Here’s a timely article from the August edition of Token Publishing’s Coin News about the seeming inability of the US to migrate from the dollar bill to the dollar coin:
US CONGRESS has reopened the debate yet again on the future of the much-loved one dollar bill. The Government Accounting Office (GAO) reported last year that the replacement of $1 notes with $1 coins could potentially save $4.4 billion over 30 years. The overall net benefit was due solely to increased “seigniorage” (the difference between the cost of producing currency and their actual face value) and not to reduced production costs as first thought. Seigniorage in effect reduces government borrowing and interest costs, resulting in an overall financial gain for the government. However, for such a replacement to be successful, the $1 coin would have to be widely accepted and used by the general public and currently there is an overall lack of public acceptance of the low denomination coin. It is believed that efforts to increase the circulation and acceptance of the $1 coins [have] failed due in part to the continued circulation of the $1 note. Other countries, including the UK of course, have replaced low denomination notes with coins and the successful transition was due to an actual replacement of the denomination and not an attempt to run the two in tandem. Canada, likewise, phased out their low denomination note for coin and the Canadian Government reported a saving of some C$450 million over five years, so US paper dollar’s days could be numbered.
- “RESISTANCE TO CHANGE,” Coin News, Volume 50 No. 8, August 2013 | http://www.tokenpublishing.com/issue.asp?iid=360
It is refreshing to see the issue laid out so simply, with examples of other countries’ successful transitions. Why can’t the US do what others have done? The reason cited (and widely advanced here in the US) is that the coin is unpopular with the American public because the dollar bill is still circulating, and the US government won’t remove the dollar bill from circulation because the dollar coin is unpopular. Sounds like an invented chicken-and-egg conundrum, if there ever was one. With a potential savings of $4.4 billion over 30 years in the balance, there has to be something more to it. There is:
Congress is once again considering a plan to eliminate the dollar bill and replace it with a coin.
U.S. Sen. Elizabeth Warren [D-MA] had a one-word answer for that one-dollar question Sunday: “No.”
Folding money is close to the heart of the Berkshires, where Crane & Co. has been making currency paper for the United States for more than a hundred years. The new high-tech $100 bill, printed on paper made in Dalton, finally makes its debut this October.
It’s also about jobs: the currency division alone employs 400 people.
“People don’t want the one-dollar coin … we tried that,” said Warren during a tour of Crane on Monday. “We tried it back in the ’70s and there’s a vault of one-dollar coins nobody wants.”
- Tammy Daniels, “Warren Says Dollar Coin a No-Go During Crane Visit,” iBerkshires.com, 5 August 2013 | http://tinyurl.com/mdvgwsq
Ah, it’s about saving jobs, is it? Let’s see: considering the $4.4 billion saving over 30 years the GAO cited, that’s $3.67 million per employee, annually! Those must be some pretty highly skilled employees! As far as the 1970s dollars Warren cites, they didn’t circulate well because they were either too big and heavy (Eisenhower dollars) or were confusingly quarter-sized (Susan B. Anthony dollars). Just like today’s dollar coins, both suffered from continued circulation of dollar bills. With dollar bills still in circulation, any design was doomed to failure.
After 40 years of trying and several different designs, it becomes apparent that the problem does not lie with the dollar coin, but with the inability to stop production of the dollar bill. The iBerkshires article puts us onto the trail of the real reasons for that:
- The Crane Paper Company has been in business since before the American Revolution, and has held the government contract to produce the paper used for US currency since 1879. I have nothing against the company, but they are dug in like a tick on a dog’s behind, as we used to say back on the farm. The resistance to change, of the coin variety anyway, is similarly entrenched.
- The company is based in Massachusetts, which has long been a Democrat Party stronghold in Congress, with a lot of big-name political muscle (e.g. Kennedy, Kerry, etc.). Any attempt to cut paper currency production is politically Dead On Arrival, regardless of any savings involved.
I wish I could be as optimistic as Coin News in saying that the US paper dollar’s days are numbered, but as evidenced by Senator Warren’s simple “No,” there doesn’t seem to be any end in sight.
Notes
- “RESISTANCE TO CHANGE,” Coin News, Volume 50 No. 8, August 2013 | http://www.tokenpublishing.com/issue.asp?iid=360
- Tammy Daniels, “Warren Says Dollar Coin a No-Go During Crane Visit,” iBerkshires.com, 5 August 2013 | http://tinyurl.com/mdvgwsq
- Annalyn Kurtz, “Kill the dollar bill, for $1 coins instead?,” CNNMoney, 28 November 2012 | http://tinyurl.com/pafe3ra
- Crane Paper Company, Wikipedia | http://tinyurl.com/pz4vvj8
- Massachusetts members of Congress, govtrack.us | http://tinyurl.com/c3s6v4r
Life with John 
There was an economist I knew at the Richmond branch of the Federal Reserve who did some work on the case for the $1 coin in the 1990s. I’ll see if I can track down his stuff.
Saving $4 billion would be a stronger incentive if it didn’t seem likely that Congress or the President would fine something else to fizzle the money on. Those Mississippi cotton plantation owners always need a little more help….
Your suspicions are well-founded, given the example of what happens to the funds generated from state-run lotteries that supposedly goes to fund schools:
“In fact, in state after state, where lotteries send millions of dollars to public education, schools are still starved. Why? Because instead of using the money as additional funding, legislatures have used the lottery money to pay for the education budget and spent the money that would have been used had there been no lottery cash on other things. Public school budgets, as a result, haven’t gotten a boost because of the lottery funding.”
– Valerie Strauss, “Mega Millions: Do lotteries really benefit public schools?”, Washington Post, 30 March 2012 | http://tinyurl.com/cfktx6o
Despite this, it seems worthwhile to stop obvious waste whenever possible, even if the money may just come squirting out another hole in the firehose of government spending.