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As the obsession with cutting the deficit reaches new levels, some Washington lawmakers are looking at an old idea that never took off: Replacing the dollar bill with the dollar coin.On November 29, the House Committee on Financial Services held a hearing entitled “The Future of Money: Dollars and Sense” featuring a discussion of phasing out the dollar with witnesses from the U.S. and Canadian Mints.
Last month’s hearing was prompted by a Government Accountability Office study “Benefits and Considerations for Replacing the $1 Note with a $1 Coin,” which found that the U.S. would enjoy $4.4 billion in net benefits over 30 years if the $1 bill is replaced with a coin.
Paper bills can only stay in circulation a fraction of the time as metal coins before succumbing to wear and tear. Since the government makes a “profit” off of minting currency — the value of the note or coin minus the cost of production — the coin’s cumulative cheaper production would mean higher revenues to cut the deficit.
The argument, essentially, is that by phasing out the dollar bill and replacing it with a coin the U.S. can see a huge profit after a number of years.
The revenue would come from both the expanded longevity of a single dollar and the difference between the cost of manufacturing and the value of the coin, called seigniorage. Because there are different estimates of the longevity of a single bill or coin, there is significant variation in the estimated revenue.
Philip Diehl, the former Director of the U.S Mint, testified that dollar coins make complete sense — with $8 million in new Mint equipment needed to make between $4.4 and $7.4 billion in estimated revenues, it is sound policy in his mind.
He also pointed out that “virtually every Western economy has replaced its lowest denomination note with a coin of the same denomination.”
Diehl was the Director of the Mint who shepherded the original Sacajawea Dollar Coin through production, and testified that the only reason the U.S. isn’t on the coin is that Congress refused to phase out the single dollar bill.
Also gunning in favour of phasing out the dollar was Chief Operating Officer of the Royal Canadian Mint Beverly Lepine, whose testimony focused on the successfully phasing out the Canadian $1 note for the Loonie, the Canadian one dollar coin, in 1987.
The success of the program, according to Levine, was because the government committed to killing the bill. The switch was only possible because it was made completely.
As a result of the resounding success of the Loonie, Canada went on to do the same thing for the $2 bill, now the Canadian Toonie. The Canadian Mint now contracts with other nations to produce secure coinage.
Still, the move has immense opposition.
James Miller, the former Head of the Office of Management and Budget, first testified against the proposed switch in 2000, and claimed two weeks ago that “the issues have changed only to the degree that substituting dollar coins for dollar bills has become an even worse deal for American businesses and consumers.”
Most of the savings comes from seigniorage, or the difference between the cost of manufacture and the value of the coin, which according to Miller are “implicit taxes on consumers.”
The opposition’s case is that other GAO estimates that factored in additional possibilities — including the cost of transportation, costs to businesses, and fluctuations in the cost of metal — actually resulted in a negative projected return from a switch,
It’s certain that, at least in the short run, the government would lose money on the switch since the savings only come with the proposed 30 year life span of the dollar coin. Since coins are more expensive to produce than notes, the gamble is that American will really use the coins for longer periods of time.
Opponents of a switch also point to an increasing use of digital commerce to argue against a monumental currency overhaul.
On top of that, an overwhelming majority of Americans loathe the idea of dumping the greenback — 1.4 billion unwanted dollar coins are now stored in the Fed’s vaults. The Treasury cut production on the coins when they found 40% were returned unwanted.
According to a Gallup poll from 2006, 79% of Americans oppose replacing all U.S. dollar bills with dollar coins. Even when the poll tells respondents that cutting the bill could save $500 million per year, 69% of Americans still opposed it.
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