StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Tea Partiers Want A New Dollar Coin And Refuse To Listen To The Free Market In The Process

28 Sep 2011
Posted by Stan Collender

Over at TPM, Ryan Reilly has an intriguing post about the interest of some tea partiers for a new circulating dollar coin because it supposedly will save the federal government money.  This follows a story in the Huffington Post from a week ago about how Rep. David Schweikert (R-AZ) introduced a bill that would eliminate the dollar bill and substitute dollar coins.

Here's some very personal and U.S. history about the dollar coin and why this is a terrible idea that is really nothing more than a corporate subsidy.

Congress in the late 1990s mandated that the U.S. Mint create a new circulating (rather than a collectible) dollar coin.  This eventually became known as the "golden dollar" because of its color.  It was also often referred to as the Sacagawea dollar because of the image of the native American woman on the coin.

I not only worked for the consultant hired by the Mint to increase consumer awareness of the golden dollar so that it was more likely to be used, I led the team.  And from that perspective -- consumer awareness -- the coin was a huge success.  Positive awareness of the coin reached 85 percent within three months and the demand for it was so great that there were block-long lines around many of the Wal-Marts where it was first available.

But in spite of the consumer demand, the golden dollar was a huge flop.  Why?  The problem was that consumers wanted but couldn't get it. 

Banks initially refused to carry it because they said they already had a large supply of previously issued dollar coins like the almost universally reviled Susan B. Anthony and didn't want or need any more.  Even worse, they couldn't or wouldn't guarantee that you would get all or mostly golden dollars if you asked for a roll of them in a bank.  You got what they had...period...and that usually was Susan Bs.

But it was worse with retail outlets.  What Congress didn't realize or care about when it authorized the golden dollar was that it costs businesses more to get coins than bills because they're heavier and the delivery charges from Brinks or some other armored carrier are higher.  Plus, you had to order dollar coins in bags of 2000, which is way more than most retailers need and want to keep in their safes.  Because consumers ultimately didn't care whether they got a dollar bill or dollar coin  when they made a purchase, businesses saw no reason to pay extra to have the coins delivered or to take the extra risk of having them in their safes.  Ultimately, therefore, they didn't order them and you didn't get one in change.

But the most infuriating situation of all was the vending machine operators who had actually been among the golden dollars strongest proponents and had lobbied hard for the legislation that required it be produced.  The reason was that the dollar bill acceptors broke down often on vending machines and the machine owners and opeartors thought that a dollar coin would take care of the problem. 

Because of this, the Mint projected the demand for the coin based in large part on the assumption that vending machines would be converted quickly so that they could accept it.

The problem was that the vending machine operators and owners suddenly realized once the coin was available that it was going to cost them about $50 to retrofit each machine so that it would accept dollar coins...and most flatly refused to spend the money.  They wanted the Mint to pay for the retrofitting, which it wasn't authorized to do.

With banks refusing to order the golden dollar in big numbers or distribute them exclusively when they had them, retailers refusing to order them because of the additional cost, consumer wanting them but having a substitute -- the bill -- that they liked at least as much, and vending machine owners refusing to get in the game, the golden dollar died the same ignominious death as the Susan B. Anthony.

In theory, a dollar coin absolutely saves taxpayers money compared to a dollar bill.  When the golden dollar was released in early 2000, it cost the government about 12 cents to make and it was expected to last about 30 years before it had to be removed from circulation because of normal wear.  Each dollar bill cost much less -- about 4 cents -- but most bills only remain in circulation for a short time because they deteriorate so quickly.  That means that the savings over 30 years are significant: it cost 12 cents to have a dollar coin but 80 cents to have a dollar bill.  So from a budget perspective, changing to a dollar coin makes a great deal of sense and having a bill instead could be included in the waste-fraud-and-abuse category that most taxpayers demand be cut.

But...and it's a big but...rather than save money, a dollar coin actually costs the government and taxpayers a great deal if it's not going to be used.  The government will still have to manufacture bills to meet the demand and mint coins that few will ever use to meet the legislative mandate.  Pure and simple...creating a new dollar coin will be the equivalent of building a new highway right next to one that already exists and is working just fine.

