Mar 30, 2012 | commentary, dollar, policy
During my perusal of the coin and currency related news on the Internet, I came across a story, “Survey shows dislike of Schweikert’s Coins Act” on the website for the East Valley Tribune, a newspaper based on Tempe, Arizona. The story is about alleged opposition to Rep. David Schweikert (R-AZ) sponsored the COINS Act to transition the one-dollar federal reserve note in favor of a one dollar coin. Schweikert represents Arizona’s 5th District that includes Tempe.
NOTE: The rest of this posting will discuss the survey, its backers, and the politics behind the paper currency versus coin debate. If you are not a fan of the discussion of the nexus between numismatics and politics, you should stop reading here.
The article discusses a survey that was “conducted by the independent public opinion research firm Lincoln Park Strategies”that was paid for by an organization named Americans For George. Lincoln Park Strategies (LPS) was founded by Stefan Hankin who has worked on behalf of “numerous Democratic politicians and organizations, including President Barack Obama and the Democratic National Committee.” Although Hankin has tried to position his company to be non-partisan, his LPS’s portfolio boasts of the firm’s association with many Democrats and left-leaning organizations.
Americans for George claims to be a coalition “of like-minded individuals, businesses, and organizations seeking to ensure that the citizens of the United States maintain the ability to choose their preferred currency.” Their coalition members includes bars, restaurants, vending machine companies, companies that supply vending machine parts, armored car services, a few taxi services, Bingo World in Baltimore, and the Alabama Forestry Association an advocacy group for renewable forest resources in Alabama.
Unless you followed the paper, vending machine, and armored service industries, none of the coalition members are a household name outside of their home towns except one: Crane & Company, the Dalton, Massachusetts company who has the exclusive contract to supply currency paper to the Bureau of Engraving and Printing. Also listed as a coalition member is The Crane Family Council, a group of the extended Crane family that still owns and operates the paper company.
In other words, Americans for George is a front for Crane & Company to promote the business agenda of Crane & Company.
From 2005 through 2011, Crane & Company has paid Russell Wapensky, a lobbyist and former State Department employee, to lobby on their behalf. Wapensky was paid $80,000 by Crane & Company for his services in 2011. Wapensky has not filed disclosure paperwork and an office listed in the last discovered address in Washington, D.C. does not list him as a tenant. Disclosure records shows that for the last three years, Crane & Company was his only lobbying client.
In February 2012, Gephardt Government Affairs filed lobby registration forms (PDF) declaring Crane & Company as their client with the lobbying issue of “preservation of the dollar bill currency.” Gephardt Government Affairs was founded and run by former Rep. Dick Gephardt (D-MO) who served in the House of Representatives from 1977 through 2005. No disclosure regarding how much Crane & Company has paid the Gephardt Group is available since the Lobbying Activity Reports for the first quarter of 2012 are due on April 20.
Dick Gephardt was a mainstay in the House for 28 years having climbed the ranks to become House Majority Leader (1989-1995) and Minority Leader (1995-2003). He ran for president in 2004, losing in the primaries to John Kerry and was mentioned as a potential vice presidential candidate in 2004 and 2008. Gephardt remains well respected by many congressional veterans.
House rules allow members to keep their membership pins when their service ends. These pins allow their owners access to the House floor and other areas where the public is not allowed without escort. Gephardt should know his way around the Capital building. Buying this type of access and potential influence to Capital Hill is not cheap and shows that Crane & Company may be afraid that the political will is there to make a change that would cut a significant portion of their business. Currency paper for the one dollar Federal Reserve Note has to be the least expensive of the papers Crane & Company manufactures for the BEP. It is the only note that does not include features like watermarks or embedded security ribbons that has to make the process more expensive.
Without full disclosures from both Crane & Company and the BEP, it is impossible to determine the exact loss of revenue. The BEP is not required to report what they pay individual vendors and Crane is a privately held corporation, they are not required to file financial disclosure reports. However, we can make assumptions based on information provided by the BEP 2010 CFO Annual Report (PDF), the last available, and other public information.
