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 Congress). 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 would pay for the project after some number of years. 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.
Currently the Federal government does not limit its spending to the amount of revenue it brings in because the Federal Reserve can just create dollars to buy Treasury notes (putting taxpayers in debt). If instead the Federal government created the dollars itself, a legislative constraint on spending would have exist, that is, Congress would have to stick to a budget. If the government spends too much into the economy, this would create inflation, and then it would be necessary to impose a progressive income tax on the top 10% of income and impose higher user fees for public services to take money out of circulation. If the US Treasury were prudent — and only created enough money for capital improvements, infrastructure — this would improve the efficiency of the overall economy and inflation could be avoided. If new currency were created to be used for war, excessive welfare or useless bureaucracy, then inflation would continue as it is with the Federal Reserve system.
Some argue that fractional reserve banking (debt-backed currency) should be eliminated and the dollar tied back to the gold standard, but this would privilege those who hold gold. The US Treasury would have to buy gold to back the dollar by taxing the people or taking other countries’ resources. Then then gold would be stored uselessly away in Fort Knox where it only has symbolic value. In contrast, if infrastructure assets are used back the dollar, they have real tangible value for the public.
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.
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.
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.