The US Treasury does not need to mint (issue) a trillion dollar coin to finance the federal government in a debt ceiling crisis. Instead, the Treasury could mint just enough platinum coins to pay the bills during the crisis.
Federal law (31 U.S. Code § 5112) gives the US Security of the Treasury the power to “mint and issue proof platinum coins.” Former US Mint Director Philip Diehl thinks this law gives the Treasury Secretary the power to issue a $1 trillion platinum coin that can finance the federal government’s operations.
To elaborate, the Treasury could issue debt backed by the coin to finance the federal government’s operations. The US Treasury could also use the coin or currency it backs to pay Uncle Sam’s bills.
Notably, US Treasury Secretary Janet Yellen dismisses the $1 trillion coin as a gimmick. However, Nobel Prize-winning economist Paul Krugman thinks the coin will work, Vox reports.
The Coin vs the Debt Ceiling
The MinttheCoin hashtag has become popular because of the Debt Ceiling Crisis.
The US Congressional Budget Office (CBO) warns that the federal government could run out of cash by 1 June 2023. Uncle Sam faces a liquidity crisis because Congress refuses to raise the debt ceiling.
The debt ceiling is the amount of money the federal government can borrow. Current federal law limits the amount Uncle Sam can borrow $2.5 trillion and restricts the size of the federal debt to $32.4 trillion. Only Congress can raise the debt ceiling, but US House Republicans will only raise the debt ceiling if Democrats agree to politically unpopular spending cuts.
Consequently, the Treasury cannot issue new debt (Treasury bonds) to finance the federal government. Federal spending hit the debt ceiling on 19 January 2023. Since then, the Treasury has been using “extraordinary measures” to finance federal spending. However, the Treasury will run out of funds and extraordinary measures in June, the CBO claims.
What’s Wrong with MinttheCoin?
MinttheCoin believers, such as Krugman and Diehl, think Yellen can evade the debt ceiling by ordering the US Mint to issue a $1 trillion platinum coin. I think this is a bad idea because they could finance the federal government with a less dramatic coin.
Moreover, I think the conservative majority on the US Supreme Court will declare anything as drastic as a $1 trillion coin unconstitutional. Consequently, I suspect no responsible financial institution or speculator will touch $1 trillion coin backed securities until the Supremes rule on it.
Until then the Treasury will have to charge super high interest rates to get speculators to buy the bonds. Thus, I think MinttheCoin will turn US Treasuries into junk bonds. Consequently, US debt will become far more expensive and harder to sell.
In particular, foreign governments in countries such as Japan and China will stop buying US debt. Consequently, the Treasury will become dependent on cash-rich buyers such as the Saudi Royal Family, hedge-funds, and Russian oligarchs. Some speculators will get rich as interest rates rise through the roof.
A Better Alternative to MinttheCoin, MintingtheCoins
I think MintingtheCoins is a far better idea. Instead of one trillion-dollar coin, I think the US Mint should issue large numbers of smaller denomination platinum coins.
For example, the Mint could issue coins that contain one troy ounce of platinum. Since Mr. Market was paying $1,070.80 for a troy ounce of platinum on 14 May 2023. Each coin could be worth $1,070.80.
By minting smaller coins, the Treasury could just enough coins to cover federal expenses until enough tax revenues to cover federal expenses come in. Notably, CBO analysts think the Treasury can avoid default if it finds enough money to cover federal expenses between June 1 and 15 June.
Tax revenues and emergency measures after 15 June will “will probably allow the government to continue financing operations through at least the end of July,” CBO analysts speculate. Hence, the Treasury can mint just enough coins to cover expenses through 15 June.
Are Stablecoins the Answer?
An intriguing solution is to make the Coin a stablecoin. To explain, a stablecoin is a cryptocurrency that makes payment in another currency.
For example, the popular Tether (USDT) stablecoin makes payment in US dollars. To explain, each Tether contains a digital construct they call a smart contract. Tether’s smart contract makes payment in US dollars from a trust account.
There are precious metal stablecoins such as the Pax Gold (PAXG) and Tether Gold (XAUT). For example, a fine troy ounce of gold stored in LBMA vaults in London backs each Pax Gold. They claim they back Tether Gold with 611 gold bars or 7,643.71 kilograms of gold.
Theoretically, Tether Gold and Pax Gold own a troy ounce of gold they keep in a vault. Conversely, it is easy to sell or trade XAUT and PAXG and to borrow against because they are stablecoins. Hence, you can sell XAUT for cash anytime. Which makes it better than actual gold.
Remember, you cannot take gold down to Kroger and buy food with it. However, you can sell PAXG or XAUT for US dollars you can use at Kroger.
Should the US Treasury Mint a Platinum Stablecoin?
The US Treasury could raise funds by issuing a platinum stablecoin. To explain, a troy ounce of platinum could back a cryptocurrency that the US Mint issues.
The Treasury could mint platinum coins it keeps in vaults. Each coin will contain one troy ounce of platinum. The Treasury can keep the coins in Federal Reserve banks, or at Fort Knox, or Yucca Mountain, for extra security. Notably, the Army could guard the platinum at Fort Knox or Yucca Mountain.
Once it has the coins, the Treasury can issue a Platinum USD stablecoin they peg to those coins. Anybody could buy Platinum USD. Platinum USD owners will have the right to take their platinum coins from the Treasury or the Federal Reserve any time they want. However, most owners will not withdraw the coins. Instead, they will use the PUSD as money.
A Platinum Stablecoin Makes Sense
The Treasury could raise money by auctioning the Platinum USD and issuing Platinum USD bonds that can pay interest on PUSD. Hence, the Treasury could hold an Initial Coin Offering (ICO) to finance the federal government.
The platinum stablecoin could be an alternative to the controversial Central Bank Digital Currency (CBDC). Unlike a CBDC, which the Federal Reserve issues, the Treasury issues the stablecoin.
A big advantage with a platinum stablecoin is they can build one fast with existing technology. For example, hire Tether to build and issue the PUSD. Hence, you can have such a stablecoin available in a few days or weeks and issue the amount you need.
The US government can make enormous public platinum purchases to show it has the metal to back the PUSD. Such purchases will raise the platinum price and increase the PUSD’s value. The Treasury can finance platinum purchases by borrowing against PUSD sales.
Moreover, America can avoid hyperinflation because the Treasury will not overheat the economy by issuing $1 trillion worth of platinum coins. Instead, the Treasury could have a means of financing the government and getting around the debt ceiling.
Finally, a PUSD can make America the center of stablecoins. After PUSD, the Treasury can issue US dollar, gold, and silver stablecoins. These stablecoins can make the United States a center of digital finance (DeFi) and preserve and enhance the dollar’s status as the world’s reserve currency.
Smaller platinum coins and stablecoins could prevent a debt ceiling catastrophe. Unfortunately, nobody in Washington, DC, is smart enough to see or implement this solution.
