$1 Coins Fail to Circulate (Again)

[Bimat]

$1 Billion That Nobody Wants

ROBERT BENINCASA and DAVID KESTENBAUM

June 28, 2011
Politicians in Washington hardly let a few minutes go by without mentioning how broke the government is. So, it's a little surprising that they've created a stash of more than $1 billion that almost no one wants.

Unused one-dollar coins havse been quietly piling up in Federal Reserve vaults in breathtaking numbers, thanks to a government program that has required their production since 2007.

And even though the neglected mountain of money recently grew past the one billion mark, the U.S. Mint will keep making more and more of the coins under a Congressional mandate.

The pile of idle coins, which so far cost $300 million to manufacture, could double by the time the program ends in 2016, the Federal Reserve told Congress last year.

A joint inquiry by NPR's Planet Money and Investigations teams found that the coins are the wasteful by-products of a third, failed Congressional effort to get Americans to use one-dollar coins in everyday commerce.

In 2005, Congress decided that a new series of dollar coins should be minted to engage the public. These coins would bear the likeness of every former president, starting with George Washington. There would be a new one every quarter. So, far, the Mint has produced coins through the 18th president, Ulysses S. Grant.

Members of Congress reasoned that a coin series that changed frequently and had educational appeal would make dollar coins more popular. The idea came from the successful program that put each of the 50 states on the backs of quarters.

But as the new presidential dollar coins rolled out, the greenback lost none of its dominance in Americans' hearts and wallets.

If the mandate to make presidential coins weren't enough to generate a growing heap of unwanted coins, a political deal ensured that even more unwanted coins would be produced.

It was easier for bill sponsor Rep. Mike Castle (R-Del.), to move the presidential coin bill forward if it didn't displace other dollar coins honoring Sacagawea, the teenaged Native American guide to Lewis and Clark.

The deal: The mint would be required to make a quota of Sacagawea coins. Currently, the law says 20 percent of dollar coins made must have Sacagawea on them.

So, there are now about 1.2 billion dollar-coin "assets" chilling in Federal Reserve vaults, unloved and bearing no interest. By the time the presidential coin series finishes, and there are coins honoring all past presidents, there could be 2 billion.

Several Congressional leaders contacted by NPR declined to comment for this story.

The Senate Banking, Housing and Urban Affairs Committee has jurisdiction over coins. It's chairman, Tim Johnson (D-S.D.), would not agree to an interview about dollar coins.

Neither would its ranking member, Republican Richard Shelby of Alabama, who recently requested a Government Accountability Office study on dollar coins.

Both the Mint and the Federal Reserve provided information for this story, but neither agency would agree to an on-the-record interview.

The finances of all this? You could say the government has wasted money to make money.

Some 2.4 billion dollar coins have been minted since the start of the program in 2007, costing taxpayers about $720 million. The government has made about $680 million in profit by selling some 1.4 billion dollar coins to the public since the program began.

Still, it's the program's waste that hits home when you're staring at millions of unused coins.

The Inner Sanctum

Inside one basement-like Federal Reserve vault in Baltimore, NPR was able to see 45 million $1 coins of various types. The coins were overflow from vaults elsewhere.

And despite a national indifference to the coins, they were heavily guarded.

A group of journalists from NPR passed through a metal detector and special secure doorway before reaching the inner entrance to the vault, a fence gate secured by two common Master padlocks.

Two staffers minding the coins each had a key to one of them, and as the NPR group moved around the vault, the minders kept us physically between them.

Inside the vault, dollar coins languished in clear plastic bags piled high on sturdy metal pallets that looked like baby cribs.

Through the bags, you could see Sacagawea mingling with Suffragette Susan B. Anthony and rubbing edges with some of America's early chief executives. Glaring fluorescent lights coaxed an occasional shimmer from the dollars, which are made mostly of manganese brass and have a gold color.

One row of pallets bore a handwritten note that said, "Dollars ... 48 skids ... 6,720,000."

But how many of them will ever see a laundromat, soda machine or toll booth?

Without an overhaul to the cash system that completely substitutes coins for bills, very few.

Try, Try Again

After the Susan B. Anthony and Sacagawea series lost their bids to become America's pocket change sweethearts, the presidential series was the next big idea.

But in a report to Congress last year, the Federal Reserve said the coins are now being held "with no perceivable benefit to the taxpayer," and that banks are sending them back to the Fed in increasing numbers.

"We have no reason to expect demand to improve," the Fed said, "We also note that a 2008 Harris poll found that more than three fourths of people questioned continue to prefer the $1 note."

Still, dollar coin proponents, including some advocacy groups and vending-based industries, are undeterred.

Leslie Paige, who represents watchdog group Citizens Against Government Waste, says the government should withdraw the dollar bill from the market and force Americans to use the coins.

"I think Americans will definitely embrace the dollar coin if they're just given the opportunity," she says.

As for the Harris Poll showing Americans don't want dollar coins, Paige says "I suspect that they just don't understand what the up sides are," including the fact that coins don't need to be disposed of as bills are.

