It’s debt-ceiling season again, and with it come predictions of economic apocalypse—and the return of an eye-catching stopgap proposal to prevent the U.S. from defaulting on its debt: the minting of a trillion dollar platinum coin.
The scheme, which proponents say is authorized by an obscure law, would involve the U.S. Treasury minting the special coin and depositing it with the Federal Reserve—a measure that could stave off an impending crisis triggered by Republicans in House of Representatives who, as they did in 2011 and 2021, have said they will refuse to raise the country’s borrowing limit.
Raising the so-called debt ceiling is necessary to cover Congress’s existing obligations, while failure to do so would cause the U.S. to default and trigger a world-wide financial catastrophe. Hence the appeal of the trillion dollar coin as a way to ward off the crisis while Congress finds a long-term solution. But can this crazy scheme actually work? Here’s a plain English look at the debate.
What is the trillion dollar coin and can it help avert financial collapse?
The trillion dollar coin, in essence, is a loophole. In 1996, the U.S. passed the Commemorative Coin Act, which allowed the secretary of the Treasury to mint platinum coins of any value. Meant as a means for the U.S. Mint to print collectible coins, the law’s vagueness has encouraged some, including commentators like Paul Krugman of The New York Times, to advocate for the Treasury Department to mint a platinum coin worth a trillion dollars. The department would then give the coin, which is essentially unusable, to the Federal Reserve, who would then convert it into cash the government can use to pay bills it would be unable to cover without borrowing money.
The measure, a common headline every time there are threats that the U.S. government may default on its debt, is not a full-blown solution. “It doesn’t solve long term fiscal debt and deficit problems, nor does it solve the political issues that go along with that.” Gerard Comizio, a law professor at American University’s Washington College of Law, said in an interview.
Is this actually legal?
In a column on Thursday, Krugman said that minting a trillion dollar coin to keep the government afloat “would almost certainly be legal.” Others, however, are more cautious.
“I think it raises a lot of open legal questions about the Fed’s authority to be involved in this kind of a transaction,” said Comizio, adding later, “This is arguably not a monetary policy. This is a fiscal problem. That’s not the Fed’s primary goal.”
And Neil Buchanan, an economist and law professor at University of Florida, is adamant that the question of exploiting a gap in a law that authorizes the Mint to print commemorative coins is laughable. “That’s just not how gaps in the law work,” he said.
Would the Federal Reserve even accept the trillion dollar coin?
Unclear. A spokesperson for The Federal Reserve—which is the country’s central bank—declined to comment on whether it would add a trillion dollar platinum coin to the Treasury Department’s balance sheet.
But it’s notable that Janet Yellen—a former Fed Chair who is now Treasury Secretary and probably the most influential financial authority in the country—poured cold water on the idea this weekend.
“It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” she told the Wall Street Journal. “The Fed is not required to accept it, there’s no requirement on the part of the Fed. It’s up to them what to do.”
Does the trillion dollar coin have to be platinum? What if it were digital?
The U.S. government has been exploring the potential of a CBDC, or central bank digital currency. “A ‘digital dollar’ may seem far-fetched, but modern technology could make it a real possibility,” a White House advisor wrote in a public briefing in September of last year.
So, why not start with a splash and issue a trillion dollar digital coin? Yes, the trillion-dollar-coin scheme rests on a provision in the Commemorative Coin Act that applies only to platinum coins. But asking that question, according to the law professor Buchanan, lays bare the very idea behind the trillion dollar coin.
“Putting a trillion dollars on a piece of platinum and taking it to the Federal Reserve and saying, ‘We’ll make good on this later,’ that’s debt,” he said.
If a platinum coin can represent debt, he said, then so can any asset, including a digital coin. Yet, the legality, according to Buchanan, of issuing a trillion dollar digital coin is just as much in question. “They’re not allowed to do that either,” he argued, referring to the Federal Reserve.
So how will this end?
As the media dives into fevered discussions of the trillion dollar coin (whether it’s platinum or digital) for a third time in little more than a decade, the stakes of default remain the same. “Breaching the debt limit would be disastrous, both near and long term,” said Mark Zandi, chief economist at Moody’s Analytics. “It would push us into recession very quickly. And it would cost taxpayers for generations to come.”
In short, given the legal uncertainties surrounding the trillion dollar coin, Congress would be unwise to count on such a measure to save them as they continue to drive the country to the edge of a fiscal cliff. But in the meantime, die hard “mint the coin” proponents will continue to make their case on social media.
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