The mysterious dollar coin

by Russ Roberts on June 29, 2011

in Politics

Planet Money uncovers the fact that the US government has been minting dollar coins that no one wants to use. We prefer paper. A billion dollars worth of the coins that nobody wants is sitting in Fed vaults. And more are on the way–we’re only up to Ulysses S. Grant.

Why is Congress continuing with the program? This story may help–Arizona is rich in copper and Tennessee has zinc. Wonder what the coins are made of. Probably mostly copper. So Arizona politicians think it’s a good idea. They’ve pushed for the dollar coin before. I suspect somebody made a deal to get someone else to get behind it in exchange for doing that person a favor…

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{ 59 comments }

Josh S June 29, 2011 at 6:14 pm

If you wanted proof for Mises’ assertion that a good only has monetary utility insofar as the market says so, well, there you go.

HaywoodU June 29, 2011 at 6:16 pm

I caught this when it aired on NPR. The more disgusting part is that each coin costs $.30 to produce.

John July 29, 2011 at 12:56 pm

It’s far, far cheaper in the long run:
http://tinyurl.com/3z79esm
“It cost 22 cents to manufacture a dollar coin and 9 cents to print a dollar bill. But the average coin stays in circulation for 30 years while the life span of the average dollar bill is between 9 and 12 months. Therefore, over 30 years it costs taxpayers 22 cents to keep a dollar coin in circulation but more than 10 times that amount — $2.70 — for a dollar bill.”

morganovich June 29, 2011 at 6:47 pm

the problem with these coins, is that you cannot mark them down like you would other overstock.

i bid them 80c a coin for as many as they would like to get off their hands.

still awaiting a response.

Mike Wilder June 29, 2011 at 6:48 pm

What the articles don’t mention is that you can order coins online from Treasury Dept, pay by credit card and gov will pay shipping (and you get to keep the reward points)

Brad Toy June 29, 2011 at 7:05 pm

In my opinion the longer life span of the dollar coin makes more sense in the long run, but only if you drop the one dollar bill completely and push the $2 bill in to greater circulation. At least with the dollar coins you have something that has some melt value if the dollar ever collapses. Bills will be worthless.

PrometheeFeu June 30, 2011 at 5:25 pm

Coins are also a LOT less practical than bills to carry around because they are significantly heavier and bulkier.

CC July 16, 2011 at 11:22 am

1 dollar coin weighs less than 4 quarters that people usually carry around when they need to spend a dollar in change. Canada, the EU, the UK, and Australia use them without a problem and overtime it has saved their governments money because the coins last longer.

Greg Webb June 29, 2011 at 7:34 pm

Nice analysis, Russ. This is another example of government trying to impose its views on the people, who reject it entirely. The sad thing is that taxpayers will have to pay the bill for this idiotic idea. And, all this from a government that cares about you. Really, it does!

Joshua W. Scott June 29, 2011 at 7:43 pm

This in particular is completely ridiculous. Especially the Sacajawea equality amendment. It seems there is some validity to the argument that dollar coins are more durable and can therefore remain in circulation much longer. Of course, I don’t look forward to inflation getting to the point that dollars are just spare change to a sufficient portion of the population.

Dr. Roberts – Watching your CSPAN Q&A on Youtube right now. http://www.youtube.com/user/CSPAN#p/c/6174869307553B87/0/-BwneOK0INU

vikingvista June 30, 2011 at 12:37 am

Thanks for the link. A very pleasant hour that I might not have spent if I had to go looking for it.

Chucklehead June 29, 2011 at 7:57 pm

The problem is not that people want paper dollars, it is that they do not want this dollar coin. It is hard to distinguish from the quarter by touch in your pocket as you can the dime or nickle. In poor light, with aging eyes, it is even hard to distinguish on the counter. Is was made quarter like at the behest of the vending machine industry so they wouldn’t have to change there equipment too much.They did little research on the everyday user. This is the same reason we get a 39, 41, and 43 cent stamp but never the 40 cent. If they made it larger like the liberty dollar or even the old fifty cent piece, it would be more viable. They could make it thicker like the British pound, which has been widely accepted. They could put a hole in the middle like many Asian coins and not have to make them larger. Of course, some might object to Susan B Anthony or Sacajawea with a hole in there head.