"The idea that oh, I don't want them jingling in my pocket, I mean, I don't know, most people carry quarters with them. They use them for meters and all kinds of other things, so I certainly think Americans can adapt."

Money-Saver Or Hidden Tax?

You may have heard that dollar coins are more cost-effective than dollar bills. Paige and other dollar coin advocates point out that coins last longer than bills, and that's why they save money. A coin could last 30 years, but a new dollar bill will be ready for the shredder in less than four years.

But if moving exclusively to dollar coins would save money, the question is, whose money? Certainly, issuing the coins and having them circulate, rather than sit in vaults, would create a source of revenue for the government.

Whether taxpayers would benefit is another matter.

A Government Accountability Office study out this spring says that switching to a dollar coin "would provide a net benefit to the government" of about $5.5 billion over 30 years.

But it's not because coins are cheaper. The report says the government would not recover the cost of switching from bills to coins over that period.

Instead, the benefit to the government would come only from the profit it makes by manufacturing each coin for 30 cents and selling it to the public for a dollar.

When this profit, known as seigniorage, is factored out, switching to the dollar coin would actually cost taxpayers money over three decades, according to a Federal Reserve analysis of the GAO's figures. The cost works out to $3.4 billion.

The Fed's Louise Roseman wrote to the GAO that seigniorage should not be considered in an analysis of whether the switch would benefit the larger U.S. economy.

The reason, says Roseman, director of the Fed's Division of Reserve Bank Operations and Payment Systems, is that seigniorage "is a revenue transfer from the private sector to the government."

So, in other words, a tax? The profit to the government predicted by the GAO assumes that the government would have to issue 1.5 dollar coins for every dollar bill removed from circulation. That's because people handle coins differently than they do bills.

Even if all dollar bills were replaced with coins, some say the nation's evident distaste for dollar coins will simply mean more small transactions will be done electronically. And, it could accelerate a technological trend toward payments with mobile devices.

Jack Weatherford, an anthropologist who wrote the 1998 book, "The History of Money," says he loves coins, but he doesn't love the billion dollar coins piled up in the nation's coin vaults.

"Destroy them," he said. "People will not accept these coins. Nobody in America wants to use them, as long as they have a paper currency they will use that."

Of using coins to save money, Weatherford says that in an era of electronic financial transactions, "the argument is about 50 years too late. Coins have rapidly become less and less important in our society – like paper money itself is becoming less and less important."

Buyer's Remorse For Bill's Proponents

Delaware's Castle, who left Congress after a primary loss and now practices law, acknowledges that the demand for golden dollars didn't materialize as he had hoped.

Castle says he and others knew when they were passing the bill that widespread adoption of dollar coins would be hindered by the continuing production of dollar bills. But he says that mandating a wholesale switch from bills to coins was politically untenable then, as it is now.

"It's not quite like cutting somebody's Social Security," Castle says, "but politically it's not something the members want to deal with, so it's just very hard to get something like that done."

When Congress was considering the law, the Congressional Budget Office warned that there would be low demand for the coins. The Federal Reserve Board cautioned that coin inventories and storage costs would increase.

Castle says the coins should continue to be produced, but in smaller numbers.

"It's ridiculous to have this kind of over-inventory pile up," he says. "I might actually make some phone calls myself as a result of reading these reports and learning more about what this problem appears to be.

But what should happen to that quota for Sacagawea coins, for which there is very little demand, and which the Federal Reserve no longer orders from the Mint?

Earl Pomeroy, a former Democratic congressman from South Dakota who championed the quota while serving in the House, hedges a bit.

Pomeroy stands by his defense of "dear old Sacagawea." But he acknowledges that there's at least some folly in continuing to make coins that will not be used.


"I think the foolish part of the law may be not the Sacagawea part, but the fact that with no one picking up these coins we've got to keep printing them because we've got to get through the rest of the presidents list," says Pomeroy, who lost his bid for a 10th term in Congress last year. "That to me doesn't seem to make any sense at all.

"Is the nation waiting with bated breath for us to get to the Calvin Coolidge coin? No! Maybe we should call a halt to this whole thing."

Source: NPR


Millions of dollars worth of $1 coins languish in a vault at the The Federal Reserve Bank of Richmond's Baltimore Branch.

Image Caption 1: The coin storage area of The Federal Reserve Bank of Richmond's Baltimore Branch, where millions of dollars of unused $1 coins are piling up.

Image Caption 2: $1 coins in storage (millions)

[Figleaf]

Strange logic to think that a benefit for the government is not a benefit for the taxpayer.

Peter

[Ukrainii Pyat]

Newsflash - there is one place where at least the Sacagawea dollar coins are well used and popular - to the point that they are even being forged - Ecuador.  Maybe Mexico can dollarise their economy next and they can send all those coins to there.

[FosseWay]

I don't understand why the US government doesn't just stop printing $1 bills and put the coins into circulation. With no alternative, people would have to use them.

