The U.S. national debt has climbed to...

Editor's note: ...roughly $39 trillion, with annual interest payments nearing $1 trillion, now exceeding the defense budget, while proposals for major military increases add further strain. Elon Musk has warned that without transformative growth from AI and robotics, America risks eventual bankruptcy. As borrowing accelerates, a central question remains: who is this debt actually owed to, and is a return to a sound, interest-free currency, such as United States Treasury Notes, the only viable path to long-term monetary reform? What we have witnessed is the United States projecting global influence through the dominance of the U.S. dollar in international finance and the worldwide reach of its military alliances and bases, leveraging economic and security power to shape geopolitical outcomes.
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Returning to a Sound, Interest-Free Currency: An Analysis of United States Treasury Notes as a Path to Monetary Reform

Reclaiming Sovereign Money Creation: From Greenbacks to a Debt-Free Treasury Note System

Introduction

The United States stands at a critical juncture in its monetary history. For over a century, the nation's currency has been predominantly debt-based, created through the Federal Reserve System and private banking institutions via fractional reserve lending. This system, while enabling economic expansion, has generated persistent criticisms for fostering boom-bust cycles, exacerbating wealth inequality through interest burdens that flow disproportionately to creditors, and contributing to unsustainable levels of public and private debt. As federal debt exceeds $30 trillion and interest payments surpass defense spending in recent years, questions about the equity and sustainability of the current framework have intensified.

This report examines a potential alternative rooted in America's own history: the return to an interest-free, unencumbered sovereign currency modeled on the United States Notes (commonly known as "greenbacks"). First authorized under the Legal Tender Act of 1862 to finance the Civil War, these Treasury-issued notes circulated as debt-free legal tender without interest obligations to private banks or a central authority. They represented a direct exercise of congressional power under Article I, Section 8 of the Constitution to "coin Money" and "regulate the Value thereof," providing the government with a tool to fund public needs without compounding debt through perpetual interest.

Legal Tender Act passed, in 1862

Proponents of monetary reform argue that reinstating such a system, often termed sovereign money or debt-free public money, could address core inequities in the modern regime. By shifting money creation from private debt issuance to direct Treasury authority (with safeguards against abuse), the public could capture seigniorage benefits, reduce the structural need for endless economic growth to service interest, lower overall debt burdens, and promote greater economic stability and fairness. Historical precedent demonstrates viability: greenbacks supported wartime finance and post-war circulation without immediate collapse into hyperinflation, though they coexisted with other currencies and faced political opposition that ultimately led to their phase-out by 1971 in favor of Federal Reserve Notes.

This analysis does not presume the political or practical ease of such a transition in today's globalized, dollar-dominant financial system. Entrenched institutions, international reserve currency dynamics, and transitional risks (including potential short-term inflation or banking sector adjustments) present formidable barriers. Yet the mechanics of implementation remain worthy of rigorous exploration.

The following sections provide:

A detailed historical review of United States Notes and the evolution of U.S. monetary policy

An evidence-based critique of the current debt-based system, highlighting its contributions to instability and inequality

The economic rationale for debt-free sovereign money, including comparative impacts on growth, equity, and fiscal sustainability

A step-by-step technical blueprint for reimplementing interest-free Treasury Notes, encompassing legal reforms, institutional changes, money creation processes, reserve requirements, and modern digital infrastructure

An assessment of transitional challenges, risks, and mitigation strategies

While the feasibility of full implementation remains uncertain amid contemporary economic realities, this paper aims to offer a clear, concise, and detailed roadmap of the mechanics involved. By reclaiming money creation as a public function, free from inherent interest encumbrances, the United States could potentially forge a more equitable and resilient monetary foundation for future generations. The question is not merely technical, but fundamentally one of sovereignty, fairness, and the public purpose of money itself.

Executive Summary

The United States' current monetary system, dominated by debt-based Federal Reserve Notes, has been criticized for contributing to economic instability, inequality, and unsustainable debt levels. This report examines the historical precedent of United States Notes, interest-free, government-issued currency used from 1862 to 1971, and outlines the technical mechanics for reimplementing a similar sovereign money system. Drawing on economic theory and empirical evidence, it argues that transitioning to debt-free money could reduce inflation volatility, lower public debt burdens, and promote equitable growth, though challenges like legal reforms and transitional inflation risks must be addressed. The analysis is based on a review of historical data, reform proposals, and economic studies, representing diverse perspectives from mainstream economists, libertarian critics, and monetary reformers.

The U.S. dollar, as Federal Reserve Notes, is created primarily through debt issuance by the Federal Reserve System (Fed), where banks lend money into existence via fractional reserve banking. This debt-based system requires perpetual growth to service interest, leading to cycles of boom and bust. In contrast, United States Notes were sovereign currency issued directly by the Treasury, backed by the government's credit without interest-bearing debt to a central bank. Issued during the Civil War to finance government needs, they circulated until 1971, representing a form of debt-free money. This paper explores the rationale for returning to such a system, focusing on equity and stability. It details the technical implementation, drawing from proposals like sovereign money reforms and historical precedents. While feasibility is uncertain due to entrenched interests, the mechanics can be outlined clearly.