morganovich June 29, 2011 at 8:12 pm

chuckle-

a useful fact: san Francisco parking meters take chuck e cheese tokens as if they were dollar coins. if you hold one up to a sacajawea, it’s very obvious why.

no idea where else that works, but might be worth some experimentation.

muirgeo June 29, 2011 at 8:56 pm

But isn’t a Chuckie Cheese token worth more than a dollar?

morganovich June 30, 2011 at 9:39 am

no, 25 cents.

odinbearded June 30, 2011 at 11:51 am

Give it a few years.

brotio June 30, 2011 at 1:50 pm

But isn’t a Chuckie Cheese token worth more than a dollar?

A more relevant question would be: “In the open-minded and tolerant Bay Area of the open-minded and tolerant State of California; where Happy Meals are forbidden; how does one find a Chuckie Cheese token?”

Methinks1776 June 30, 2011 at 3:09 pm

:)

Greg Webb July 1, 2011 at 7:25 pm

George, after Quantative Easing II, you may be right!

jorod June 29, 2011 at 8:22 pm

Go into a bank and ask for gold dollars..They don’t have any.

They are really good for parking fees at the commuter lot. And good for kids at the local candy store.

But a pocketful is rather heavy.

David Pinto June 29, 2011 at 9:50 pm

I strikes me that Costco could make some money here. They already buy stamps and sell them at a discount to face value. They could probably buy the dollars for $0.85 each, then sell them to members for $.90. That would help get the coins in circulation.

Hal_10000 June 29, 2011 at 9:51 pm

We were discussing this the other day. While I think we should switch to a dollar coin (and abolish the penny) it won’t happen as long as they continue to print bills. The inertia is simply too strong. Why change vending machines and habits if you don’t have to?

They need to do what the UK and Australia did. Announce they will no longer print bills after one years and switch to coins permanently.

Most hilarious part of that article is that they thought putting all 43 Presidential faces on the coins would increase their circulation since it would make them educational.

vikingvista June 30, 2011 at 12:43 am

Personally, I hate carrying coins. I wish they’d make $0.25 bills.

Michael Mace June 30, 2011 at 10:57 am

They’re called debit cards.

vikingvista July 1, 2011 at 2:12 am

Not too many vending machines accept them.

Chris June 30, 2011 at 8:02 am

Don’t forget Canada. They abandoned dollar bills over a decade ago in favor of the Loonie and, more recently, the toonie (a two-dollar coin). The Loonie is about the same size as the US dollar coins and the Canadians don’t seem to have problems distinguishing them from quarters (which are also about the same size as US quarters.

Personally, I think it’s some weird attachment to “greenbacks” and the same inertia that’s kept the US out of the metric system.

Presidents? Here’s another way to get these things circulating: strike a deal with the NFL to put team logos on the coins.

Gordon Richens June 30, 2011 at 8:33 am

I transplanted from Canada to the Cayman Islands about 5 years ago. They still use the $1bill here. While the CI $1 bill seems a bit of a nuisance compared to the loonie, its no big deal.

What I don’t like is how all my larger denomination notes turn into $1 bills in my wallet while I’m not looking.

I suppose the biggest drawback to the $1 coin for you yanks is that it’s nearly impossible to write “tax cheat” on one.

morganovich June 30, 2011 at 9:41 am

the other problem is the change out costs.

we’d need to also get rid of pennies (fine by me).

every cash drawer has compartments for pennies, nickels, dimes, and quarters. where are you going to put dollar coins?

Gordon Richens June 30, 2011 at 9:59 am

Canada is less reluctant to impose change out (switching) costs on its citizens. I started high school on the imperial system and graduated on metric (or at least some combination of the two). Car speedometers still register both mph and kph.

Nemoknada July 1, 2011 at 1:11 am

We’ll get rid of the (Lincoln) penny as soon Illinois gives back its electoral votes. Maybe we should put Lincoln on a dollar coin and kill the penny at the same time.

geoih June 30, 2011 at 6:30 am

If it wasn’t for paper $1 (and $5) readers on vending machines, we’d probably have switched to coin $1 and paper $2 years ago. The technology advanced faster than the inflation, so the switch to coins became unnecessary (but the Fed is trying to catch up).