As was the case with the golden dollar, what's really going on here is that companies in Arizona that mine the raw materials the Mint will need to make a new dollar coin want to sell them to the federal government.  As Reilly points out in his TPM piece, those that sell the paper the Bureau of Engraving and Printing uses for the dollar bill don't want to lose that very large and lucrative market so John Kerry (D-MA), the senator from the state where the largest of these companies is located, has introduced competing legislation to derail Schweikert's dollar coin bill.

Meanwhile, there's ample evidence that the market has repeatedly rejected the dollar coin.  I know from personal experience that consumers truly don't care whether they get a bill or a coin in change.  Retailers won't order them (FYI...We only got Wal-Mart to carry them by having the Mint direct-ship the golden dollars to each store at no charge) and banks don't want them.

It's more than just amusing that a number of tea partiers -- who profess to being so close to their constituents and are the champions of free market economics -- are taking up this cause when the evidence is so one-sided and incontrovertible.  Add to history the fact that consumers these days are increasingly using credit and debit cards for small purchases and, therefore, the need for currency in general and dollar bills or coins is likely to continue to fall, and you have to wonder why other than providing new corporate welfare this is even an issue again.

(FYI...We did a number of very high-profile and award-winning television commercials for the golden dollar.  This was my favorite (embeding isn't working, sorry).  It was directed by Bob Giraldi, who up to that time was best known for directing Michael Jackson music videos, and the voice of George Washington was Michael Keaton who had just finished shooting the first Batman movie.)

I protest!

Michael Keaton could not have just finished filming the first Batman movie in 2000, unless he had immediately gone into 12 years of cryogenic freezing after filming wrapped in 1988! And we know he couldn't have done so, because he subsequently made a SECOND Batman movie within that 12 year period and did not look frozen in it!

!!!!

Keep keepin it real, Stan-man


mostly right.

You're certainly right that the main problem was that the mint couldn't persuade retailers of the advantages of dollar coins. Failing to see that they, not individuals are the actual consumers was a mistake. But it simply isn't true that there was a large stock of Susan B's that made banks uninterested in ordering Sacageweas. In fact, the mint had to press a small run of 1999 Susan B's because they finally ran out of the supply last minted in 1981 for the small number of users. (things like transit systems and the post office which have larger denomination bill accepting machines that return change in dollar bills)


Uh, we got yer Sue B's right here

Whether the Susan B Anthony coins were scattered in bank vaults or not in 1999 I don't know, but it seems a billion of them piled up in Baltimore, unused and unloved.

http://articles.baltimoresun.com/2011-09-07/news/bs-md-fed-coins-2011090...


Why not just phase out physical money altogether?

Pulls up to $800b into spending and ultimately tier 1 bank capital, costs nothing as a stimulus, makes some classes of crime more difficult to commit.

(http://www.visualeconomics.com/the-value-of-united-states-currency-in-ci...)


Can't we also assume that the

Can't we also assume that the reason the Tea partiers want a new coin is because they want it to be 100% made out of gold? I mean I doubt they want a typical dollar coin like we have in Canada made out of Nickle. This is their end game isn't it? Part of the gold buggery.


Ah...I remember it well....

Mostly right is right. In 1999, the Mint was faced with a dollar coin shortage. Dollar coins and half-dollars (which haven't been minted in years) were in heavy circulation in places like Las Vegas. Dollar slots changed everything, along with transit price increases.

However, I take issue with this statement:

"a dollar coin actually costs the government and taxpayers a great deal if it's not going to be used. The government will still have to manufacture bills to meet the demand and mint coins that few will ever use to meet the legislative mandate. Pure and simple...creating a new dollar coin will be the equivalent of building a new highway right next to one that already exists and is working just fine."

