Thursday, July 28, 2011

The meme that will not die!

Platinum coin seigniorage is picking up momentum.

Update: Brad DeLong on the coin seigniorage option:
"That seems to me the only way that he can faithfully execute all the laws. Otherwise, he has to break some--or have the Treasury Secretary violate his fiduciary duty as trustee of various trust funds.

Minting high-denomination platinum coins, by contrast, creates no such problems. And is completely legal".


Tom Hickey said...

Tyler Cowen picks up on the platinum coin caper here.

beowulf said...

Someone at Tyler's blog thought a $1 trillion coin meant buying a LOT of platinum. I'll crosspost here my reply:
You’re missing the point, Congress has delegated the entirety of its apparently “unlimited” power to coin money to the Secretary of the Treasury in the platinum section of the Coinage Act, 31 USC 5112(k). There was a CRS report the year that was enacted (1996) which discusses coin seigniorage:
“As a result, the buying and selling of securities on the open market is the principal means by which the Fed influences the money supply. Buying securities, it injects money into the system. Selling them, it removes money from the system… One method of creating money does not earn profits for the Fed: coins. The system of metal coins is somewhat different. Coins, too, cost only a fraction of their face value to create (being mostly “clad” coins made of nickel, zinc, and copper). But in the case of coins, the Fed pays face value to the mint, with the profits being placed in a revolving coinage fund. The effect on the economy is the same, and it has the same implications for real government outlays and income. Only the accounting differs… If the power of the government is limited to issuing coins, there is still nothing that requires the coins to be “full bodied” — that is, to have precious metal content equal to their face value. The constitutional power to issue coins appears to be unlimited.",

As long as the coin is made of platinum it doesn’t matter how much metal it contains, the value added is the Secretary’s signature. The Secretary has absolute discretion as to quantity and denomination. So he could change the West Point Mint’s 2011 scheduled run of 15,000 platinum coins to 14,998 of the existing 1 oz Platinum American Eagles (face value $100) plus two 1 oz Platinum Reagan Centennials (face value $1 trillion). The Mint issue gold coins as small as 1/10 oz., so I suppose a $1 trillion with a metal cost of $178 is a better value for the taxpayer than $1 trillion coin with a metal cost of $1780, after all the President of the United States thinks we’re out of money. :o)

Incidentally, the Fed’s own Regulation D (12 CFR 204.2) contemplates deposits of numismatic coins with its depositary banks. Its vault cash definition includes all US coins except that those “whose numismatic or bullion value is substantially in excess of face value is not vault cash for purposes of this part”.
Let me do some quick cipherin’… $1 trillion > $1780, we’re good!

Jim Baird said...

It made the Economist:

Clonal said...

Also Ambrose Evans Pritchard mentioned this at the Daily Telegraph -

The Treasury also has the authority to issue infinite amounts of platinum coins at any denomination it chooses (ie, like fiat paper currency, far above the metallic value): a chest of $1bn coins, say. This is seignorage on steroids, pace Prof Summers.

You get the drift: nothing will in fact change when the deadline expires on August 2. The US is the world’s paramount strategic and economic power, with debts in its own sovereign currency. It can do as it pleases.

Yes, the US may be stripped of its AAA by Standard & Poor’s. A nice one-day story, but otherwise irrelevant. Global bond vigilantes are quite able to make their own judgement on the substantive default risk of the US. The rating agencies are out of their league on this one.