Sunday, May 4, 2014

Saving Money One Coin At A Time

Dollar Coins are the way of the future
Currency should be designed by the government as a simple and efficient medium for exchanging goods and services. The U.S. Mint has produced $1.4 billion in surplus dollar coins that are sitting in vaults. They make hundreds of millions of these coins every year with 40% of them being returned to the Federal Reserve because nobody wants them. Using the coin in Post office vending machines created a relatively small demand, but the USPS eliminated all those machines by 2010. Dollar coins have found little popular acceptance in circulation in the United States despite several attempts since 1971 to increase their usage. To store all the unused coins, the Federal Reserve told Congress they will need to spend money to build a new vault in Dallas to hold them. Shipping the coins to the new secure facility will cost an additional $3 million. Sadly the government is still messing around with these stupid programs. 

The Sacagawea dollar was authorized by Congress in 1997 because the supply of Anthony dollars, in inventory since their last mintage in 1981, was soon expected to be depleted. Dollar coins are used infrequently in general commerce. There are approximately 1 billion Sacagawea coins currently in circulation (about 3 for each person living in America) and a large number in reserve. In December 2005 Congress decided to create a new series of $1 coins to honor former U.S. Presidents. At least one-third of all dollar coins produced are still Sacagawea coins, with the remaining coins being the four presidential coins annually. The presidential dollar coin is the same size and composition as the Sacagawea dollar. In 2007 four different designs of Presidential coins were produced, another four designs will be produced each year honoring the Presidents in order of service. This is intended to create renewed interest in the dollar coin like that seen from the "50 State Quarters" program. To emphasize what a joke Washington has become and how far this farce has gone after all the spending and wheel spinning the program scheduled to run until 2016 but was canceled to save money.

This move is controversial because phasing out paper bills and replacing them with a new $1 coin will save billions over time. If the presidential coin is such a clear case of wasteful government spending it is surprising to see the reaction from government watchdog groups. "We're honestly outraged about this," said Tom Schatz, president of Citizens Against Government Waste, "If they wanted to stop producing something that loses money in terms of minting coins, they should get rid of the penny and nickel." The dollar coin, he said, actually saves taxpayers money. That's because it costs 18 cents to produce, with the rest going to the government as profit. Because coins last longer than bills, shifting to a dollar coin could save $5.6 billion over 30 years says the Government Accountability Office. Last year the super-committee charged with cutting trillions of dollars from the US debt endorsed the idea to cut spending by replacing the dollar bill with the dollar coin. Getting this done in dysfunctional Washington is another issue.

The Obama administration's decision to suspend production of the dollar coins is too many just the latest blunder on dollar coin policy that has been mismanaged since the introduction of the Susan B. Anthony dollar decades ago, the coin was often confused for a quarter. Other countries have saved money by moving their low denomination bills to coins. It now appears to shift to a dollar coin the treasury would have to take dollar bills out of circulation. "I don't think that's something Americans want to see us do," said Rep. Kevin Yoder, R-Kan., the author of one of the several bills to suspend production of dollar coins. Current policy has been to promote both the dollar bill and the dollar coin with Americans consistently choosing the dollar bill. In other countries, these coins have largely succeeded because of a removal of their corresponding paper issues.  Groups on both sides of the issue are voicing their opinions, with "Americans for George" claiming that the public prefers the paper bill, while the Dollar Coin Alliance points to the cost savings. 

It is time to wrap this up. If the stupid politics and expensive time wasting of those in Washington do not make you cringe remember many of these crazy policies and decisions are helped along by lobbyists and industries with ties to the money-making industry. Enough of these "cute" coins and constant design changes and get back to basics.  For many years there have been discussions about discontinuing the penny which has become obsolete because of its minuscule purchasing value. The debate against continuing the penny is overwhelming, the penny is a perfect example of our government's inefficiency and waste, "the penny doesn't make sense". If the government cannot deal with the penny that carries negatives for the economy and society such as the energy used to make, transport, and distribute the worthless coin we are left with little hope that will get this right.

Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.


  1. Congress is the single biggest roadblock to reform. First and most important, they've rolled over in response to pressure from Crane Paper, the company with a monopoly on the special paper used for dollar bills. Crane would lose almost half their sales if we switched to coins - they send an army of lobbyists to DC any time someone even BREATHES the idea. Congress actually passed a law forbidding any action on $1 and $2 bills! Unless and until they develop a spine (HA!) we're going to continue to waste ~$750 million every year printing paper bills.

