Nathan Tankus is the analysis director of the Trendy Cash Community. He additionally writes the Notes on the Crises publication.

There was extra buzz concerning the trillion-dollar platinum coin since my final piece for FT Alphaville, the place I argued that the Federal Reserve must settle for the coin if the Treasury tried to deposit it.

Treasury Secretary Janet Yellen was requested by the Wall Avenue Journal concerning the trillion greenback platinum coin; she stated the Federal Reserve may not settle for the deposit, and additional claimed that it isn’t legally obliged to, both.

She didn’t say that issuing a trillion-dollar coin is illegitimate, nevertheless. This, in and of itself, is outstanding. It means that whereas she isn’t snug with the platinum coin proposal, she doesn’t need to fully shut the door to it by claiming it’s not a authorized possibility in any respect.

Extra usually, the responses to my argument have highlighted a usually uncared for a part of the Fed’s duties: its position as fiscal agent. Probably the most substantive engagement got here from author Josh Barro, who argued that different finish runs across the debt ceiling corresponding to issuing low face worth bonds had been higher as a result of they don’t require the Fed’s reluctant co-operation. I disagree with this declare, however it’s comprehensible why Barro believes it. Most individuals don’t realise that the Fed’s fiscal agent duties lengthen past offering financial institution accounts for the Treasury Division and processing funds for it.

Because the longtime home historian of the New York Fed Kenneth Garbade has documented, “Treasury securities” are in follow a book-entry system administered by the Fed, at the same time as they continue to be the Treasury’s liabilities. They’re held in “securities accounts” and when a financial institution or insurance coverage firm needs to promote a Treasury safety, they use the Fed’s “Fedwire Securities Service”. The book-entry system, by the way, was launched in response to a few crises, together with the disappearance of $7.5mn of Treasuries in 1963 and threats to liquidity from an “insurance coverage disaster” in 1970.

The Fed can also be integrally concerned in Treasury auctions. As its providers web site explains: “the Federal Reserve assists within the public sale by accepting and processing tenders, issuing securities to the profitable bidders and serving monetary establishments.” The New York Fed administers all the Fed’s open-market operations, buying and selling with a choose group of bond sellers known as “major sellers” who, in alternate, are required to bid on Treasury auctions.

In different phrases, for those who’re attempting to keep away from requiring the shut co-operation of the Fed or its regional banks as a fiscal agent, auctioning a Treasury safety is the unsuitable technique. It could sound like a course of that’s extra unbiased from the Fed than depositing a high-face-value platinum coin, however this can be a fantasy generated by neglect of the main points of how the Treasury market works.

Moreover, as Bloomberg’s Treasuries reporter Elizabeth Stanton identified, there are a selection of operational points with attempting to switch the Treasury public sale schedule and problem new kinds of Treasury securities, particularly ones that may be clouded with the identical (at greatest) authorized uncertainties because the coin. In distinction, depositing the trillion-dollar coin is operationally easy even when its authorized uncertainties are totally different from any unconventional-Treasury-security-related gimmicks.

Backside line: issuing a bizarre bond could also be extra enticing to DC pundits and play nicely with an viewers that likes useless complexity, however whenever you study it up shut it’s not really a extra viable or much less dangerous possibility.

Nonetheless, Barro’s commentary brings up just a few questions that want consideration: how significantly does the Fed take its fiscal agent duties, and does it imagine it could actually choose and select which duties to hold out? Maybe most explosively, does the Fed imagine it could actually intrude with the White Home’s dedication that breaking the debt ceiling is the least unconstitutional possibility?

Put in a different way, do Fed officers imagine that their judgment on constitutional questions supersedes the chief department?

Curiously, former Fed chair Alan Greenspan stated plenty of instances behind closed doorways that the Fed was not unbiased in its position as a fiscal agent. In 1995, for instance, he stated: “On the problem of how we take care of the Treasury on this authorities, as fiscal agent we contain ourselves in varied kinds of assist for the Treasury and that does in a single sense impinge on the independence of this establishment.” In 2004 he reiterated these feedback, saying “there are a selection of awkward relationships that we have now in our position as fiscal agent, none of which to my information has ever triggered any occasion that may be of concern to us”.

But.

This brings me to my questions for Fed Chair Jay Powell, which I hope journalists will ask on the press convention on Wednesday. These questions are necessary; it issues if the management of the Fed believes that it’s their prerogative to resolve whether or not the federal government defaults, or to intrude with Treasury issuance underneath any circumstances.

1) If the Treasury tried to keep away from default by depositing a trillion greenback coin at a regional Fed Financial institution, would the Fed’s Board direct that financial institution to reject the deposit of the coin?

2) Would the Fed totally co-operate with a Treasury try and keep away from default by issuing consols or low-face-value, high-coupon bonds as soon as the debt ceiling is reached?

3) If the Treasury tried to keep away from default by issuing extra Treasury securities past the restrict set by the debt ceiling, would the Fed intrude with their issuance in any approach, together with (however not restricted to) its position as a fiscal agent?

I hope Powell will get requested these questions and solutions them. They’re profoundly necessary. The trillion greenback platinum coin — or the quirky Treasury bond proposals, for that matter — could appear foolish. Nevertheless, they’ve introduced up elementary constitutional questions that are very critical. Powell can make clear at tomorrow’s press convention that the Fed’s judgment doesn’t supersede the President’s with regards to questions of constitutional interpretation.