Coin collectors do not generally have a reputation as the most influential lobby group in American policy making.
But in 1995 they won an unassuming concession that has since become the root of the weirdest solution on the table to fixing the US debt ceiling crisis.
A cohort of Democrats are calling for the US Treasury to mint a one trillion dollar coin, to bypass the need to get the Republican House to approve an increase in the debt limit.
Specifically, the coin must be made of platinum.
Back in the 1990s, coin collectors were disgruntled. They wanted to buy collectible coins in platinum, but the only ones available cost $600 – beyond the reach of many numismatists.
In order to allow lower-cost alternatives onto the market, the Republican congressman Mike Castle added a few lines to a bill, which read: “The Secretary of the Treasury may mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate.”
It was only later that Washington insiders realised the implications of the law. It offers a possible loophole through which the US Government could solve the debt ceiling standoff.
Andrew Hunter, deputy chief US economist at Capital Economics, said: “The idea is that to avoid a debt ceiling default, the Treasury could mint a very large denomination coin, deposit it at the Federal Reserve and then the Fed credits their account with the appropriate funds.”
In theory, this would be another way to stop the US Government from running out of money, which Treasury Secretary Janet Yellen has warned it will do as early as June 1.
The US debt ceiling is a $31.4 trillion cap on how much the Government can borrow. It hit the limit in January and is now burning through its cash reserves, while the Republican House blocks any increase.
The idea of a $1 trillion coin first emerged in 2010, ahead of two debt ceiling crises under Barack Obama in 2011 and 2013. “People have highlighted that, because of inflation, it should really be more like $1.4 trillion now,” Mr Hunter said.
The idea is flawed. Although the Treasury has the authority to create this coin, the Fed is not obliged to accept it, Mr Hunter said. “It would seriously undermine the Fed’s independence if the Treasury did that even once,” he said.
There is also a major inflationary risk. Creating a $1 trillion coin would effectively be money printing on a massive scale, said Philip Shaw, chief economist at Investec.
“If you raise the debt ceiling, you are selling bonds and taking money from asset managers and then spending it. You are not creating new money. If you create a trillion dollar coin, you are literally printing that,” Mr Shaw said.
It would set a dangerous precedent. “You can imagine this slippery slope of future presidents declaring emergencies of some kind. There is a risk of opening Pandora’s Box,” Mr Hunter said.
Treasury secretary Janet Yellen has ruled out the idea as a “gimmick”. It has also been dismissed by Fed chair Jay Powell.
The proposal would almost certainly hit legal challenges in the courts, said Mr Shaw.
He added: “Categorically, it is not a practical option. But in principle, there seems to be nothing to stop the US Government from doing that.”
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