Historical Context of United States Notes

United States Notes, also known as "greenbacks," emerged in 1862 under the Legal Tender Act to fund the Civil War without relying solely on gold or silver. Unlike Demand Notes, which were redeemable in specie, United States Notes were fiat currency declared legal tender by Congress, backed by the government's promise to pay. They were issued interest-free, directly into circulation for government expenses, and circulated alongside other currencies until phased out in 1971.

At their peak, greenbacks financed significant portions of wartime spending, demonstrating that debt-free issuance could support economic activity without immediate inflationary collapse. However, post-war debates highlighted concerns over inflation and constitutionality, leading to the establishment of the Federal Reserve in 1913 and a shift to debt-based notes. This history provides a blueprint for reform, showing that sovereign issuance is viable under legislative authority.

The Need for a Fairer and More Equitable Monetary System

The Fed's debt-based system has faced substantial criticism for exacerbating inequality and instability. Debt-free money proponents argue it addresses these flaws by eliminating the "interest gap," where total debt exceeds the money supply due to interest charges.

Criticisms of the Federal Reserve System

Instability and Crises: The Fed has been blamed for amplifying economic cycles, including the Great Depression and 2008 crisis, through loose monetary policy and poor regulation. Critics note higher inflation volatility post-1913 compared to pre-Fed eras.

Inequality: Debt-based creation funnels wealth to banks via interest, widening gaps. Global debt reached $305 trillion in 2022, diverting resources from productive uses.

Lack of Accountability: The Fed's quasi-private structure raises constitutional concerns, as it delegates money creation without direct congressional oversight. Political pressures, evident in recent administrations, undermine independence.

Environmental and Social Costs: Perpetual growth to service debt encourages overconsumption and environmental degradation.

Balanced views acknowledge the Fed's post-WWII improvements in stability but argue alternatives like sovereign money could perform better.

Benefits of Debt-Free Money

Economic studies suggest debt-free issuance reduces debt burdens and inequality. For instance, models like the Chicago Plan show transitions could cut public debt by 148% of GDP while boosting growth through lower taxes and interest rates. It promotes equity by distributing seigniorage (money creation profits) publicly, rather than to private banks.

Technical Mechanics of Implementation

Implementing interest-free Treasury Notes requires legislative, operational, and technological steps. This draws from sovereign money proposals, emphasizing separation of money creation from lending.

Step 1: Legal and Institutional Reforms

Amend the Federal Reserve Act to transfer money creation to the Treasury, phasing out Fed notes. Congress could invoke Article I, Section 8, empowering it to coin money.

Establish a Monetary Authority (independent body) to determine issuance volumes based on inflation targets (e.g., 2%), preventing political abuse.

Convert existing Fed liabilities to Treasury Notes via a debt-to-equity swap, reducing net debt by swapping reserves for non-interest-bearing notes.

Step 2: Money Creation and Circulation

Treasury issues notes digitally or physically, injected via government spending (e.g., infrastructure) or citizen dividends. Seigniorage revenue (2-3% of GDP annually) funds public goods without taxes. 

Banks shift to 100% reserve banking: Deposits backed fully by Treasury Notes, ending fractional reserves. Lending uses existing deposits or borrowed funds, decoupling money creation from debt.

Step 3: Technological Infrastructure

Use distributed ledger technology (e.g., blockchain) for secure, scalable issuance, ensuring interoperability with existing systems. This mirrors CBDC designs, with Treasury Notes as digital tokens.

Implement smart contracts for automated distribution and anti-inflation controls. Transition via hybrid system: Co-circulate Fed notes and Treasury Notes until full replacement.

Step 4: Transition Timeline

Phase 1 (1-2 years): Legislative setup, pilot issuance for public projects.

Phase 2 (3-5 years): Gradual reserve increase to 100%, debt swap.

Phase 3 (Ongoing): Monitor via independent audits, adjust issuance to maintain stability.

Empirical evidence from debt relief (e.g., Brady Plan) shows efficiency gains when overhang is reduced, supporting debt-free models. However, rapid transitions risk short-term inflation if issuance exceeds demand.

Challenges and Feasibility

Legal Hurdles: Overturning Fed Act requires congressional consensus; constitutionality debates persist. 

Banking Resistance: Banks lose seigniorage; transitional liquidity issues possible.

Global Impacts: U.S. dollar's reserve status could shift; foreign holders face losses on Treasuries. 

Inflation Risks: Poor calibration could erode purchasing power.

Feasibility is enhanced by CBDC pilots, which align with sovereign money tech. Gradual implementation mitigates risks.

Conclusion

Returning to interest-free Treasury Notes offers a path to a more equitable system by reclaiming money creation for public benefit. Technically, it involves legal reforms, reserve shifts, and digital tools, potentially yielding lower debt, stable growth, and reduced inequality. While challenges exist, historical success and modern proposals substantiate the approach. Policymakers should prioritize pilots to test mechanics, ensuring a balanced transition that safeguards economic sovereignty.

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More:

Sound Money Defense League 

Why Monetary Reform is Essential to a Viable Human Future

Monetary Reform

Monetary Reform

Natural Money

And now for a little historical enlightenment: