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US Treasury money creation ability


K-Pierro
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I haven't been able to find definitive information on the extent of the US Treasury's current ability to create money. From my understanding, the Federal Reserve currently has monopoly on the creation of paper money and digital reserves, while the Treasury retains the power to mint coins of various values. This minting ability, along with the associated platinum coin legal loophole come to the forefront each time a debt ceiling crisis arises. Most sources I found on the topic leave some questions unanswered :

- Does the US Treasury still have the legal authority to print USD as "US Treasury notes", or has paper money printing been an exclusive privilege of the Fed since its creation ?

- Does the minting of coins by the US Treasury effectively represent an expansion of the money supply, at the sole discretion of the Treasury, without any intervention from the Fed ?

- Is the Federal Reserve legally required to take deposit of all coins minted by the US Treasury upon demand, and credit the TGA with digital reserves in exchange ? Could the Treasury find itself holding an unusable $1 Trillion platinum coin in the event that it was minted but the Fed refused to take deposit of it ?

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911Truther
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My understanding is that only the Fed can create dollars.  The Fed uses the US Mint to print them, along with metal coins.

What I can’t figure is why they are stamping $100 on a gold American Eagle coin and $1 on the silver coin.  This puts the gold silver ratio at 100:1 and makes the price of gold $100/ounce and silver $1/ounce.

I wonder if the Fed considers that $100 has been printed by the US Mint when they create a gold coin and is it a $100 accounting entry on the Fed’s balance sheet?  Does the Fed pay for the gold used to make the coin?  Who is paying for the gold used to make the coin?

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K-Pierro
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From some info I found on the New York Fed's website, there seems to be a significant difference in between how paper money and coins are created and put into circulation.

When it comes to paper money, it seems like the Fed can order new Federal Reserve Notes to be printed by the Bureau of Engraving and Printing, and shipped back to the Fed. The Bureau of Engraving and Printing is then compensated by the Fed for printing costs only, paper and ink. In this case, the Fed is effectively converting digital reserves into physical paper money, and the Bureau of Engraving and Printing hasn't created new money, just allowed the Fed to change its format from digital to physical.

Coins seem to be very different as they apparently have to be bought from the US Mint by the Fed, at face value, before being distributed by the Fed into the banking system. The US Treasury consequently seems to still have money creation abilities through coinage, while the Fed has monopoly over paper money. From my understanding, the US Treasury mints coins using its own precious metal holdings. Since the US Treasury has the ability to set the face value the coins minted, regardless of metal contents, a loophole in the platinum coins restrictions would in theory allow the Treasury to mint a platinum coin with a $1 Trillion face value, and sell it to the Fed.

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Joseph Wang
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Good questions. With respect to Treasury securities, Congress delegates the power to issue those to the Treasury. Those securities are a form of money, so you can think of deficit spending as paying for spending by printing Treasuries. 

 

For questions on the trillion dollar coin and whether the Fed will accept it as deposit - I don't know. It's not really a legal question though, but a political question. It can happen if the politicians will it.

 

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K-Pierro
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Sorry for the confusion, in that particular case I was referring to "Federal Reserve Notes" vs "US Notes", a USD greenback issued directly by the Treasury, rather than Treasury securities. From the info I found on the Fed's website, "US Notes" are still legal tender, and $0.2 billion are still in circulation. I didn't find any info on the US Treasury's current legal ability to print more of these.

But as you mentioned previously, since Treasury securities are also a form of money in the financial system, issuing new Treasury securities is pretty similar to printing new money.

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