The Platinum Coin Wouldn't Have Been Goofy to FDR
I love the trillion-dollar platinum coin solution to the debt-ceiling blackmail threat, though lots of people find it too gimmicky. They say that a serious government can't pull stunts like that to bolster the financial system.
Oh, really? Ask Franklin D. Roosevelt.
Roosevelt took the oath of office on March 4, 1933, at the bottom of the Great Depression. The nation was in the fetal position. Almost three-quarters of the states had already closed their banks. As president-elect, Roosevelt wanted his predecessor, Herbert Hoover, to close the rest. Hoover refused, and Roosevelt signed an executive order to do so on his first day in office.
The weeklong "bank holiday” -- as it was festively dubbed -- left Treasury Department officials (of both the new and the old administrations) racing for solutions. The most immediate problem was the currency: There wasn’t enough money in circulation. The government had a “financing” -- bills to pay -- by March 15 and a default on those obligations was unthinkable. Not even the looniest congressman suggested it, in those days.
At a meeting the day after Roosevelt's inauguration, a banker named Wayne Wing made a half-joking motion “to do something.” The minutes, kept by Adolph Berle, soon to be an important Roosevelt administration official, read: “Approved. (Futility! Gosh!).”
The group considered all kinds of wacky ideas, including one from FDR himself. Recalling his days selling bonds in the 1920s, Roosevelt suggested that all $21 billion in government bonds be immediately redeemable in cash, regardless of maturity date. The assembled bankers and government officials were horrified by the idea, which they said would spark ruinous inflation. The U.S. was still on the gold standard (though not for long) and the financial orthodoxy of the day held that simply printing more money wasn’t an option.
Others suggested creating “scrip,” which is temporary currency. The city of Chicago and Dow Chemical Co., among others, had already begun issuing such funny money. But William Woodin, Roosevelt’s new Treasury secretary, figured people would just hoard the scrip the way they were hoarding gold and silver.
After staying up all night playing his guitar, Woodin hatched his own idea for printing more money without setting off inflation. Every dollar bill had (and has) a line at the top reading: “Federal Reserve Note.” Woodin decided to temporarily change the line to “Federal Reserve Bank Note.” The difference was that this new paper currency would be backed not by gold but by the collateral of all banks associated with the Federal Reserve. “It won’t frighten people. It won’t look like stage money. It will be money that looks like money,” Woodin said.
FDR approved Woodin’s proposal to change the wording on paper currency and -- with the help of other provisions of the bank rescue plan -- the crisis passed. Banks reopened and the country breathed a sigh of relief.
Was that any less gimmicky than the platinum-coin solution?
(Jonathan Alter, a Bloomberg View columnist, is the author of “The Defining Moment: FDR’s Hundred Days and the Triumph of Hope.” Follow him on Twitter.)
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