In 1913, the U.S. Treasury gave our country’s sovereign right to create currency to the Federal Reserve Bank (which is essentially a private commercial entity with little to no oversight from the government). Prior to 1913, the Federal government had created money itself. These were called Greenbacks. The value of a Greenback fell dramatically during and after the Civil War because too many were printed to fund the Union war effort. If the U.S. Treasury only created dollars to fund public infrastructure projects (not warfare or welfare) the dollar would be backed by the value of the infrastructure. If dollars are created to build a high speed train system, for instance, the revenue that the train system brings in for the government will pay for the project after some number of years.
Some argue that fractional reserve banking structure of the Federal Reserve should be eliminated and the dollar tied back to the gold standard, but this would privilege those who hold gold or whichever commodity is used. While backing the dollar with gold or some other commodity would protect against inflation, it can lead to economic depression if the government doesn’t have enough of the reserve commodity to create the amount of currency that is needed for a healthy economy. The US Treasury can expand the money supply when there are workers available, public needs abound, and there not enough currency in circulation to get the goods, services, and capital flowing. The money supply would then be expanded only as the government built public assets. The government would not have to collect income taxes or sell Treasury Bonds for public projects. Since the government would not be borrowing money, it would not pay interest nor go into debt.
If the money supply becomes over expanded, then it is necessary to impose a progressive income tax on the top 10% of income and/or impose higher user fees for public services to take money out of circulation. If the government were prudent — and only created enough money for capital improvements, infrastructure, public schools and hospitals — this would help avoid inflation. If new currency is created to be used for war, excessive welfare or useless bureaucracy, then inflation would continue as it is with the Federal Reserve system.
Various forms of local currencies could augment U.S. currency. These different approaches include CommunityCredits, Berkshare dollars, and Ithaca Hours or even P2P barter networks. Bitcoin is another popular form of alternative currency, the main difference being that is global instead of local. U.S. dollars would be the only form of currency accepted for use of public services and for paying taxes, but the U.S. dollar does not have to be the only form of legal tender for free market trade.
As this happens, the U.S. Treasury can gradually create new U.S. dollars to try buy back some of the trillions of dollars of Treasury Bond debt, starting with the most vulnerable bond holders first. The Federal Government has borrowed most of this money from our retirement funds. It is difficult to imagine how the U.S. can possibly avoid defaulting on this debt. The big banks, insurance companies and individuals holding the top percent of wealth and who own a substantial portion of the debt should suffer the consequences, not low-income retirees.
For a history of disadvantages of a Private Central Banking, such as we have with the Federal Reserve, see Bill’s Still’s 1996 documentary Money Masters.