@bgawalt You don't want a public option in transfers and deposits. You want a public infrastructure for transfers and deposits that strictly replaces the private system. You have to restrict the ability of private securities to be money-like. 1/

@bgawalt Obviously, the first thing you do eliminate deposit insurance on any private liabilities after you convert existing deposits to liabilities of the Fed (in one form or another). So then anyone who tries to pile into a private "money" would understand in theory that they are not insured, their funds are at risk. 2/

@bgawalt But if you let private institutions offer money-like securities (e.g. money market mutual funds whose "shares" are always priced at a dollar but whose number increase with interest payments made from the underlying commercial paper), and you let people treat them as quasi-bank accounts, we know from experience private securities issuers will entice "investment" in large quantities of risky securities they persuade holders are just "money". 3/

@bgawalt When lots of retirees hold a product they were sure was safe money and then the bank behind it goes bust, it doesn't matter that it wasn't Federally insured. The state can't not bail it out anyway. During the 2008 crisis, policymakers had to guarantee all money-market mutual funds. 4/

@bgawalt So you need to insist on a public monopoly on money-like securities. Privately-issued securities need to be explicitly at-risk with routine price fluctuations and/or restricted in liquidity (e.g. two-day notice for redemption). Strong norms have to be set that the only safe securities are Federal securities. Regulators have to clamp down hard whenever private firms try to entice cheap financing by pretending you're not risk investing, just depositing. 5/

@bgawalt If you leave it as a "public option", you'll still have private firms looking for that subsidy, but they'll have to pay higher interest rates on their moneylike products (since they have to entice people out of the genuinely safe public option). The end result of that would simultaneously to have lots of fragile private money that can't credibly not be bailed out, and less profitable issuers more likely to go bust. 6/

@bgawalt You might *start* with a "public option" as an incremental strategy to move to the new system (though frankly it'd be better just to convert all deposits into Fed liabilities and have the Fed replace all prior deposits with its own loans, which it would wind back over time). But if you let private firms issue things that duck-type as money, and let them entice customers with good rates, you've fixed nothing. You'll have uninsured products you can't credibly not bail out. /fin