StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Dollar Coin Is Really A Dollar Con

01 Dec 2012
Posted by Stan Collender

I first posted about the budget stupidity of the dollar coin more than two years ago.

At that time I stipulated that, in theory, a dollar coin makes a great deal of budget sense because it costs more to keep a dollar bill in circulation over a long period of time than it  does to have a coin. Therefore, as the Government Accountability Office has said on many different occasions, the federal government could spend less by switching.

But...as I also said two years ago...the key phrase is "in theory." The savings only occur if dollar coins replace rather than supplement the dollar bill, that is, if consumers do something they've absolutely shown no inclination to do by not using bills, and if retail businesses are willing to pay the higher costs to them of using coins.

This is not a guess or supposition; I headed the team of consultants who helped introduce the Golden Dollar coin in 2000. I know from very personal experience (I can show you the scars) that no matter how much fiscal sense it might make in theory, and no matter how much consumers say they like the coin (surveys in 2000 showed they were very popular), the loyalty to the dollar bill is very high and there is little to no willingness to switch. Retailers who handle a great deal of cash (think 7-11) demonstrated that they were unwilling to pay the additional cost of having coins delivered to their stores. And vending machine manufacturers and owners -- who had lobbied extensively for the coin in the late 1990s -- refused to pay to have their equipment retrofitted to accept Golden Dollars; they wanted the U.S. Mint to do it. The retailers' enthusiasm for the coin fell rapidly when the Mint refused

That changes the budget savings equation dramatically. Dollar coins produce savings only if they are a substitute for bills. But if the coins are produced in addition to the bills, that is, if the bills aren't taken out of circulation and the two exist side-by-side, the savings vanish and spending increases because the government is now producing two products where only one is needed.

This is virtually a classic definition of waste, fraud and abuse.

I'm posting about all of this again now because a subcommittee of the House Financial Services Committee last week held yet another hearing about dollar coins and once again claimed that great budget savings would result if the U.S. switched. The witnesses included Philip Diehl, the former director of the U.S. Mint when the Golden Dollar was introduced, and Lorelei St. James, who testified on behalf of the GAO.

Unfortunately for the Dollar Coin Alliance, the coalition that flacked the hearing last week, GAO's testimony was not as supportive as it appears. In fact, Ms. St. James confirmed that a coin would only produce budget savings "if the note is eliminated and negative public reaction is effectively managed.”

Given the public's repeated refusal to use dollar coins in the U.S. (The Susan B. Anthony and Sacagawea dollars were huge busts as circulating coins, and few people have ever received one of the current dollar coins in change), it's not at all clear when or if there will ever be a majority in either the House or Senate that will support eliminating dollar bills and mandating that coins be used instead.

That means that, rather than saving money, the whole effort to substitute a dollar coin for a dollar bill has actually made the federal budget situation worse. After all, how much have all the GAO studies, congressional hearings, and previous failed attempts at having a dollar coin cost taxpayers?

 

 

 

The New York City Transit

The New York City Transit Metrocard fare-card vending machines give dollar coins as change for cash transactions. That is the only context in which I have ever seen dollar coins in regular use.


postal exception

USPS vending machines all over the country give change in dollar coins to purchasers of stamps.


Coins need a complete makeover

The big problem with coins is that the value of money has decreased about 20-fold from 1913 while coins are essentially the same weight. Roughly, the real cost of carrying money as coinage has gone up 20-fold. Whenever I travel to Europe (where dollar-value currency is usually coinage) I get very annoyed at the weight and racket of change rattling around in my pockets. Even in the US I've developed a preference for debit cards to avoid those dang pennies.

To get people to use coins freely, we need to the real values back to where they were when current weights were set. The least valuable coin, a penny in 1913, would now be 20 cents, so the least valuable coin should be the quarter. Dimes, nickels, and pennies shouldn't exist. I'd make the actual physical New Quarter like the dime, the smallest coin we have now. The dollar coin is worth about a nickel in 1913, so make it like the nickel. A five dollar bill today is worth about a quarter in 1913, so you could switch the five to a coin as well.

At those weights and values you'd see a lot of coin usage. As a side benefit we'd get rid of the ridiculous $x.99 pricing system. At the current weight/value tradeoff it's going to be hard to get people to switch to a dollar coin and I think usage of other coins will pretty much disappear if we ever get another bout of inflation.


Other countries routinely

Other countries routinely eliminate pennies and low denomination paper currency. Observers report that there's a lot of initial consternation, but then it passes.

I'm not convinced that things would play out that way in the US. But I'd like to know why: it might provide some basis for comparing dysfunction among the major democracies.


revalue at 10:1 and 1950 tax structure

Rather than 20:1, create a NewDollar at 10:1 and restore the corporate, capital, dividend, income and estate tax structure to that in 1950, when the dollar was worth about ten times as much. Keep payroll taxes as is with current ceilings at same numbers, not divided by ten. Allow coins to retain current number of cents in NewCents but change bills as well as financial entries.

I would love to have the CBO score this. And to hear the screams from the financial sector.


Dollar coin makes so much sense

Dollar coins are more convenient than dollar bills. What we have today is the equivalent of a quarter in 1976, in paper form. Did anyone think a 25¢ bill would be convenient in 1976? Didn't think so.

Dollar coins have not circulated widely in the US because we made them so hard to get. People never got a chance to use them on a regular basis.

I believe US citizens would be the same as the citizens of Canada, Australia, Britain, Europe, and most all countries of the world in acceptance of a dollar coin. In Canada, people whined at first because they didn't want to switch--now, they consider their $1 coin (the "loonie") their national symbol!

It's time for Congress to take the sensible step of ceasing the production of dollar coins and, while they're at it, eliminate the wasteful penny too.


The problem is that a dollar

The problem is that a dollar coin (along with eliminating the penny, and the nickel while we're at it) would be a recognition of inflation. And although people complain about it, people simply don't want to recognize how much less their money is worth. Heck, the most of the inflation that makes this a logical move happened in the 70s and 80s. So we're already 25 years behind the times on this one.


I did my part.

I ordered and spent literally thousands of dollar coins over the past several years.


"Given the public's repeated

"Given the public's repeated refusal to use dollar coins in the U.S."

They refused because they had a choice. Eliminate the dollar bill, and they'll have no choice.

Which part of this isn't clear?




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