How much revenue could Crane & Company lose if the the law was changed to eliminate the dollar note? Let’s assume the BEP produces 405 million $1 Federal Reserve Notes (rounded average of the last five years production). Let’s also assume that it costs the BEP $33.48 per one thousand notes to produce Federal Reserve Notes (the 2009 cost adjusted for inflation) of which 55-percent ($18.41) is the cost of the paper (calculated from 1990s information). In order to produce 405 million Federal Reserve Notes, Crane & Company would be paid about $7.45 million to supply the paper—estimating that the potential revenue loss from eliminating the one dollar Federal Reserve Note would range from $7 million to 10 million.
Crane & Company has over 7 million reasons to hire a powerful lobbyist like Dick Gephardt.
As a citizen, numismatist, and blogger, I have made it clear that I am in favor of transitioning from the paper note to the dollar coin. As the process continues, I will watch the public reports by Gephardt Government Affairs and any other information available on Crane & Company’s manipulation using the patriotic sounding front group, Americans for George.
Mar 22, 2012 | dollar, US Mint
The U.S. Mint announced that they are creating four new numismatic product options for the Presidential $1 Coin program. For collectors, the U.S. Mint is adding a “Four Coin Set” for $9.95, a 100-coin bag for $111.95, 250-coin box for $275.95, and a 500-coin box for $550.95. The bulk options will cotton unmixed coins of each design.
All previous products will remain including the Presidential $1 Coin & First Spouse Medal Set, First Day Coin Covers, along with the proof and uncirculated sets. Also continuing are the coin rolls of the Presidential and Native American dollars.
The Presidential $1 Program continues on April 5 with the release of the coin honoring Chester A. Arthur, our 21st President.
Arthur’s wife, Ellen Lewis Herndon “Nell” Arthur, died from pneumonia in 1880. When Arthur became president after President James A. Garfield died on September 19, 1881 from the assassination attempt on July 2, 1881.
Although Arthur was a widower during his administration, the U.S. Mint will not be issuing an Arthur “Liberty” coin as part of the First Spouse Gold Coin Series. The Presidential $1 Coin Act of 2005 (Public Law 109-145 [Text] [PDF]) requires the U.S. Mint to issue a coin honoring Alice Paul, a leading suffragist who was born on January 11, 1885, during the Arthur administration.
The U.S. Mint has not announced when the Alice Paul Gold Coin will be available.
The public will not be able to order rolls of 2012 $1 coins from the banks since the Federal Reserve will not be taking delivery of new $1 coins. Orders to banks will be filled from existing storage consisting of $1 coins struck from 2007 through 2011. Since the U.S. Mint will be selling $1 coins for $1.11 as part of their bulk sales (bags and boxes), look for these coins to be priced $1.75 to $2.50 from dealers.
Feb 17, 2012 | BEP, commentary, currency, dollar, US Mint
The media, blogs, and pundits who do not read government reports beyond the executive summary have shown their lack of journalistic credibility over the latest report from the Government Accountability Office titled Alternative Scenarios Suggest Different Benefits and Losses from Replacing the $1 Note with a $1 Coin (GAO-12-307 [PDF] published February 15, 2012).
The latest tome from the GAO is a followup to GAO-11-281, Replacing the $1 Note with a $1 Coin Would Provide a Financial Benefit to the Government published almost a year ago. It was a report produced for the Senate Committee on Banking, Housing and Urban Affairs and addressed to Sens. Richard Shelby (R-AL), Bob Casey (D-PA), and Tom Harkin (D-IA) after being asked to analyze the cost differences to the government using a dollar coin over the dollar note. In that report, the GAO estimated that replacing the note with a coin will save an estimated $5.5 billion over the 30 year lifetime of a coin.
Rather than accepting that report, Sen. Scott Brown (R-MA) used his position as the Ranking Member of the Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, commissioned the GAO to rework the report under different condition. Sen. Brown asked the GAO not to add seigniorage to the calculation, reduce the report to cover ten years, and calculate the a one-to-one replacement rather than the 1.5 coins to one note replacement used in the 2011 report.
