By Colby Cosh - Tuesday, December 11, 2012 - 0 Comments
Just about my favourite thing in the world is when someone comes up with an idea for a policy move that (a) seems completely ludicrous but (b) is completely legal and (c) would probably work. With the U.S. headed for the so-called “fiscal cliff,” there is renewed discussion of a weird jiujitsu move that President Obama could conceivably use to elude the congressional debt ceiling.
The executive branch is, as a general rule, not allowed to incur debt in defiance of Congress, and the U.S. Mint’s printing of money is strongly circumscribed by statute. But last year a blogger named Carlos “Beowulf” Mucha noticed an oddity in the U.S. Code: the Treasury does have an explicit unrestricted right to order the mint to create collectible platinum coins of arbitrary face value. They can’t be gold or copper or aluminum; they have to be platinum. Under this theory, the President could tell the mint to strike a couple of platinum coins with denominations of $1 trillion each. He would then deposit them with the Federal Reserve, in what is actually the ordinary fashion, and the Fed would in turn issue the Treasury a credit of $2 trillion; since the physical specie is there at the bank, no “debt” is technically created at all.
This would be an executive branch intrusion on the Fed’s acknowledged privilege of controlling the money supply. It’s probably the kind of loophole Americans probably do not want to establish a precedent for exploiting. (Insert “Pretty soon you’re talking real money” joke here.) But amidst controversy over the Fed’s management of monetary aggregates, the platinum fantasy is finding enthusiasts in surprising places: not only in the left blogosphere where it originated, but amongst “market monetarist” critics of the Fed (who believe that the central bank should be targeting nominal GDP growth instead of inflation).
Among leading econopundits, Felix Salmon charged that magic platinum coins would represent “the utter failure of the U.S. political system and civil society.” Matt Yglesias questioned whether it was really possible but admitted that the idea “highlights a very accurate point”—that the U.S. controls the unit of account in which its debts are denominated, and so has (finite) room to manoeuvre in ways other countries don’t. Market monetarist Scott Sumner asked whether it was a “brilliant masterstroke” or a “loony idea” and decided “I can confidently answer ‘both’.” A man after my own heart.
By From the editors - Thursday, March 22, 2012 at 4:00 PM - 0 Comments
New economic, social and political ties between the countries are all good incentives
Iceland’s study of the benefits of adopting the Canadian dollar as its official currency has, so far, mostly had the economic effect here of creating a mini-boom in Björk jokes (Bjökes?). If Iceland actually went ahead with it, that would, in the short-to-medium term, probably still be the main effect on us. The tiny north Atlantic state wouldn’t gain any influence over our monetary affairs. That indeed would be the whole point of Iceland loonie-izing—to foster trust and stability amongst foreign lenders and savers within Iceland, by surrendering the sovereign right to independent central banking.
Essentially, they would be renting Mark Carney’s reputation from us. They wouldn’t need special permission. It’s a simple matter of becoming a customer of the Bank of Canada. Many countries in this hemisphere already have currencies backed, in part, by reserves of Canadian dollars.
Whether Iceland decided to circulate physical Canadian notes and coins, or simply took the “currency board” approach and pegged its unit to our dollar, there would be a benefit to our federal treasury in the form of “seigniorage.” (That is to say, our central bank would earn interest on the securities Iceland’s currency board exchanged for a hoard of our dollars, and if those dollars were circulated, they would need to be replaced as they wore out.) But don’t expect to throw a big national party with the proceeds. The seigniorage the Bank of Canada earns from our own economy, about a hundred times as large as Iceland’s, is only $2 billion a year.