President the discretionary authority to legalize the private ownership of gold, provided that legalization would not "adversely affect the United States' international monetary position." President Nixon chose not to exercise the authority given to him by Congress. The following year, Congress enacted new legislation legalizing private ownership of gold, which was finally passed into law by President Ford on August 15, 1974. With his signature, President Ford ended the forty-year ban on private gold ownership.
However, nothing in the legislation changed the fact that Congress continued to treat the private ownership of gold as a privilege to be enjoyed at its discretion.
"The private ownership of gold is a privilege, not a right. Congress revoked the privilege of private ownership in 1933 and restored it in 1974. Congress could easily revoke the privilege again. In fact, at no time during this century has the U.S. government recognized the right of private gold ownership. The Trading With The Enemy Act, which President Roosevelt invoked in 1933 to restrict private gold transactions, remains law. The government could reactivate the machinery, which The Trading With The Enemy Act established, to implement gold confiscation."
— Boston College International and Comparative Law Review 297, 320 (1982)
The Treasury Department's 1954 amendment to the Gold Regulations continued the exemption of rare coins from the gold confiscation provisions and expanded the definition of "coins with a recognized special value to collectors of rare and unusual coins" to include "gold coin made prior to April 5, 1933." However, the repeal of the Gold Regulations in the 1970s resulted in the elimination of the relevant Treasury Regulations, leaving only the original definition: that of "coins with a recognized special value to collectors of rare and unusual coins", in place. Several recent articles have suggested that the definition of rare coins for purposes of the exemption from confiscation was further expanded in 1984 to include gold coins the "gross proceeds from the sale of which exceed by more than 15 percent the value of the underlying... property." However, that definition was included in a proposed Treasury Regulation, which was introduced in 1984, and which has consistently been on the semi-annual agenda of Regulatory Actions, but none of the relevant provisions of the proposed regulation have been adopted as law.
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