    The other problem is that even those few proposals that make it out of committee completely ignore the need for an effective $2 coin. Every other major country that got rid of their $1 bill (or equivalent) also makes wide use of a Two. If there were only $1 coins and $5 bills it's much harder to counter the "pocketful of coins" objection raised by nay-sayers.

    Finally there is no possibility of getting rid of the nickel along with the penny unless we also replace the quarter with a 20¢ coin. Again, that's something every other country has done when eliminating their 5¢ coins. If we had only two circulating denominations, 10¢ and 25¢, there would no reasonable way to make change because of the gradeschool reason that you can't divide 25 evenly by 10.

  2. Hi JeffK,

    Small note re: $1 and $2 coins,
    Some currencies whose largest coin is 1 unit also have a smallest banknote worth 2 units.
    Case in point: when Canada and Australia replaced their $1 bills with coins, their $2 bills saw widespread usage up until those were replaced with coins as well. New Zealand, on the other hand, replaced its 1- and 2-dollar notes with coins simultaneously.
    Another example: to this day Sweden still has a 10-crown coin and an 20-crown note, unlike Norway or Denmark which have 20-crown coins.

    Just a thought.

    - Josep

    P.S. I'm the same 'Josep' who reads The American Conservative. Are you the same JeffK who frequents there?

  3. Re: quarters,
    The choice of a 25-cent piece as opposed to a 20-cent came from the practice of subdividing Spanish dollars into eight "bits" (reales), hence the quarter is sometimes called "two-bits". This practice, which ended with the New York Stock Exchange's transition to decimals in 2001, apparently did not carry over to China, Japan, Korea, French Indochina, Hong Kong and the Straits Settlements, which had 20-cent pieces instead, in the mid-19th to 20th centuries. Even after Spanish coinage no longer became legal tender in the USA by the late 1850s, quarters were still used. There were no silver 12½-cent coins in circulation, which makes the original reasoning rather suspect.
    To be fair, this was at a time when the 5-cent piece was a silver coin smaller than the dime called the "half-dime", and Thomas Jefferson et al weren't aware that a larger cupronickel coin would replace it in 1873. Canada adopted a 25-cent piece to mimic USian coinage during the 19th century, and because it never had a Civil War, it kept using silver half-dimes until 1921.

    When the silver half-dime was discontinued in 1873, some people were distrustful of the new nickels because they had no silver, and it became impossible to make change from a quarter with only dimes. So the US government introduced a 20-cent piece - a denomination Jefferson himself wanted from the beginning. Problem is, despite having a smooth edge, it was easily confused with the jagged-edge quarter, and so it was abandoned a few years later. This can be blamed on stupidity on behalf of either the government (for not educating, let alone conditioning, the people to the new coin) or the people (for not seeing the necessity of a 20-cent piece amid the absence of the half-dime, let alone the smooth edge of the new coin). Similarly, Canada had a 20-cent piece in 1858, but it was changed to a 25-cent piece in 1870 just to ape the USian system. Newfoundland, then a separate colony, kept using the 20-cent piece until WWI under pressure from the Canadian government.
    Mexico at one point had coins for both 20 and 25 centavos, sometimes circulating alongside each other, with the 20 successfully replacing the 25. Pre-decimal Britain, along with New Zealand, had coins for both 2 and 2½ shillings (florin and half-crown), and both circulated alongside each other until 1971 when the florin became the 10p (the half-crown, at 12½p, didn't work well). If discontinuing the 25-coin allowed easier adoption of the 20-coin, then why didn't it behoove the US Mint to do the same?

    The US and Canada weren't the only societies to use quarters. The Scandinavian Monetary Union, the Netherlands (plus former Dutch colonies in the Americas), Thailand, Saudi Arabia, Ukraine, Brazil and Turkey have/once had coins worth 1/4 of their respective base units. A handful of these countries managed to eliminate low denomination coins without swapping their quarters for fifths.
    * When Denmark, Norway and Sweden eliminated their 5-øre coins, Denmark got rid of its 10-øre piece, while Norway and Sweden got rid of their respective 25-øre pieces.
    * Ukraine recently got rid of the 1-, 2- and 5-kopek pieces in 2018 (they're set to lose their legal tender status this October) and announced it would be eliminating its 25-kopek piece as well.
    The USA and Canada would solve this problem by either reviving the half-dollar or eliminating the dime. Problem is, in the US at least, the half-dollar weighs five times as much as the dime, and unless a smaller one were introduced, the denomination would not see as much adoption as the dollar coin. Also, it's easier to round prices to the nearest 10 cents than it is to the nearest 25; that way you'd lose at most five cents instead of twelve.