Scott June 30, 2011 at 6:33 am

With inflation, perhaps they will start to phase out the penny and move to using the coin dollar as the “new” quarter, so to speak.

joe cushing June 30, 2011 at 6:46 am

Nobody likes a heavy pocket full of change. They need to make them smaller and thick like a pound. A large dollar coin made sense when a dollar was worth 20 times what it is now. Then you were less likely to have 9 of them build up in your pocket as stores give you change.

Steve June 30, 2011 at 8:33 am

Orrin Hatch is from Arizona, but he’s on record wanting to phase out the penny.

Underwriterguy June 30, 2011 at 9:53 am

Nope, Utah

Joshua Lyle June 30, 2011 at 9:56 am

C’mon, Russ, don’t wonder, take 30 seconds and look at Wikipedia:
Presidential One Dollar Coin
Composition:
Copper with manganese brass cladding:
88.5% Cu
6% Zn
3.5% Mn
2% Ni

SheetWise June 30, 2011 at 1:28 pm

I always keep a roll of them in my pack. They’re handy when I want to take the train into the city — as our system doesn’t have tokens. Trying to get a dollar bill through the bill acceptor is often frustrating, if even possible. I don’t know why people don’t use them.

Eric Hammer June 30, 2011 at 2:43 pm

I used them at the parking deck at school for the same reason; fit in the arm rest easily and 2 coins was easier than getting the cursed contraption to take bills.

Other than that though, the only reason I could see carrying them around would be as a higher end replacement for a roll of quarters. I hate hearing change jangling around in my pockets while I walk.

Martin Brock June 30, 2011 at 1:37 pm

I heard the same story on NPR. I’m not sure why they don’t circulate. I use them when I have them.

jcpederson June 30, 2011 at 2:26 pm

I think it is a plot to do away with gentlemen’s clubs.

Joshua W. Scott June 30, 2011 at 6:33 pm

I believe most gentlemen’s clubs give change in two dollar bills. The only other market I know for a Jefferson is as a children’s gift.

Walt G June 30, 2011 at 2:49 pm

A friend was stationed in Europe in the Eighties (Air Force) and he says they had to accept dollar coins as part of their pay.

MIchael E. Marotta June 30, 2011 at 4:10 pm

As a numismatist, allow me to weigh in here with some perspectives.

First, the printers union is loathe to give up the paper dollar. So, there is that. Second, with both paper and coins available, people conservatively keep to what they feel comfortable with. Abolish the paper dollar and the coins become commonplace. Third, every dollar made is an asset of the Treasury. As long as they sit in vaults, unused, the government has cash reserves. Fourth, as they only cost 30 cents to make, the seignorage is a profit. (Admittedly, paper bills are a better mark-up, but the fact remains.) Also, the Treasury (BEP) just committed a $100 billion printing error, so that has a minor impact. Fifth, as collectibles, those dollar coins go into hibernation, never to be redeemed for goods, services or taxes. This is inflation-free production of money. All governments love collectors. The post office used to really milk philately, but over the past decade has gotten worse and worse at marketing, while the Mint has gotten better. As a minor but consequential point, women have purses, but no one’s wallets have change compartments any longer, so it would take some fashion innovation to bring $1, $2 and $5 coins into use. The same problem applies to cash register drawers.

Historically, Americans have usually resisted changes to their money. Again, social conservatism is some of that. The coins we call “classic” today, such as the Peace Dollar and Walking Liberty Half, were subject to ridicule. With the Peace Dollar, even the designer publicly condemned the final product. (See: http://coin-gallery.com/cgmarotta2.htm)

In the 19th century, the vagaries of bi-metallism and “legal tender” laws and fractional currency notes (3 cent, 15 cent, etc.), meant that at some times, merchants paid a premium to get change, and at other times discounted it to get it out of their tills. The take-away is that when there is a monopoly, decisions are all-or-nothing with much being wrong. When there is competition, some alternatives are more popular than others.

Again, those big fat-faced Morgan Dollars we all love were largely unused (except in the South and West), which is why fully one-third of them are uncirculated today. Frosty mint state coins with annoying bag marks are very common. Silver interests got the Treasury to buy $2 million a month at above the market price. The Treasury struck tens of millions of dollar coins each year.

