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Breaking down #MintTheCoin and how it works

Rohan Grey, The Public Money Founder, joined Yahoo Finance's Jen Rogers, Myles Udland, Dan Roberts, and Melody Hahm to give a break down of the ABCAct and #MintTheCoin.

Video transcript

MYLES UDLAND: Let's move on to talk a little bit about what's happening in DC, about what Treasury has done and about alternatives for financing a lot of this emergency spending that we've seen happen over the last month or so. Rohan Grey is the president of the Modern Money Network, and he joins us now to discuss-- so Rohan, I wanted to bring you on to start with the latest proposal that you guys have worked on, which is actually something that really came up back in 2012 and 2013 around the fiscal cliff, which was the idea of minting a coin, a trillion dollar coin to finance emergency spending programs.

What's the outline, of ABC Act that you guys have recently published? What's the most basic outline there? And what does minting a coin really mean when it comes to financing Treasury spending?

ROHAN GREY: Yeah, thanks for having me. The original proposal was to use minted coins as an alternative to the debt ceiling, but this is new legislation. This is the Automatic Boost to Communities Act, which was proposed by representative Rashida Tlaib and co-sponsored by Pramila Jayapal and a number of others, including Alexandria Ocasio-Cortez, Ilhan Omar, Ayanna Pressley, and others. And this proposal would provide $2,000 per person as emergency cash relief for the duration of the crisis, plus another $1,000 per month after the crisis for up to one year in the form primarily of prepaid debit cards.

And it would be designed as a money-financed fiscal program. Other proposals, including those by Chairwoman Waters of the House Financial Services Committee have also proposed a money-financed fiscal program. Part of the value of that is to avoid preemptively some of the risks that come about as a result of concerns over needing to quote unquote "pay back" the funding in the future as well as increasing entanglement between the Treasury and Federal Reserve, this being seen as a sort of handout of Federal Reserve money in the event that the Treasury issues Treasury securities, and the Fed purchases those securities.

So in contrast to some of the other proposals that do rely on the Fed sort of buying up government securities, this would use the Treasury's power of money creation that exists in the Mint, the oldest monetary institution in the United States government. It's always shared this power with the Federal Reserve, and it returns hundreds of millions of dollars in Stoneridge profits every year to the Treasury. The Treasury would direct the Mint to mint a series of trillion dollar coins, deposit them at the Mint's account at the Federal Reserve, which would then credit that account, and those funds would be available to be spent without any need for additional issuance of Treasury securities and would not interrupt, you know, regular monetary policy implementation.

MYLES UDLAND: And you know, Rohan, when I've-- and we talked about this as a group this morning when we were discussing this segment-- I have always tried to explain this or think about this as it basically shows why there is no limit to how much money the Fed could issue or Treasury could issue. And we have this debate around we need to pay for it, but minting the coin, at least in my view-- I don't know if this is how you guys see it as well-- it obviates that we don't need to pay for it. We can use a workaround to say, see, there it is. It's in the coin, and now the coin goes into a vault, and the money-- and it's over, and there's no outstanding debt. We just print the money, we cancel it, and it's gone. Is that a fair way to think about it?

ROHAN GREY: Yeah, partially. I mean, I think a lot of financially sophisticated actors would know that it doesn't really matter whether you finance the deficit by issuing Treasury securities or minting new reserves in terms of its inflationary impact. The real difference is sort of the optics and the public politics around the two. And one of the ways that we can think about this is, you know, the backlash that we saw in 2009 with the rise of the Tea Party and the Deficit Reduction Commission and this idea of if we see this as borrowing money rather than creating money, it creates a very different political environment, even if economically it might be very similar.

And whether you sort of have a degree in finance or work in the markets, you might understand that these two are functionally the same. But the average person doesn't understand that they're the same. So in that respect, mint the coin is a very valuable public educational tool as well as simplifying the operational structure of fiscal financing. And we included in the bill specifically authorization for the Federal Reserve to issue its own securities if it wanted to offset the additional reserves that would result from this increase so that it doesn't take away any capacity of the Federal Reserve to maintain a maturity spectrum, yield curve, things like that.

And any losses that the Federal Reserve incurred as a result of paying interest in the future if it tried to return to normal monetary policy would be offset in a special ring-fenced account. So it doesn't even impact any risk of budgetary independence of the Fed. What this does is simplify the difference between using fiscal money for fiscal policy and using securities issuance as a monetary policy tool to maintain a yield curve to drain reserves from the banking system and to make very clear that the fiscal authorities don't need to sort of ask anyone else's permission in order to fund basic services, and that we're not getting that money from China or our grandkids or the bond market.