Should Britain have a

Trillion pound coin?

Around the world the policy of quantitative easing has been going on for a while now. The British government, for example, needs money and so it issues bonds at a certain rate of interest which it then tries to sell on the international market. Bonds which are not bought by banks or countries like China are bought by the Bank of England with money they invent.

Although the Bank of England simply invents the money it uses to buy the bonds with, the idea is that when the government gets its act together, it will buy back the bonds and the Bank of England will destroy or 'uninvent' the money it used to make the initial purchase. When this point is reached, if ever, everything will be deemed to be cool, tickety-boo, ridgy-didge and/or dinky dye.

The same holds true for America. The government issues bonds and those which are not bought on the international market are bought by the Federal Reserve with money it invents. But the trouble with the American situation is that the economy has got so out of control that there is little chance of the government ever redeeming the bonds the Fed has bought with what might be termed 'their imaginary money'. When old bonds come due for repayment the government simply issues new replacement bonds and carries on as normal.

There is however, a loophole, in American law. Coins manufactured by the government, independent of the Federal Reserve, actually count as legal tender. So the idea is that the American government should mint a trillion dollar coin and then use it to reclaim a trillion dollars worth of bonds previously bought by the Federal Reserve. It’s appears that this is quite legal though what such a ploy is going to do to the international value of an American paper dollar is anybody’s guess!

It is however, a great way for the government to get out of debt but the problem is that once the American government reclaims its bonds with the trillion dollar coin, the Federal Reserve will be obliged to disinvent the trillion dollars it used to buy the bonds with in the first place. Consequently, it will have to destroy the coin the American government gives it. So why is this coin expected to made out of platinum and other precious metals? If it is going to be destroyed, wouldn’t it be more sensible to make it out of plastic or plasticine?

But, returning to our own insurmountable debt mountain, a considerable portion of which is held by the Bank of England using money it invented. Does British law allow our government manufacture a trillion pound coin (out of plastic or plasticine) and use it pay off a substantial portion of what we owe? If it doesn’t, should we all write to our MPs and suggest that they change the law?

---January 7, 2013---

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