-Submitted by David Drumm (Nal), Guest Blogger

Coin seigniorage (CS) is the net revenue derived from the issuing of coins. It cost less than one dollar to mint a dollar coin and the difference between the manufacturing costs and face value (one dollar) is pure profit for the Treasury. The United States could just print more paper money, however, there is a statutory limit to the amount of paper currency in circulation at any one time.

There is not, ironically, a similar statutory requirement on the amount of coinage. The idea of using CS to solve the debt crisis is garnering a lot of serious attention.

Congress provided the authority, in legislation passed in 1996 that states:

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

The face value of the coins is arbitrary. The Treasury can create a couple of $1 trillion coins, deposit them in its Public Enterprise Fund account at the Fed, and the Fed must credit that account with the face value of these coins. Result: $2 trillion to pay our financial obligations.

Jack Balkin, Knight Professor of Constitutional Law at Yale Law School, has given reasons why the government has not discussed the option publicly:

There are three reasons for this. First, there may be other legal obstacles to using these options that we don’t know about. Second, because these devices could be used over and over again, they might scare investors and be politically unacceptable. Third, the president’s political strategy has been to obtain a congressional deal lowering the deficit, and these solutions would take all the pressure off Congress.

If Congress fails to pass a debt ceiling increase, all bets are off.

H/T: FDL, Corrente, Felix Salmon.