1. In 1996, the US Mint operations converted to a Revolving Fund. The cost of all manufacturing is offset by seigniorage, the authority of the Government to impose value on a coin. The dollar coin costs only 8 cents to make, so that's an awful lot of seigniorage available to cover costs. The Commemoriative Coin Act of 1996 imposed a limitation on how much circulating coinage the Mint could produce: only what was ordered by Federal Reserve banks. So the Mint can't stockpile coins (like it did with Susan B. Anthony) only to hamstring the government from melting them down because they have value (and would count as a debit on the Federal books.)

2. The dollar coin has never reached the level of acceptance in the US because the dollar bill was never pulled. Talk about waste! The dollar bill costs nearly 10 cents to produce and only lasts only 18-20 months.

3. If there is a stockpile of dollar coins today, lay the blame at the foot of Congress for passing the Presidential Dollar Coin Act of 2005. The Mint is now producing coins (dollars and quarters, from a previous program) for numismatic as well as currency purposes.

Minting $1 coin instead of $1 dollars sounds like one of the smarter suggestions to come out of the tea party.


The cost of maintaining our

The cost of maintaining our current monetary system - a leveraged bank-based system where paper notes (or debit cards or such) are merely a liability against deposits at the Federal Reserve - is $13 freaking TRILLION over the last three years - and counting!!!! And you say that that system is working???? I guess it's not really a "subsidy" if the cost is in the trillions eh?

Why don't you people buy a clue? The banks would not have been bailed out if they didn't have a monopoly over money. That is what makes their threats to shut down the economy valid. IT'S THE MONOPOLY STUPID. It has been so ever since Rothschild said "Give me control of a nation's money and I care not who makes her laws". A monopoly granted to them by government - perpetually subsidized by government - defended by trough-swilling pigs in DC who benefit from stealing other people's money and hiding the evidence of their theft via inflation.

So what if some elected idjits actually think that an already debased coinage (where token coins no longer have any value and thus cannot serve as a medium of exchange for anything important) can simply replace a broken insolvent banking/monetary system and break the monopoly. It can't of course. But at least they are making an attempt to actually understand what money is and what functions it actually needs to perform. Which is more than I say for the shills of the current self-evidently broken system.

And stop calling current coinage - "golden" or "silvery". It is not the hue of a coin that makes a coinage money system function.

No amount of "discussion" about current coinage denominations makes a rats ass bit of difference now. Our unit of account (dollar) is itself debased and trivial. It now embodies less than 10 minutes of unskilled labor. Back in the day when the unit of account (dollar) was defined as an amount of silver (it was never defined as "gold") - 10 minutes of labor was worth a couple of pennies. Not something that government thought worth twaddling over - because small governments focus on important things.

Now that government has grown and has to feed all sorts of sucklings and debased the coinage; it is messing around with value as trivial as 10 minutes of unskilled labor - and painting it "golden" to pretend that it is important. All while subsidies in the trillions of units of account (dollar) are flowing out the other door with no one paying the slightest attention. Nice game you all got going there.


Abuse

Dear Budget Wonk,

Abusing your listeners is a sure way to lose an argument. It signals to most people (like me) that you have no idea what you are saying, and that we should stop listening.

So, in future, try to avoid such phrases as "STUPID" and "Why don't you people buy a clue?" and "shills" when referring to your readers.

Sincerely,
Ancaeus


I got several in return for a

I got several in return for a purchase of stamps at the post office and used the last two two weekends ago at a local Octoberfest. The beer vendors were real unhappy to get them as they did not have slots in their change tray for them. Plus the size isn't too distinct from the quarter and they were concerned that they would return a $1 in change instead of a quarter. I bought several more beverages in the attempt to reclaim the coins, but did not succeed!


A simple solution

Make the dollar coin the size of the quarter, make the quarter the size of a dime, make the nickle the size of the penny -- and eliminate the penny.

Problem SOLVED.


Exactly. And stop printing

Exactly. And stop printing dollar bills. Why is that so hard?


Sure. And what do you do

Sure. And what do you do about 5,10,20,50 dollar bills? Make bigger coins for those too? For those people that like to pay cash for things, by the time they took 100 dollars out with them, they'd look like a little hip hop kid, with their pants hanging around their arse from the weight of all the coinage.