When a man made $1 a day in a factory (or $20 a month on the range), the dollar then was like $100 today. How many c-notes do you carry? On the other hand, the Barber series of coins was struck only from 1892-1916, but if you stack even 10 of them against 10 from the next series, you will find the older coins noticeably thinner.

Silver inflation, two world wars, the devaluation of the dollar against gold, all made the paper dollar the mainstay of daily commerce. Most people know nothing else. Stop printing paper and in a little while, our proverbially short memories will prevail.

Martin Brock June 30, 2011 at 6:46 pm

I think you’re right about the collectors. Issuing one coin per President practically guaranteed that people would hoard these coins.

yet another Dave June 30, 2011 at 4:21 pm

Another fine example of our tax dollars at work!

The metal composition is amusing, but I have a thought: Since the dollar today is worth about what a nickel was when the FED was formed, and the feds seem hell-bent on making them worth nothing, maybe they should make them out of wood. :-)

kyle8 June 30, 2011 at 8:34 pm

hhmm wood is a bit expensive, whynot make them out of corn chips? With the federal corn subsidies this could work.

kyle8 June 30, 2011 at 4:53 pm

The way the Fed is monetizing the debt, it won’t be long before those dollars of copper and zinc are worth more than an actual dollar in metal value.

PrometheeFeu June 30, 2011 at 5:32 pm

Fun fact: If you give power without responsibility to somebody, they will do something stupid.

Dr. T June 30, 2011 at 7:27 pm

The century-plus retention of the same coinage and bills is a great example of resistance to change. (I could not avoid the pun.)

The smallest denomination coin in 1900 was the penny. A penny in 1900 is worth 26 cents today. If we apply parallelism and correct for inflation, the smallest denomination coin today should be the quarter. In 1900, other coins were the nickel, dime, quarter, half-dollar, dollar, quarter-eagle ($2.50), half-eagle, eagle, and double-eagle. Thus, our other coins today should be: dollar, two-dollar, five-dollar (half-eagle), ten-dollar (eagle), twenty-dollar (double-eagle), fifty-dollar (quintuple-eagle), hundred-dollar (ten-eagle), two hundred-dollar (twenty-eagle), and five hundred-dollar (fifty-eagle).

The smallest denomination bill in 1900 was the dollar. Today’s smallest bill, after applying similar logic, should be twenty or twenty-five dollars.

Most people today want to retain not only the dime and nickel but also the less-than-worthless penny. Most people today want to retain not only the ten-dollar and five-dollar bills but also the one-dollar bill that is worth less than four cents in 1900 dollars. This seems especially weird because the resistance to changing currency comes when currency is used less and less: a huge proportion of our financial transactions use credit cards, debit cards, and online payment schemes such as PayPal.

I would like to eliminate currency and use smart cards or smart sticks that could be electronically restocked with money at ATMs. The federal government would save billions of dollars a year by not having to mint or print money; store, guard, and distribute cash; or destroy old coins and bills. Businesses collectively would save tens of billions of dollars a year by not having to handle, count, safeguard, and deposit cash. Despite the benefits, I believe that we’ll still have one-dollar bills two generations from now.

Craig June 30, 2011 at 7:47 pm

“Personally, I think it’s some weird attachment to “greenbacks” and the same inertia that’s kept the US out of the metric system. ”

You are right, sir!

Consumer preference has still managed to prevail in matters of the coinage and the system of measurement. It’s rather like our “weird attachment” to things like Buffalo Wings and blue jeans.

David June 30, 2011 at 8:26 pm

Russ et al,

There are rent seekers on the other side, too.

The U.S. government doesn’t produce its own paper. The paper used for all bills is produced by Crane Currency, owned by the Crane paper company. It’s been that way for a very long time.

(Not) Shockingly, they spend money in all sorts of ways discouraging the use of dollar coins, principally by lobbying lawmakers and the Fed to continue printing dollar bills.

Americans won’t stop using paper bills until the Fed stops printing them — too many years of habit, too much inertia. Considering how little a dollar is worth, though, and how long a coin lasts, it just doesn’t make sense to continue producing dollar bills in the first place.