Seigniorage is the profit the U.S. Mint and the Bureau of Engraving and Printing earns on producing their products. It is calculated by the difference between the cost of producing the money versus its face value, which is what the Federal Reserve pays for that money. For example, the BEP reports that it costs 7½ cents to print one note. When they sell a one dollar Federal Reserve Note to the Federal Reserve, the BEP collects 92½ cents for that transaction. By law, both the U.S. Mint and BEP deposit seigniorage into their respective Public Enterprise Funds (see 31 U.S.C. § 5136 for the U.S. Mint and 31 U.S.C. § 5142 for the BEP). Both laws require the Secretary of the Treasury to deposit excess over what is needed for operations into the General Fund. Not only are these bureaus manufacturing money, they earn money that is deposited for the general use of the government.
Seigniorage is an important factor in the operations of the money manufacturing operations of the U.S. Mint and BEP which is why it is important in the analysis of any bill introduced in congress. This analysis is performed by the Congressional Budget Office. When the economists of the CBO to reads a bill and determine its effect the country’s budget, they are supposed to take every aspect of the bill into consideration. Since all coin-related bills requires the U.S. Mint to deposit its profit in their Public Enterprise Fund, calculating the effect that seigniorage has is required. If fact, when the CBO analyzed the Presidential $1 Coin Act of 2005, the “CBO estimates that replacing the Golden Dollar with the $1 Presidential coin would increase seigniorage by about $280 million over the 2006-2015 period.”
What Sen. Brown asked the CBO to do is to figure out what would happen if the U.S. Mint was to produce more coins but not count their profit what would the effect be. The answer is not based in any reality because if you do not count the profit (seigniorage) you are only telling part of the story. Basically, Senator Brown is asking to the CBO to use the sin of omission in an attempt to justify his policy position.
Remember, Senator Scott Brown is the junior senator from Massachusetts where the Dalton-based Crane & Co. is the sole supplier of currency paper to the Bureau of Engraving and Printing. Brown, who is completing the term of the late Senator Ted Kennedy, would never have been appointed the Ranking Member of any subcommittee as a freshman member except that he is a Republican who won a long standing Democratic seat. Brown is currently locked in a heated campaign against Elizabeth Warren (D) for the 2012 election.
It is clear that Sen. Brown changed the parameters of the original GAO report (GAO-11-281) as a way to stop attempts to replace the paper note with coin to use in his campaign for his senate seat as a favor to Crane & Co. Unfortunately, the media outlets who covered the release of this report has chosen to read the executive summary and skipped Page 1 that begins “Dear Senator Brown.”
Dec 14, 2011 | coins, dollar, policy
With the furor over the large number of dollar coins sitting in the Federal Reserve vaults, estimated to be over $1.4 million by a Federal Reserve report, Treasury Secretary Tim Geithner exercised his his authority to “mint and issue such number of $1 coins of each design selected under this subsection in uncirculated and proof qualities as the Secretary determines to be appropriate,” (31 U.S.C. § 5112(n)) and will cease to strike dollar coins for circulation. Dollar coins necessary to meet circulation demand will be drawn from existing inventory. The U.S. Mint will strike dollar coins to meet numismatic demands.
Announced as part of a blog post on the Treasury website by Deputy Secretary of the Treasury Neal S. Wolin, those wishing to purchase future Presidential $1 Coins will be able to purchase them directly from the U.S. Mint starting with the Chester A. Arthur dollar in Spring 2012. Prices and shipping costs will be announced in the near future.
Although this may be seen as a significant move, there is precedent for reducing striking of coins to primarily meet numismatic demand. Using a current example, the last time the U.S. Mint struck the Kennedy Half-Dollar for circulation was in 2001. In 2001, only Denver struck coins were delivered to the Federal Reserve.