This time might be different.

This time might be different. If the government ceased issuing paper one dollar bills, banks and merchants would have to arrange for coins. Merchants hate electronic payment systems for small transactions due to processor fees, and many poorer consumers have no access to them.

To be sure, eliminating the paper bill will run into opposition from the company that makes the special paper (Cranes?). Greg Ransom's proposal to change the size of the coinage would not subsidize any corporate interest and is therefore too useful and clever to ever be implemented.


I have no idea how much Crane

I have no idea how much Crane is paid for their paper -- but Stan is simply blowing smoke about the supposed corporate subsidy for purchasing Arizona copper for $1 coins.

US Mint production (2010):
350 million $1 coins - containing a total of 2500 metric tonnes of copper ($9000/tonne - $22.5 million total), 486 tonnes of zinc ($2200/tonne - $1.1 million total), 283 tonnes of manganese($3300/tonne- $1 million total), 172 tonnes of nickel ($21800/tonne - $3.75 million total). The government then turns $28.35 million of metal into 350 million $1 coins -- with a profit margin of 90%.

If you think that the US Mint is a big enough customer to set the price for any of these base metals then you are deluded.

Further, unlike Crane paper, copper is a COMMODITY. A copper company that sells to the US Mint does not get a higher price for that copper than if they sell it to the Chinese --- so there is no "subsidy", no special benefit, no "monopoly" profit here.

The reason the Mint will NEVER succeed at producing many more than 350 million $1 coins (they produce 350 million quarters per year too) is because the US has already debased the coinage. There is a weight limit to how many coins people will carry around to make purchases and debasing the coinage simply means that what they carry has less purchasing value.

The only way the US Mint could produce more profitable coins - and provide an actual money alternative to banks - is if they produced coins that contain MORE VALUABLE metals - eg silver/gold.

A silver coin with $25 of metal and a face value of $100 would certainly circulate - and provide $75 of profit to the Mint. A silver coin with $25 of metal and a face value of $1 will simply be hoarded (and can only be sold for a nominal profit over the metal value). Guess which one the US Mint produces. Go ahead scratch your head Stan and blame the tea party goldbug types.


Dollar Coin

In my experience use of the word "incontrovertible" is guaranteed to raise-up a controversy. Now, if you really want to provoke a slew of comments, tell your readers you think the Presidential Dollars have creative eye-appeal.


There is an option

Stop making dollar bills. Since the US government was the sole supplier of the dollar coin's main competitor, it shot down its own product by marketing the main competitor.


Much Ado About Nothing

This story was presented as if a large number of people in the Tea Party want to replace the dollar bill with a coin. This is news to me. I haven't heard one thing. Just because an elected official proposes it doesn't mean anything. Example, there was a official in California proposed that southern California become a separate entity from northern California. As the saying goes, "Ain't ever gonna happen."


You can have the golden

You can have the golden dollars, I don't need or want them. With my debit and credit cards I actually rarely carry cash, it's even rarer for me to have any coins in my pocket. It's also becoming rarer in my job, I'm working in retail and on average about 1/10 of our customers use only plastic to pay for purchases. I can actually see a time coming when nobody will carrying any cash or coin of any kind.


A sad addendum to your tale of the dollar coin

As part of their effort to get the dollar coins in circulation, the US Mint has what it calls the Direct Ship Program, where you can order the coins in lots of 250 and the Mint will ship them to you at no cost.

People (including a close relative of mine) with a knack for gaming the system figured out that they could do well by ordering large quantities on their credit cards, earning miles or cash back (sometimes 3% or more) for the charges, and then mostly just depositing the coins at banks instead of putting them into circulation. The banks didn't have demand to match the supply, so would send them back to the Mint.

So, taxpayers bore the cost of shipping, the cost of the fees charged by the credit card companies, and whatever the costs were of handling the returns from the banks. The banks bore the costs of handling the coins and shipping them to the Mint. The credit card companies raked in some easy fees. I'm tempted to say that a huge expansion of the scheme just might be the ticket to create employment and restore demand.

