Question

In 2013 U.S. government policymakers flirted with the idea of minting a $1 trillion platinum coin and having the Fed purchase it (compare it with the $2 trillion economic stimulus package during the pandemic in 2020). The Fed would basically print up a trillion dollars and hand it to the Treasury (either that or make an electronic transaction). The proceeds would allow the government to avoid its debt ceiling. Why didn’t the Fed propose minting the coin with, say, Mickey Mouse’s face on it, or even minting an official $1 trillion plastic coin? And no matter what material the government would use to mint the coin, is the proposal inflationary?

Answer 1

The purpose of this idea was to solve the debt crisis that the country was facing at the time. The idea was that the treasury department would mint a coin and send it to the federal reserve in order to pay off the debt and avoid the debt ceiling.This 1 trillion dollar coin would increase the money supply in the country, which could lead to inflation and also increased expectations to inflation. This is because the reserves would increases and the banks could loan out more. However, the federal reserve could prevent this does not happen by providing higher interests to banks for their reserves. They could also sterilize this move by selling other assets from their balance sheet or selling bonds. Also, one of the things to remember is that government would be paying for an old spending. So, this move is not by itself inflationary, but an intervention is needed

The reason you can not mint a one trillion plastic coin is because the coins the treasure needs to mint a one trillion platinum coin at a face value. The law was passed in 1997, and ammended in 2000. According to it, the treasury could mint only platinum coins so a plastic coin would'nt be possible to mint.