Treasury Secretary Janet Yellen rejected the idea of minting a $1 trillion platinum coin to prevent the US from defaulting on the national debt as a “gimmick” that the Federal Reserve is unlikely to agree to, a blow to proponents’ hopes of using it as a final run around Congress in the middle of the debate on the debt limit.
Progressive economists and some Democratic lawmakers have pushed for the Treasury Department to mint a $1 trillion platinum coin and deposit it in the Federal Reserve to raise the debt ceiling, then use the headroom the maneuver created to finance more public expenses. It would exploit a legal loophole that allows the Treasury to mint platinum coins of any denomination.
“It really shouldn’t be taken for granted by any means that the Fed would do that, and I think especially with something that’s a gimmick,” Yellen said. The Wall Street Journal in an interview on Sunday. “The Fed is under no obligation to accept it, there’s no requirement on the part of the Fed. It’s up to them what to do.”
Yellen – who served as chair of the Federal Reserve for four years from 2014 to 2018 – made the remarks after the US reached its debt ceiling on Thursday, prompting the Treasury Department to begin using “extraordinary measures” that give Congress until at least early June to raise the debt limit.
Her resistance to the push to mint a $1 trillion coin is unlikely to come as a surprise: During an earlier 2021 debt limit, Yellen discussed the idea of mint a $1 trillion coin and said, “I don’t think we should take it seriously.”
The White House has joined Yellen in pushing back on calls to mint the coin, with Press Secretary Karine Jean-Pierre telling reporters earlier this month that “we are not considering any measures that would bypass Congress.”
While the idea is often floated as a way to get out of the hog in Congress during the impasse over the debt limit, it has also been proposed as a means of funding broad spending plans. Progressive Rep. Rashida Tlaib (D-Mich.) previously proposed a bill to mint $2 trillion in platinum coins to fund recurring monthly stimulus payments during the COVID-19 pandemic.
Though Federal Reserve has not weighed in on the merits of the idea, the central bank has long tried to keep its efforts focused on monetary policy and refrained from meddling in fiscal policy matters normally handled by Congress and the president.
Critics of the plan to mint the $1 trillion coin note that it will fuel inflation further by injecting additional fiscal stimulus into the economy. It could also raise concerns in bond markets as participants begin to doubt the US government’s ability to resolve its fiscal problems and make debt payments. That, in turn, could push interest rates up and hurt areas of the economy that rely on finance, such as housing markets, while increasing the government’s cost of servicing its existing debt.
With the $1 trillion coin likely off the table, lawmakers in Congress will have to strike a bipartisan compromise with the Biden administration to fix the debt limit before the Treasury Department’s emergency measures expire this summer.