Anyway, the Mint has ended the party. You can still order the coins and get free shipping (Order some here in honor of Stan's efforts: http://www.usmint.gov/mint_programs/$1coin/?action=directShip ), but the Mint now accepts only money orders, checks, and wire transfers. A note on the link states:

The Mint has determined that this policy change is prudent due to ongoing activity by individuals purchasing $1 coins with credit cards, accumulating frequent flyer miles, and then returning coins to local banks. Local banks, in turn, returned coins to the Federal Reserve. While not illegal, this activity was a clear abuse and misuse of the program.

The Mint has undertaken several aggressive internal and external actions to mitigate this issue, including restricting chronic and repeated use of credit cards, contacting customers who frequently placed large numbers of orders to ensure they were using the coins for legitimate business purchases, and other measures. While these measures eliminated a significant amount of misuse in the program, we believe some abuse still exists. Eliminating the credit and debit card purchase of the $1 coin is the next step in our efforts to root out abuse in this program and ensure it is better targeted toward fulfilling its intended purpose—which is to get the $1 Coin into greater circulation.


Direct Ship

I was one of the people who took advantage of Direct Ship when it was free, but I did it only once, because I wanted the coins not the miles (a nice bonus, but not my motivation). Under the new system, it will cost me more than $250 (money orders and mailing checks cost money and more of my time) to get $250, so I probably won't be ordering again. I do ask for dollar coins when I use a teller, but I hardly ever do that anymore and the credit union doesn't have many to give out in any event.

Which is too bad, because I think the coins do have some uses. Not everywhere accepts credit (the sandwich/coffes shop across the street from my work, for example, is cash only) and I hate to impose the credit card companies' fees on merchants when I'm making only a small and small-margin purchase. If I am paying cash, I'd rather be able to pay for a transaction just by reaching for a few coins rather than having to drag my hefty wallet in and out of my pocket. I don't use vending machines much anymore, but when I do, dollar coins work, dollar bills . . . it's pretty hit or miss.

Besides the utilitarian, dollar coins are prettier than dollar bills.


What free market?

"The problem was that the vending machine operators and owners suddenly realized once the coin was available that it was going to cost them about $50 to retrofit each machine so that it would accept dollar coins...and most flatly refused to spend the money. They wanted the Mint to pay for the retrofitting, which it wasn't authorized to do...."

So, a big reason the coin didn't fly is vending machine operators wanted a subsidy from the government they didn't get.

So, if the government were to make dollar bills unavailable what would they do? Shutter their business rather than retrofit their machines?


Tea Partiers Want A New Dollar Coin And Refuse To Listen To The

Let me get this right...

The Tea Party wants a government Mandate forcing us to use a coin?


Ultimately the similarity

Ultimately the similarity between even the golden dollar and the quarter coin severely limit the former's desirability. In dim light and in the pocket it is impossible to know the presence of a dollar coin. The pound coin, in contrast, is obvious to the touch.


A big market, thwarted

And then there was this: NYC transit & Metro-North returned golden coins if you bought MetroCards or tickets with paper cash. But their bus coin-boxes would not accept them if you wanted to pay your fare with them.


If they stop printing dollar

If they stop printing dollar bills, it would work pretty quickly. The Loonie works fine in Canada because there's no alternative. But it's never going to happen.


It DID suck for people too...

As a consumer, the "Golden Dollar" DID suck too, because, as a result of the same vending machine lobby, the dollar coin was mechancially identical to the Susan B.

So you can't tell by feel in the pocket, and the gold color tarnishes so its not quick by look either.

The Loonie has been much more succesful because it couldn't be confused with the existing canadian coinage by either feel or look. But the "Golden Dollar", by repeating the mistakes of the Susan B, repeated the same mistakes made in 1979.


