A Bold but Risky Bet: The USA-Italy Pact for Quantitative Balancing

A Bold but Risky Bet: The USA-Italy Pact for Quantitative Balancing

The Economystic - February 28, 2025

In the ever-shifting landscape of global finance, few ideas capture the imagination quite like Quantitative Balancing (QB)—a radical rethinking of how money is created and managed. Dreamed up in a 2025 paper by M. Saba, QB proposes that banks cease acting as independent mints, conjuring money through loans, and instead serve as custodians of deposits tied directly to state treasuries. Now, picture this theory leaping off the page and into practice through a transatlantic pact between the United States and Italy. It’s an audacious notion: two nations, one a superpower and the other a mid-tier Eurozone player, joining forces to test a financial innovation that could either stabilise the world economy or send it into a tailspin. Is this the future of money, or a leap into the unknown?

What is Quantitative Balancing?

QB isn’t just a tweak—it’s a revolution. Today, when a bank grants a loan, it creates a deposit out of thin air, a liability to the borrower. Under QB, that deposit becomes a liability to the state treasury itself. The implications are seismic: bank runs could become relics of the past, as deposits are backed by the full faith of the government; the murky art of bank accounting gains clarity; and the profits from money creation—known as seigniorage—flow to the public coffers rather than private balance sheets. Think of it as a financial Robin Hood, redistributing wealth to fund bridges, schools, or even debt relief.

The catch? It’s a logistical nightmare. Rewiring banking systems, harmonising laws, and convincing a wary public would take a Herculean effort. That’s where the USA-Italy pact comes in—a daring bid to prove QB’s mettle on the global stage.

An Unlikely Duo

Why these two? The USA brings scale—its financial markets dwarf all others—while Italy offers a contrasting canvas of small firms and a debt-heavy state. Their trade ties, worth billions annually, provide a testing ground for QB in cross-border flows. And their clout matters: America shapes global standards, while Italy’s EU membership amplifies its voice. Together, they could showcase QB’s versatility—or reveal its limits.

Yet, the pairing raises eyebrows. Italy’s public debt exceeds 150% of GDP, a burden that QB’s seigniorage windfall might ease, while the USA’s 130% debt ratio is less dire but still daunting. Complementary they may be, but their economic realities diverge sharply. Can QB bridge that gap, or will it buckle under the strain?

How It Might Work

The pact’s blueprint is ambitious: synchronise banking regulations, pilot QB in trade transactions, and establish a joint oversight body. Italy would overhaul its Civil Code (Article 1834, for the legal buffs), while the USA would wrestle with its labyrinth of post-2008 reforms like Dodd-Frank. Exports and imports would flow under QB rules, with treasuries guaranteeing deposits—a trust-building exercise for jittery markets. A bilateral watchdog would track the results, aiming to keep chaos at bay.

Elegant on paper, but reality bites. Banks won’t surrender their money-making powers without a fight, and regulatory alignment between Washington and Rome sounds like a diplomatic marathon. Add in the EU’s red tape and America’s polarised politics, and the pact starts to feel like a moonshot.

The Upside—and the Catch

The rewards could be dazzling. QB might slash systemic risk by securing deposits, boost trade with transparent rules, and funnel seigniorage to cash-strapped governments. Imagine Italy trimming its debt or the USA funding green tech—all without raising taxes. It’s a tantalising vision of a fairer financial order.

But the pitfalls loom large. Harmonising laws across continents is a slog, and political appetite for upheaval is thin—especially in an age of populism. Worse, a botched rollout could choke credit, stalling growth just as it aims to spur it. Critics will argue it’s too clever by half, a theoretical gem that crumbles in practice.

A Glimmer of Hope, Shadowed by Doubt

This USA-Italy pact is a gamble worth watching. It channels a hunger for financial systems that serve the public good, not just the privileged few, and hints at a new era of cross-border collaboration. Success could redefine money itself, blending stability with equity in a way the world sorely needs. Failure, though, risks a costly mess—proof that not every bright idea survives the real world.

For now, optimism must be cautious. The USA and Italy have the tools to pull this off, but the odds are long. If they succeed, they might just write the next chapter of global finance. If not, it’ll be a lesson in hubris. Either way, don’t blink—you won’t want to miss what happens next.