What Is a Trillion Dollar Coin?

The term "trillion dollar coin" refers to a theoretical concept whereby a government could mint a platinum (or other precious metal) coin with a face value of $1 trillion, which could then be used to reduce the national debt.

This conceptual strategy was first proposed in 2011 as a potential alternative to raising the debt ceiling. Although there were several high-profile proponents of the idea, it was eventually rejected in 2013 by Treasury Department and Federal Reserve officials.

Key Takeaways The trillion dollar coin is a theoretical accounting strategy for reducing the federal debt, first proposed to circumvent congressional lock-up over raising the debt ceiling.

It would involve the Treasury creating a $1 trillion platinum coin and keeping it in a vault.

The idea, which is based on a legal loophole, was the subject of active debate between 2011 and 2013, but has never been tried in reality.

Understanding the Trillion Dollar Coin

The legal basis for the concept of a trillion dollar coin arises from the fact that the United States Mint is authorized to produce platinum coinage without any restrictions as to the quantity of coins produced or their face value. In other words, the Mint could theoretically produce an unlimited amount of platinum coins, each with an arbitrarily large value. By contrast, there are statutory limits regarding the amount of paper currency that can be in circulation at any one time as well as limits to coins made of other materials.

Although distributing such a high-value coin would presumably produce inflation if it were exchanged throughout the wider economy, proponents of the trillion dollar coin argued that this would not be the case if the Mint only distributed this coin to the Federal Reserve. The Federal Reserve could then deposit the coin in the Treasury, thereby reducing the national debt and postponing or eliminating the need to raise the U.S. debt ceiling.

The idea of a trillion dollar coin gained widespread media attention in 2011 as Washington struggled with the question of whether and how to raise the U.S. debt ceiling. Although the 2011 debt ceiling was eventually raised, this issue resurfaced again the following year as the national debt once again reached the debt ceiling.

There were many critics of the trillion dollar coin idea, some of whom made efforts to eliminate the loophole that makes the coin possible. Other commentators, such as the economist Paul Krugman, defended the idea of a trillion dollar coin.

Ultimately, it was the U.S. Treasury and Federal Reserve themselves who put an end to the trillion dollar coin debate. In Jan. 2013, officials from these institutions ruled out the possibility of tackling the national debt by using the trillion dollar coin loophole.

When We Almost Had a Trillion Dollar Coin

The idea of minting a trillion dollar coin to reduce the national debt gained widespread media attention during the debates surrounding raising the debt ceiling, which occurred between 2011 and 2013. This included mentions in prominent publications such as The Economist and The Washington Post, along with several others.

In Jan. 2013, the resurgent debt-ceiling crisis caused the idea of the trillion dollar coin to resurface once again. One prominent commentator was Paul Krugman, who published a series of articles supporting the idea in his popular New York Times column. In one of them, entitled "Be Ready To Mint That Coin," Krugman argued that using the trillion dollar coin would be an economically harmless way to resolve the debt-ceiling debate—one far preferable to the alternative risk of defaulting on the national debt.