Touted as part of President Obama’s executive order that established the executive branch’s Campaign to Cut Government Waste, Treasury estimates that this measure will save at least $50 million annually. Wollin wrote that this is, “the right decision for taxpayers. And going forward, we’ll continue our work to identify additional opportunities to support President Obama’s critical objective to cut waste and improve efficiency across government.”
I wonder if this move will keep any of those bills to eliminate the Presidential $1 Coin Act from even being heard in committee?
Sep 29, 2011 | currency, dollar, legislative
In a move that made the numismatic world notice, Rep. David Schweikert (R-AZ) introduced H.R. 2977, the Currency Optimization, Innovation, and National Savings Act (COINS Act). In short, the purpose of this bill is to transition the U.S. economy to using dollar coins. The bill is cosponsored by Reps. Jeb Hensarling (R-TX), Blaine Luetkemeyer (R-MO), Jim Renacci (R-OH), and Pat Tiberi (R-OH).
First provision of the bill is to remove the Susan B. Anthony Dollar from circulation. Under this provision, when a bank receives an Anthony Dollar, it is returned to the Federal Reserve and removed from circulation. The Federal Reserve then can sell the coins to dealers or to countries who are using the U.S. dollar as its primary currency. Removing the Anthony dollar from circulation will prevent the confusion between the golden colored dollars that would be in circulation. As part of this section of the bill, there are quarterly reporting requirements to congress that documents the progress of this bill.
As part of this first provision, the bill makes a subtle change to Section 5112(p)(2) of title 31, United States Code (31 U.S.C. 5112(p)(2)) to make the Board of Governors of the Federal Reserve a partner in the publicity of using the dollar coin. After all, the coins are being stored in their facility and it is in their best interest to have them circulated.
But the key provision of the bill is in Section 3 that outlines the transition to the use of dollar coins. At the beginning, the section makes it clear that purpose of the bill is to create a transition environment so that the coin replaces the paper note:
It is the policy of the United States that after $1 coins achieve sufficient market penetration such that consumers and retailers are comfortable using $1 coins and are able to obtain adequate supplies of $1 coins, $1 coins should replace $1 Federal Reserve notes as the only $1 monetary unit issued and circulated by the Federal Reserve System.
If this bill passes, Federal Reserve banks may continue to place into circulation $1 Federal Reserve notes until the number of dollar coins placed into circulation exceeds 600 million annually or four years after the bill is enacted, which ever comes first. During this transition phase, Federal Reserve banks cannot order new paper notes but may continue to circulate notes on hand. They are also to continue to follow their unfit currency policies by removing notes that are torn or otherwise unfit for circulation. These notes will be replaced by coins.
After the introduction of H.R. 2977, Sens. Scott Brown (R-MA) and John Kerry (D-MA) introduced S. 1624, the Currency Efficiency Act of 2011 to place a “restriction on overproduction of $1 coins.” However, this is seen as the Massachusetts senators sponsoring a bill in an attempt to protect a constituent, Crane & Co., the exclusive supplier of currency paper to the Bureau of Engraving and Printing.
H.R. 2977 appears to be the first bill introduced that creates a transition plan rather than advocating an abrupt end to the paper note. Considering the emotional response when people are polled, a four year transition is a good idea. It will give people a chance to get used to the coins while both circulate together. But if it passes, I will make the immediate transition and exclusively use coins.
If you agree with the COINS Act, and I hope you do, contact your representative to express your support for H.R. 2977. If you want a few talking points, you can say:
- The GAO reports that switching from paper to coins will save the government approximately $5.5 billion over 30 years
- If voted into law, this bill will reduce the $1.1 billion stockpile of coins in the Federal Reserve coin rooms. In this economy, adding $1.1 billion to the economy is better than having it sitting on the shelf.
- It will allow the United States to join the rest of the industrialized world, including the United Kingdom and the Eurozone whose currencies are worth more than ours, whose unit currency is represented as a coin
You can find out how to contact your representative at the House of Representatives website at house.gov.