I realise that it can be desirable to listen to what people want and take it into account when providing the service, but this can only go so far. The Federal government seems entirely capable of repeatedly going to war against the wishes of significant minorities of the people to whom it's accountable, but can't seem to deal with what is ultimately a pretty trivial and minor issue like $1 coins.

It also can't always be possible to please even a majority of the people most of the time. When the euro was introduced, it replaced a wide variety of predecessor currencies used by people with widely varying purchasing habits. Some countries used coins in the range of denominations and for the kinds of transactions that the euro coins are primarily aimed at, notably Germany and Ireland (and the UK, if we join), but other countries had a primarily paper-money based cash system (e.g. Italy) and still others use very little cash at all (e.g. Finland, and the rest of Scandinavia if it joins). Yet the euro coins are generally accepted by the population at large without any clear evidence of inconvenience or difficulty.

Also, how much of the hugely vaunted objection to phasing out the $1 bill is just the same grousing you always get when you suggest messing with an established system, rather than genuine grievances? People objected when the UK went decimal. They objected when the 10-shilling note was replaced not with a 50p note but with a coin. They objected when the £1 note was replaced with a coin. They objected when petrol changed from being sold in gallons to litres. And so on -- but in all these cases, when the change actually happened, people just got on with it.

[Figleaf]

Until the death of Ted Kennedy, the answer was "because of Ted Kennedy". The Crane paper factory making the paper for the banknotes are in his old district. Now, I don't know who protects the paper manufacturers, but they have plenty of (tax) money to buy good protection.

Peter

[constanius]

Well in Canada we have our $1 dollar coin, the Loonie & our $2 dollar coin, the Toownie & both were happily accepted because the dollar bills were withdrawn

Strange that our neighbour to the south does not just grasp the nettle, they have seen us do it, end of problem

Pat

[villa66]

Until the death of Ted Kennedy, the answer was "because of Ted Kennedy". The Crane paper factory making the paper for the banknotes are in his old district. Now, I don't know who protects the paper manufacturers, but they have plenty of (tax) money to buy good protection.

Peter

Nah. Much too small an explanation, Fig.

v.

[villa66]

....People objected when the UK went decimal....but in all these cases, when the change actually happened, people just got on with it.

Wasn't it something like a century after the florin was introduced that the country was actually able to go decimal?

v.

[chrisild]

Nah. Much too small an explanation, Fig.

Well, as long as nobody else provides a better one, that is the best explanation we have.

Christian

[villa66]

Well, as long as nobody else provides a better one, that is the best explanation we have.

Christian

The article that introduced the thread provided a better explanation. Americans don't like them.

v.

[chrisild]

True, but that does not explain why they are made at all. If people do not like them much, do not use them much, and do not even collect them much, why produce them? In my opinion it is somewhat silly to on one hand make lots and lots of those useless pieces, and at the same time produce low-value paper money. Would make sense to phase either the one or the other out ...

Christian

[FosseWay]

Wasn't it something like a century after the florin was introduced that the country was actually able to go decimal?

Yes, but:

(a) The project that spawned the 1849 florin didn't get as far as actual implementation. The florin could, and did, serve as a perfectly useful piece in the existing system. It's not as if they minted a load of decimal coins alongside the predecimal ones, found that the public by and large ignored the new ones, but then continued to mint them in huge quantities anyway.

(b) There wasn't another serious attempt to introduce decimal currency until the inquiries of the 1960s that directly led to its introduction. In other words, there were two distinct attempts to reform the coinage that were to all intents and purposes independent of each other. It's not as if there was a long conversion period rumbling on for over a century. This is in stark contrast to the approach taken to metricating all other aspects of UK life, where both sets of units have, officially, semi-officially and informally, rubbed alongside each other for decades.

[andyg]

The article that introduced the thread provided a better explanation. Americans don't like them.

v.

The smaller UK 5p was introduced in 1990 - yet people still don't like them, but we manage.

Fosseway is spot on when he says the American government have forced through plenty of unpopular things over the years - so why can't they force this one through?

[<k>]

The smaller UK 5p was introduced in 1990 - yet people still don't like them, but we manage.

I've always liked the new size, which fits perfectly with its value these days. If other don't like it, it's probably just because it's piddling small change that doesn't buy anything. There will surely be a radical rejigging of our UK coinage system before the decade is out, given that the 3 smallest cupro-nickel coins don't buy anything on their own.

[villa66]

The smaller UK 5p was introduced in 1990 - yet people still don't like them, but we manage.

Fosseway is spot on when he says the American government have forced through plenty of unpopular things over the years - so why can't they force this one through?

I think it's crucial to consider things—as much as that's ever possible—on their own terms, and within their own context. So it's important not to confuse "unpopular with the American public" with "unpopular with the...say, European public."

Why can't the national government "force this one through?" Because still, and I suppose for a while yet, the people opposed to the introduction of the dollar coin and the retirement of the dollar bill are not to be described in "significant" numbers (political heat), but in "overwhelming" numbers (political suicide).

v.