Strangely, the President could finance the US government’s operations by issuing a $1 trillion cryptocurrency. Hence, the White House could get around the debt ceiling by issuing digital tokens.
To explain, federal law gives the US Treasury Department the right to “mint” special commemorative and collectors’ coins, Business Insider speculates. Some economists think the law gives the Treasury Secretary the right to create new commemorative coins anytime he wants.
Thus, there has been some talk that President Joe Biden (D-Delaware) could order the Treasury Secretary to “mint” a $1 trillion coin offering to finance the government’s operations. The administration would use the $1 trillion to keep the federal government operating if the US Senate does not raise or eliminate the debt ceiling.
The coin speculation is so serious the White House publicly rejected the idea on 20 September 2021, Business Insider reports. So what is this coin and why is even the Administration talking about it?
Could the U.S. Treasury Department issue a Cryptocurrency?
Oddly, the speculation centers on a hypothetical platinum coin. Federal law states: “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”
Hence, the Treasury Secretary could create a platinum-backed digital token and sell it to the public to raise funds. There are several ways you could build and issue such a coin.
First, the Treasury could issue a synthetic asset or stablecoin that pays in platinum futures. The coin will contain a smart contract, a blockchain algorithm that makes payment from an account.
How a Federal Digital Coin could work
The Fed Platinum Coin could issue payment in platinum or a platinum future. The future is a contract to receive platinum from the US Federal Reserve.
The idea behind these futures is that nobody will actually try to get platinum from the Fed. Remember, platinum is heavy and few stores accept platinum payments for things like food.
Hence, they will work like US Dollars did until the 1930s. Originally, paper dollars were contracts that obligated the Treasury to pay the holder in gold or silver. However, almost nobody redeemed the dollars for precious metals, so the paper served as money.
The platinum-backed cryptocurrency or stablecoins could operate in the same way. The difference is that they will be digital instead of paper.
Another possibility is a commemorative stablecoin that could pay out in either platinum or US dollars. I think most recipients will accept the dollar payment. To elaborate, Kroger (KR) and Walmart (WMT) do not accept platinum in their stores buy they accept dollars.
I think the Treasury could easily build such a “coin” using one of the many build-your-own cryptocurrency or build-your-own stablecoin blockchain solutions available today. If they need technical help, the Treasury could call upon the experts at Goldman Sachs (NYSE: GS) to build the Platinum stablecoin.
Is a US Treasury Cryptocurrency possible?
Thus, I believe it is possible to build a platinum-based cryptocurrency using off-the-shelf technology. The Treasury could build and issue such a coin within a few days. Hence, I think crypto is the only way the “platinum coin” could work.
I think there will be a massive demand for such a coin and it will have value. I don’t know how much value the Fed Platinum Coin could have, but the price of a troy ounce of platinum was $945 on 28 September 2021. Hence, the coin could premier in the cryptocurrency markets with a $945 Coin Price and a $1 Trillion Market Cap.
Under those circumstances, the US Treasury could control the cryptocurrency markets. The US Treasury could become the biggest player in the cryptocurrency markets because Bloomberg estimated the entire cryptocurrency market was worth $2.06 trillion on 15 August 2021.
The coin will also disrupt the financial markets. For instance, it could increase the cryptocurrency markets’ value by one third and create the most valuable cryptocurrency of all. However, it will take months to create markets and payment mechanisms that accept the coin.
Yet, I think such the Treasury could raise enormous amounts of money by selling the coin through the cryptocurrency markets. The Treasury could raise enormous amounts of money by selling the coins.
However, at this point, the Fed Platinum Coin is theoretical. Treasury Department officials have long-ruled them out. However, former President Barack Obama (D-Illinois) claims his administration considered such a coin during an earlier debt ceiling crisis.
Is a US Treasury Cryptocurrency legal?
There are some enormous barriers to such a currency. Notably, Federal Courts will have to rule on the legality of US digital coins.