Aug 16, 2011 | coins, commentary, currency, dollar
When congress comes back to Washington to (hopefully) represent their constituency to carry out the nation’s legislative interests, a twelve-member bipartisan commission (a “super congress” as the press is calling them) must find a way to deal with the government’s debt and deficit by Thanksgiving or the law requires an additional $1.5 trillion in cuts, mostly to defense.
Followers of the debate have found that there are fundamental differences between both sides of the aisle as to how to manage the affairs of government. Rather than look for common ground and try to negotiate about the differences, their actions are reminiscent of a smoker who quits their habit but uses food to make up for the cigarettes trading one condition (cancer risk) for another (obesity). In an attempt to get them started, I have a proposal:
End production of the one-dollar Federal Reserve Note!
According to the most recent report from the Government Accountability Office, the independent, nonpartisan legislative branch agency that investigates how the federal government spends taxpayer dollar, the government could realize a savings of $5.5 billion dollars over 30 years by eliminating the paper dollar for coins.
By eliminating the one-dollar Federal Reserve Note, congress can begin show that they are willing make “difficult decisions” to help the economy while not stepping on either side’s political hot buttons. Also, if congress votes to eliminate the paper dollar, the approximately $1.1 billion of dollar coins sitting the Federal Reserve’s coin vaults will start to circulate in the economy. This is $1.1 billion dollars of money not doing anything but sitting. It would be a $1.1 billion stimulus to the economy that will not add any money to the deficit because the coins are already paid for.
If you add the $1.1 billion of existing money to a $5.5 billion in long term savings, that is a total of $6.6 billion of economic immediate economic stimulus that does not cost the government anything. Further, once the $1.1 billion is circulated in the economy, the money spent will generate additional revenues from the taxes collected by the economic activity, something both parties said they want to encourage.
But this is such a small amount compared to the total debt, why do it?
Using the correct form of the Lao-tzu quote: “The journey of a thousand miles begins beneath one’s feet.” Lao-tzu believed action naturally arises from stillness. This country has been still on its money production policies, it is a natural move to eliminate the one-dollar note. Or to use the more colloquial version: “A journey of a thousand miles begins with a single step.”
Borrowing an anonymous response to a previous post:
You people need to get over yourselves – put it to a vote and the public does not want or need dollar coins! / Just because coin collectors want coins doesn’t mean the rest of us need to suffer. / If it’s dollar coins versus dollar bills… bye bye dollar coins.
It looks like saying that countries like Australia, Canada, France, Japan, the Netherlands, New Zealand, Russia, and the United Kingdom eliminated their unit currency in favor of coins is not a good argument for some. Or that the European Union started this century with producing only a coin for the 1-Euro denomination will not work either. How about this:
Supporting the elimination of the paper dollar is the patriotic thing to do!
Is it patriotic to continue to waste money? Or is it our patriotic duty to do what is in the best interest of the country even it means making a few minor sacrifices for the common good? True patriots will make the adjustments and do what is right by the country!
Sacrificing for your country is the patriotic thing to do!
Jul 24, 2011 | commentary, dollar, legislative
Not to be outdone, Rep. Jackie Speier (D-CA12) with co-sponsor Rep. Jared Polis (D-CO2) introduced their own bill in the House of Representatives to end the Presidential $1 Coin Program. On the same day Sens. Vitter and DeMint introduced their bill, Speier and Polis introduced H.R. 2593, Wasteful Presidential Coin Act of 2011.
Don’t you love the way congress can editorialize in what is supposed to be serious laws?
But wait, there’s more!
The bill is essentially the same as the Senate version. However, in an attempt to become managers of the Federal Reserve coin rooms, Reps. Speier and Polis has added a new section to their version of the bill:
SEC. 3. RESTRICTION ON OVERPRODUCTION OF $1 COINS.
Section 5112 of title 31, United States Code, is amended by adding at the end the following new subsection:
`(w) Restriction on Overproduction of $1 Coins- Notwithstanding any other provision of this section, no $1 coin may be minted or issued under this section during any period in which the number of $1 coins issued, but not in circulation, is more than 10 percent of the number of $1 coins in circulation.’.