This bill is actually a good

This bill is actually a good thing. If it were enacted, it would blow up any future balanced budget amendment on the launch pad. Now if you'll recall way back in the summer of 2011, the suggestion was made to sidestep the debt ceiling by the Secretary of the Treasury using his statutory authority,to mint platinum coins in any denomination, to strike a couple of $1 trillion coins to buy back the $2 trillion in Fed-held Treasuries.
If this dollar coin bill passed, Secretary Geithner would have even more powers to do good (and perhaps close his own karmic deficit before he's knocked out cold by falling satellite debris). He could immediately balance the federal budget this year and every year thereafter, Tsy would never have to borrow again.

"(d) Clarification With Respect to Seigniorage- The ninth proviso of section
5136 of title 31, United States Code, is amended, by inserting after
‘miscellaneous receipts’ the following: ‘and such amount shall be included
as an estimated receipt of the Government and a receipt of the Government
under paragraphs (6) and (7), respectively, of section 1105(a) in any
budget submitted under such section’."

Today, Tsy takes the position that coin seignorage revenue is off-budget. However, were this bill already law and there were a $1 trillion budget deficit today, depositing a $1 trillion coin tomorrow would eliminate the deficit. Now that's a grand bargain! :o)
I'll leave it to Jamie Galbraith to explain why Tsy doesn't actually have to borrow and how the Fed can, instead, peg a Fed Funds target rate simply by adjusting the Interest On Reserves rate it offers banks:
"The U.S. government spends (and the Federal Reserve lends) in a very simple way. It does so by writing checks --in fact simply by marking up numbers in a computer. Those numbers then appear in the bank accounts of the payees... The effect of government check-writing is to create a deposit in the banking system. This is a “free reserve.” Banks of course prefer to earn interest on their reserves... Thus they demand a US Treasury bond, which pays more interest without incurring any form of credit or default risk... So long as U.S. banks are required to accept U.S. government checks – which is to say so long as the Republic exists – then the government can and does spend without borrowing, if it chooses to do so..."
http://www.ourfuture.org/report/2010062630/statement-commission-deficit-...


Your analogy of two highways

Your analogy of two highways only is true if they fail to eliminate the $1 bill, which you yourself say the legislation would do. So... I don't see what point you're trying to make.

And as to the other commenter who misunderstood, the point isn't to do away with *all* bills, just the $1. The U.S. has the lowest value bill of any of the major economies. This article has some good graphics comparing ours to others.

The GAO wrote a great report on how to effectively transition from $1 bill to coin, and the most important step they outlined was to eliminate the bill first. Unfortunately, Congress didn't have the cojones to do that.


Not to take away from the

Not to take away from the essay's points, but I think consumers would be much more likely to accept dollar coins if there were also a $2 coin. Go to Europe or Canada: you can't buy much with a $1 (or equivalent) coin. But a fistful of coins that includes $1s and $2s, okay, that's worth having.


I am totally for this, I've

I am totally for this, I've been using $1 coins for over a year now and I love them. If a dollar bill gets into my hands because I didn't have enough change to either pay exact or get a $5 bill back I send it right back to the bank, I won't recirculate it. Tell your representative that you support Rep. Schweikert's bill [https://www.popvox.com/bills/us/112/hr2977] to kill the dollar bill and circulate the dollar coin. We're wasting money every day that we continue to print the dollar bill.


The reason that the Golden

The reason that the Golden Dollar failed is simple. It is VERY different from a quarter (and a S. B. Anthony is even easier to tell), it was readily available (in fact, many people picked them up because "they were new"), it worked in vending machines... but ever since man invented the wallet, and women miniaturized the coin purse; it had no place in society.

We lose 184 million dollars a year over paper money right? And there's 308 million taxpayers on the us census right?

So what they're REALLY talking about is ~60c of "Per Taxpayer Dollar" wasted a year. And this is a CONVENIENCE charge! Coin are bulkier than paper money as well as being heavier; it leaves one to question what merits (other than 60c a year) they have.

Just consider, is the public's addiction to $1 currency such as to carry around $1 coins, or would they "accept them as change" but only carry around $20's and $5's? Does the public carry around paper money because it's more convenient, or because it's what is available?




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