Federal law specifies “platinum coins” and proofs. Hence, a court ruling could make a digital currency worthless. One problem is that nobody knows how federal courts could rule on the legality of a federal cryptocurrency.
I think federal judges or the Supreme Court could allow a Fed Platinum Stablecoin because there will be enormous pressure to keep the federal government running. In particular, to keep paying the military and law enforcement officers.
However, the Federal Reserve could have the power to issue one and lend the proceeds to the Treasury. Remember the federal reserve can issue banknotes. Banknotes work similarly to stablecoins. Originally, each banknote was an agreement to pay its holder in precious metals.
The Federal Reserve is studying the possibility of a US Central Bank Digital Currency (CBDC) but has made no decision about one, a Fed press release states. The Federal Reserve, not the Treasury, would issue a CBDC.
One problem with a $1 trillion treasury coin is that it would undercut the Federal Reserve’s ability to issue money and regulate the money supply. Moreover, it could weaken the Fed’s ability to control inflation and make inflation more probable.
The Debt Ceiling Crisis
A coin offering would be a fundamental change in the way the federal government finances its operations.
Currently, the Treasury Department finances the federal government by issuing debt as Treasury bonds, also notes as T-Notes or T-Bills. However, federal law puts a limit on the amount of debt the Treasury can issue, that’s the debt ceiling. When the Treasury reaches the debt ceiling, it has to ask Congress for the right to issue more debt.
However, Senate Republicans and so-called moderate Democrats are using the debt ceiling to kill President Biden’s massive spending proposal. The opponents hope to force Congress to trim Biden’s spending proposals by threatening to vote against raising the debt ceiling.
The coin offering could allow the President to get around the debt ceiling by issuing coins. I think courts find such coin offerings unconstitutional because the Constitution limits the power to write the budget to the US House of Representatives. Hence, a coin offering to fund government spending could be unconstitutional.
The Debt Ceiling Crisis could change everything
The danger is a Coin Offering could give the President the ability to raise funds without Congress.
I think that would put America on the road to dictatorship. To explain, one of the most important checks the Constitution places on presidential power is Congress’s control over budgets. For example, only Congress can levy taxes and increase the debt ceilings.
IE: Congress can stop the President from waging war by cutting off the money. This is not hypothetical. The Vietnam War ended when Congress refused to authorize more funds for President Gerald Ford’s (R-Michigan) war effort. The ability to issue coins could give the President the ability to fund wars or illegal activities without Congressional support.
However, events could force President Biden to issue a Fed Platinum Coin because US Senate Minority Leader Mitch McConnell (R-Kentucky) is threatening to filibuster any efforts to raise the debt ceiling. Similarly, left-wing Democrats are blocking the budget reconciliation process to force Congress to adopt their agenda.
Vox notes the President has other options to get around the debt ceiling. For example, the Treasury could issue a new bond if it cannot issue Treasury bonds. I suppose the new bonds will be digital. In addition, the president could nullify the debt ceiling under the 14th Amendment.
A $1 Trillion Initial Coin Offering (ICO)
Hence, the debt ceiling crisis could change the global financial system by forcing the US government to adopt new financial technology. That could disrupt everybody’s lives by throwing investment and debt markets into chaos.
For example, all the money in the cryptocurrency markets could flow into a federal coin offering because speculators could view it as more valuable than Bitcoin (BTC). CoinMarketCap gave Bitcoin a $41,806.85 Coin Price, a $787.179 billion Market Cap, a $878.065 Billion Diluted Market Cap, and a 24-Hour Market Volume of $31.843 billion on 28 September 2021.
Hence, the Treasury could hold a $1 trillion Initial Coin Offering or Initial Cryptocurrency Offering (ICO) that is bigger and more valuable than Bitcoin. Thus, a federal ICO could change the crypto markets beyond recognition.
The bottom line is that the debt ceiling crisis could change everything. All speculators need to watch the debt ceiling crisis closely.
Originally published at https://marketmadhouse.com on September 28, 2021.
