The Economist - USA (2021-10-09)

72 Finance & economics The Economist October 9th 2021

America’sdebtceiling

#Mintthecoin

“I

t isaminingrockofsuchresistance,

thatitisnoteasytocutwiththeforce

ofblowsona steelanvil.”SowroteAntonio

deUlloa,aSpanishtravellertoAmerica,

aboutplatinumin1748.Suchanimagemay

resonatewiththosefrustratedbyregular

showdownsoverAmerica’sdebt ceiling.

Janet Yellen, the treasury secretary, has

saidthecountryrisksrunningoutofmon­

eybyOctober18thifthefederal­debtlimit

isnotraised,somethingthattheRepubli­

canshadbeenunwillingtocountenance

doing.OnOctober6th, asThe Economist

wasgoingtopress,MitchMcConnell,the

Republicans’leaderintheSenate,offered

tostopobstructinga smallriseinthedebt

ceiling, which would put off the issue until

December (see United States section). But a

deal is yet to be done. 

Platinum is at the centre of a more un­

orthodox campaign to avert a debt crisis. In

1996  Congress  directed  the  United  States

Mint to begin a commemorative coin pro­

gramme.  This  included  minting  gold  $5

coins  depicting  George  Washington,  and

silver $1 coins to mark the 125th anniversa­

ry of the creation of Yellowstone National

Park.  But  in  2010  Carlos  Mucha,  a  lawyer,

argued that he had found a loophole in the

legislation. Whereas the Mint may not pro­

duce  gold  and  silver  coins  in  denomina­

tions  of  more  than  $50,  no  such  limit  ap­

plies to platinum coins. In 2011 a campaign

began  to  encourage  the  Treasury  Depart­

ment to mint a “$1trn coin” as a way to side­

step a row over the debt ceiling. The cam­

paigners  argued  that  the  coin  would  be

“money”  rather  than  “debt”,  and  that  the

Treasury could hand it over to the Federal

Reserve  in  return  for  the  right  to  draw

down  funds,  in  order  to  keep  paying  the

bills  while  politicians  haggled  over  the

debt limit.

Social media have made the idea some­

thing of a meme this time round. The pro­

posal  has  been  promoted  enthusiastically

by a small core of supporters on Twitter us­

ing the hashtag #Mintthecoin. Nobel prize­

winner Paul Krugman has lent his support

to  the  campaign,  despite  conceding  its

“gimmickry”; two Democrats in the House

of Representatives, Jerry Nadler and Rashi­

da Tlaib, are in favour. There is nothing to

suggest  that  Ms  Yellen  or  others  in  Presi­

dent  Joe  Biden’s  administration  back  the

idea. Barack Obama, who ruled it out dur­

ing  the  debt­ceiling  crisis  in  2013,  has  al­

luded to it as “wacky”. But Senate Republi­

cansweresufficiently worried to have tried

to  introduce  legislation  to  close  the  loop­

hole in February this year.

If  the  coin  were  minted,  it  would  not

have  to  contain  $1trn­worth  of  platinum

bullion (currently around 30,000 tonnes).

But  the  legal  and  constitutional  obstacles

to  the  scheme  would  be  significant.  Neil

Buchanan  of  Levin  College  of  Law  argues

that  the  coin  would  still  be  subject  to  the

debt ceiling, and believes that any attempt

to mint it would face court challenges. The

coin could also undermine the established

norm  of  Fed  independence.  George  Selgin

of  the  Cato  Institute,  a  think­tank,  points

out that, by dumping a huge non­interest­

bearing  coin  on  the  Fed,  the  net  effect  of

the  plan  would  be  to  reduce  the  central

bank’s net interest income and, potential­

ly, to create a situation in which the Fed is

more financially dependent on Congress.

Yet past political brinkmanship has led

to higher interest payments and, in 2011, a

sovereign downgrade. A default could have

much graver consequences because of the

key role Treasuries play in the global finan­

cial  system.  This  is  why  some  observers

think that, for all its flaws, the coin propos­

al is worth keeping on the table. 

Mr  Buchanan  argues  that,  even  if  the

scheme is illegal, it might be worth risking

court  challenges  and  adopting  it,  if  the

government  needs  to  buy  time.  That,  he

says,  is  the  risk  the  Biden  administration

took when it recently extended a moratori­

um  on  rental  evictions,  first  introduced

last  year.  Whether  the  government  would

ever take such an unusual step as minting

the coin, though, is far from clear. But one

of  the  lessons  of  the  past  few  years  in

Washington  may  be  that  ideasthatonce

seemed unconstitutional or downright bi­

zarre can go on to become reality.n

Could a zany proposal help avert a

debt crisis?

Mint conditions

Climateinvesting

Green party

A

wave ofgreen sovereign debt is flood­

ing  markets.  Britain  issued  its  first

such  bond  in  September,  alongside  other

new issuers, such as Colombia and Spain.

They join at least 20 countries that already

issue green debt, notably Germany, which

is  well  on  its  way  to  building  a  “green

curve” of bonds across several maturities.

Governments  have  together  raised  more

than $100bn through the green route so far

this  year.  And  later  this  month  the  Euro­

pean  Union  is  due  to  join  the  club.  Its

€250bn  ($290bn)  green­borrowing  pro­

gramme stands to make it the world’s larg­

est sovereign issuer of the instruments. 

The  main  difference  between  a  green

bond and the regular sort is that the capital

raised by it must be spent on certain envi­

ronment­friendly  projects.  So  why  not

raise  debt  the  old­fashioned  way  instead,

and  simply  direct  the  proceeds  towards

greenery?  One  advantage  could  be  the  op­

portunity to borrow at a lower cost. Inves­

tors may be willing to accept a lower yield

for  green  bonds  (that  is,  to  pay  a  higher

price  for  them),  because  they  can  either

count  their  holdings  towards  their  envi­

ronmental, social and governance targets,

or because it makes them look good in the

public eye, says Dion Bongaerts of Erasmus

University in Rotterdam. 

Indeed,  investors  do  demand  a  higher

yield  on  conventional  debts  than  they  do

on green ones with near­identical charac­

teristics.  The  yield  difference  (called  the

“greenium”)  may  seem  modest:  for  a  ten­

year bond in Germany it is about 0.05 per­

centage points. But that starts to look more

significant  when  you  consider  that  the

yield  on  a  conventional  German  ten­year

bond  is  ­0.18%.  The  yield  gap  has  risen

from  0.02  points  a  year  ago,  suggesting

that  the  demand  for  green  debts  exceeds

their  supply.  Britain’s  bond,  issued  last

month, had a yield gap of 0.025 percentage

points, more than had been expected for an

opening green issuance. The sale was over­

subscribed  by  ten  times—larger  than  any

issuance by the Debt Management Office.

Still, the cost savings are unlikely to be

meaningful for governments, says Antoine

Bouvet  ofing,  a  Dutch  bank.  For  €1bn  of

debt,  an  interest  rate  that  is  0.05  percent­

The virtues of green government bonds

may be more political than economic

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