One coin will save America from default: the face value is a trillion dollars

One coin will save America from default: the face value is a trillion dollars

Experts appreciated the exotic idea of ​​overcoming the debt crisis in the United States

The less time remains until “hour X” in the American economy - June 1, when the federal treasury runs out of approved funds to finance government spending - the more proposals are heard in US political and economic circles to save the country from a technical default and debt crisis. One of the most exotic: to mint a $1 trillion platinum coin, deposit it with the Fed (American central bank), and then take the "grown" cash from the treasury to pay the government's bills. In fact, this idea is not new and has been discussed in America for a number of years, when there is a tense situation with public debt. But the matter has never reached its practical implementation. How will it be now? – we asked the Russian financial experts.

Artem Deev, head of the analytical department at AMarkets:

“There is a curious loophole in the American currency legislation: the Treasury can mint coins of absolutely any denomination from platinum. Including 1 trillion dollars - why not? But the problem here is different. The money must be backed by something. Ideally - a gold reserve, but other options are possible. The main thing is that it should be a reliable resource. If you just mint such a coin, it will not cost anything by itself and therefore bring down the dollar.

In fact, this proposal is tantamount to asking the Fed to print money to cover the national debt. And the US government understands this: talk about this miracle coin has been going on since at least 2021. And even then this idea was abandoned, because it looks more like a trick of a fraudster than a real economic move. The last thing the United States needs in the pre-crisis period is the release of a huge "mountain" of unsecured money, even if this "mountain" is the size of one coin. I think the Treasury and Congress will have to work hard and come up with something more sensible to save their economy from a technical default.”

Emil Yusupov, Partner at Intercession:

“Every time the ceiling of the US national debt is reached, and there is no agreement between Democrats and Republicans to increase it, these kinds of exotic proposals appear in the public field.

In 2021, a number of US politicians have already discussed the possibility of issuing a $1 trillion platinum coin in a similar situation.

In theory, the mechanism works as follows: the US Treasury issues a coin of 1 trillion, the Fed opens a special account to which this trillion is credited. At the same time, the Fed does not have an obligation to accept this coin; rather, it has the right to issue a placed coin with such a denomination. Theorists are still arguing whether this will actually be considered emission and whether it will lead to inflation.

In my opinion, as in previous times, this will not happen now. There have already been speculations about a platinum coin many times, but no one has moved from words to action in this direction. It seems to me that the Republicans and Democrats will come to an agreement and the debt ceiling will once again rise - as they say, in the usual way.

However, the US default story is dangerous in itself. Because the banks' balance sheets are overflowing with US debt. And if there is a default, then their depreciation will occur and this can lead to the collapse of the entire US financial system. And it is important that their holders are not only banks, but also pension funds and insurance companies. Large world economies such as China, Saudi Arabia, Japan, England are also holders of US debt securities. So a US default will lead to a global financial crisis. Therefore, with a high degree of probability, no one will be so flirtatious in their negotiating position.

Igor Gerasimov, analyst at BCS World of Investments:

“The idea of ​​minting a $1 trillion coin in the US is not new. It was offered during a crisis similar to the current one in connection with the raising of the national debt ceiling in 2011, when the US economy was close to a formal default. It was also widely discussed in 2013, and Nobel laureate Paul Krugman expressed support for it.

The idea could be an effective solution to current government debt problems. However, such a decision will lead to questions about the long-term positions of the US dollar and is clearly undesirable. In relation to the American economy, many critical arrows are already being fired about the so-called "money printing" (although formally the emission is carried out not by printing banknotes, but by credit), and such a decision would be the most direct and rude example of just such an approach.

Treasury Secretary Yellan earlier this year already rejected the idea of ​​a trillion dollar coin and stated that the Fed might be against it. The formal mechanism for minting such a coin would involve the issuance by the Treasury Department, followed by the provision of the coin to the Fed for "depositing" these funds. The decision also poses reputational risks to the US economy and the dollar's global position, and should therefore only be seen as a last resort.

At the same time, the discussion of the option of minting such a coin in itself reduces the risks of a full-fledged US government default - in the event of any political inconsistencies in Congress, the state can simply print money, since all debt is denominated in the US dollar, the issue of which it controls.

We assess the likelihood of such a decision as extremely low, since the issue of raising the national debt ceiling is a kind of political theater, and this is well known inside the US. The issuance of a trillion dollars in the form of a single coin would be an extremely unlikely and extreme event.”

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