Herman June 30, 2011 at 11:36 pm

Dollar coins are great. I don’t use $1 bills anymore. I return them to the bank. Mostly I leave the house with 20s, 5s, and 2s and a single $1 coin for odd dollar purchases.

Paul Nimitz July 1, 2011 at 2:05 am

Long time reader, first time writer.

I’m 1/2 way through Milton Friedman’s book “Money Mischief”. So far, this book is the most detailed account of how lobbyists from both gold, silver, and other metal industries manipulated and influenced congressmen from the gold/silver rich states.

This type of special interest influence is disgusting, but it does make me wonder how special interest politics would play out in an economy on a gold standard. How strong an effect would politicians’ views have on our monetary policy?

Brad Toy July 1, 2011 at 10:42 am

When ever I go to bank I try to get my money in $2 bills, and half dollar coins. they are just fun to spend and great for leaving as tips people like getting them because them. The banks rarely have them despite the fact they always tell me that people ask for them all the time and when they do come in some one asks for them within hours.

Is it true that a nickel contains 7 cents in metal?

Name Redacted July 1, 2011 at 9:21 pm

Its gone down a bit. Here are the current melt values for coins.

http://www.coinflation.com/

Name Redacted July 1, 2011 at 9:19 pm

You can buy them directly from the mint and then deposit them in a bank and use a credit card to collect credit card rewards.
“There is a 4-box $1 coin limit for every 10-day period on any and all $1 coin orders” (each box has 250 coins) Shipping is free.

If you buy them you have to agree however to not immediately deposit them in a bank.

However if you just buy them, then pay off your credit card so you don’t keep a balance you can move around 4000 dollars in coins a month. Say you have 2% cashback card, then you will be getting 80 dollars a month is pure arbitrage. I believe (not positive) that the limit is per credit card though, so you can arbitrage much much more out of this system.

Joe July 2, 2011 at 6:40 pm

There is some good news: The US mint will accept Visa cards in payment, which means that one can claim airline miles. There is a limit of transactions to $1000 every ten days. Assuming that the mint pays 2% to Visa, this means that it costs an additional 2¢ per coin. And there is even more good news: Shipping is free

James Hanley July 6, 2011 at 10:24 am

Since most of us here are critics of government waste, I find it amusing that so many people oppose dollar coins in favor of dollar bills. Dollar notes cost less to produce, but their lifespan is so much shorter that they are actually more expensive on net. The GAO estimates that over a half billion could be saved annually by replacing bills with coins.

The relative value of bills vs. dollars depends on the relationship between velocity and durability. The higher the velocity, the more durable the item needs to be. That’s why it makes fiscal sense to shift to dollar coins, but to keep higher value/lower velocity denominations in bills.

As to “consumer preference,” that’s not a strong argument. A) Repeated case studies have shown that consumers quickly adapt to coins when bills are eliminated; B) Government currency is not (except in the case of collectors’ items) a consumer goods product, but a medium of exchange; C) When your preference is costing me money, there’s a negative externality in the system–if you want to keep your dollar bills, please compensate me! (Yeah, I know, it’s a small amount (I estimate my family’s cost at about 5 cents), but it’s the principle of the matter.)

CC July 16, 2011 at 11:30 am

I personally support the dollar coin. It does cost more to make than a $1 bill, but a bill only lasts between 10-18 months. Coins can last for at least 30 years. Take a look at the change that you have laying in a coin jar, in your pocket, or in the ash tray of your car. Some of the coins have most likely been minted before 1981- 30 years ago. We went to Canada last year and we found the $1 and $2 coins a convenience because to make a purchase of $10 and under, we just had to reach into our pocket instead of digging in our wallets and purses to find $1 bills. Don’t get me wrong, I have some sentimental attachment to the $1 bill like most Americans, but it is economically better to replace the $1 bill with coins. The savings don’t look like much in the long run, but as with most other developed countries which dropped their $1 bill or 1 pound note, the savings end up being much more than was estimated by the government. The company that prints the $1 bill doesn’t have to suffer from a potential change over, like Canada, they would benefit from printing more $2 bills. It wouldn’t beat the purpose, as the $1 coin and the $2 bill would circulate along side one another, and if you only used $2 bills for small purchases, eventually you would get a $1 coin in your change.

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