Wednesday, September 28, 2011

Comment on: House GOP wants to cash out dollar bill

From TOJ of 28 Sep 2011. There can be no question that keeping the one-dollar bill, the one-cent coin, and many of our other coinage denominations in production is now, and has been for decades, a purely political decision with little or no regard for the economic realities of the times.   From the first coinage of the States under the Articles of Confederation, there has been a one-cent coin.  Almost until the Civil War, we also had HALF-cent coins because the cent was a large enough store of value that it often needed to be broken into smaller units.  The USA has also had two-cent, several kinds of three-cent, many kinds of five-cent—including silver half-dimes—ten-cent, twenty-cent, twenty-five-cent, and fifty-cent minor coins.  In the early years, fifty-cent coins were how most banks stored their (temporarily) unloaned deposits (pretty much the way today’s bank branches hold twenties, fifties, and hundreds).            

The practical life of a one-dollar coin should be in the range of forty years; the useful life of a one-dollar bill is about three weeks.  The coins cost more to make, but the difference in useful life is so large that the government has to show a profit (less of a loss) by making coins instead.  So, why don’t they?  They did, starting with the small-size Susan B. Anthony dollars in 1979 – 1981 (it was the ugliest coin ever produced by the US Mint).  In that 3 year period, the Mint produced 700,000,000 of them.  So, where are they?  Still sitting in bank vaults, waiting for someone to use them.  When the Mint moved on to the Sacagawea dollars and then the Presidential dollars, they made hundreds of millions more.  Do they circulate?  No.*               

People don’t like changes to basic things like money.  It makes them feel as if the world is an unstable place—which it is, but who wants to be reminded?  Until and unless the one-dollar bill is discontinued, those dollar coins will continue to be an oddity.  If the one-dollar bill is discontinued, several things will happen in short order:  dollar coins will circulate; half-dollar coins (still made yearly) will also circulate; even the two-dollar-bill—the bastard child of the Bureau of Printing and Engraving—will circulate.  Other than laziness, there would never be a need to have more than a single one-dollar coin in your pocket with the Deuce circulating, so you won’t be heavier than carrying two current quarters would make you.  The coins are already there to be used.  So are the two-dollar bills.  Canada has been doing this for more than a decade and it works well there.            

Don’t be too quick to dump the cent though.  Why?  Sales taxes. You KNOW those won’t be rounded DOWN.  If the cent goes away, prices of everything will very quickly advance to some multiple—my guess would be to the next dime or quarter, because the nickel and dime aren’t worth much, either. Don’t set off inflation prematurely by fiddling with the money.  Inflation will come all by itself when it’s ready.            

With smart cards, credit and debit cards and Paypal, why bother to have currency at all?  First, electronic money transfer isn’t always possible.  Not everyone does business only in urban areas.  Second, and more important, is that between 10% and 50% of EVERY national economy is underground—trade in illegal items, illegal services, or simply things that the transactors don’t want publicly known.  Do you really think that cooperative and friendly guy on the Zoning Board of Appeals will accept his bribe by debit card?  Or the cooperative, friendly lady leaning on that corner lamp post?  Or even at your neighbor’s Tuesday night poker game?  Cash is here to stay. --Ron Pittenger

* So why don’t they destroy all 700,000,000 of them and save the cost of storage, avoid the possibility of loss, etc.?  Because when the Mint makes a coin (or the BP&E prints a bill), the government gets a profit called seigniorage.  That is the difference between the cost to manufacture it and its face value.  Those 700,000,000 dollar coins only cost 7 or 8 cents each to make.  Melting them would incur a $644,000,000 loss, added directly to the deficit.  They can be stored for many decades before melting them will look attractive.

Only have to round up 4 cents to get to a nickle. ~Bob


  1. I found you because an old email is going around, "I'm Tired by Bill Cosby" & Snopes attributes the piece as yours from your blog. This could be the reason your readership has increased.

  2. In EU countries, the minor denominations are all coined: 1,2 & 5c, 10, 20 &50c, 1& 2€...Could work here in $ & c, if we strike the coins in stainless steel (about 5c/#.