What Speier and Polis is saying is that they know better than the Federal Reserve on how to manage the coins in their possession. Should the Federal Reserve find that in the future they want to add stock to their coin rooms, like when congress actually does the right thing and end the printing of the $1 federal reserve note, the Federal Reserve could find itself in a shortage situation in trying to comply with the law.
This is the type of legal provision that has the potential to create unintended consequences. Further, I do not think that congress should manage the cash operations of the Federal Reserve. They can barely manage the nation’s budget, I do not want these people trying to manage the Fed.
Jul 21, 2011 | coins, commentary, dollar, legislative
On July 19, 2011, Sen. David Vitter (R-LA) and Sen. Jim DeMint (R-SC) introduced S. 1385, To terminate the $1 presidential coin program. Simply, the bill removes subsection n of Section 5112 of title 31 United States Code (31 U.S.C. § 5112), which is the law authorizing for the Presidential $1 Coin Program.
The bill reads as follows:
S 1385 IS
112th CONGRESS
1st Session
S. 1385
To terminate the $1 presidential coin program.
IN THE SENATE OF THE UNITED STATES
July 19, 2011
Mr. VITTER (for himself and Mr. DEMINT) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs
A BILL
To terminate the $1 presidential coin program.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. TERMINATION OF PRESIDENTIAL $1 COIN PROGRAM.
Section 5112 of title 31 United States Code, is amended by striking subsection (n) and inserting the following:
`(n) [Reserved.]’.
This is clearly an over reaction to the slanted report by NPR that suggests this is a taxpayer issue and not an issue of the broken monetary system in the United States. Rather than figure if this bill will properly achieve their purpose, Messrs. Vitter and DeMint wrote the most expedient bill regardless of its ramifications.
First, if this bill is passed, it will not do anything to relieve the oversupply of dollars being held by the Federal Reserve. All it will do is not increase the current supply leaving about $1 billion of coins in the Fed’s coin vaults and not circulating in the economy.
Another problem with the bill is that it leaves the First Spouse Gold Coin program in place. A closer look at the law shows that the First Spouse Program is codified in 31 U.S.C. § 5112(p). In order to stop the entire program, the bill would have to remove both subsections “n” and “p.”
Further, 31 U.S.C. § 5112(q) (subsection “q”) requires the U.S. Mint to promote the Presidential Dollar program and includes the requirements about the government and commercial acceptance of the coins. If the bill passes by removing subsection “n,” both the U.S. Mint and Federal Reserve will have difficulty complying with this law.
For numismatists who have been collecting Presidential Dollars, this bill’s passage will end the program early leaving us with a partial series. Teachers who use the coins and the good materials produced by the U.S. Mint to help teach history will have to find different tangible aids than coins. Coins would be a better teaching aid since it is tangible and money gets everyone’s attention.
The ONLY way to reduce the oversupply of dollars being held in the Federal Reserve coin vaults is to eliminate the $1 Federal Reserve Note. With out the paper, coins become the currency of the realm and will start to circulate.
I am sure that within a day someone will send a comment saying that Americans like paper and do not like coins. While there are segments of the population that will complain, Americans are resilient and will adapt. We can adapt to anything that the government can do and be successful. We can adapt to anything that market forces place on us and bees successful. We went from an all cash society to adding credit cards; cell phones are now everywhere as compared to 10 years ago; we have survived many changes in the economy; we went from leaded gas to unleaded; transit tokens to electronic metro passes; and now many cities are moving to paying for parking electronically rather than feeding quarters into meters. Americans adapt to change all of the time. Now it is time for all Americans to dig into their souls and change their currency habits for the good of the country.
Jul 19, 2011 | commentary, dollar, Federal Reserve, US Mint
According to the website at National Public Radio, “The mission of NPR is to work in partnership with member stations to create a more informed public – one challenged and invigorated by a deeper understanding and appreciation of events, ideas and cultures.” Unfortunately, it looks like NPR drowned in the shallow end when it published its story “$1 Billion That Nobody Wants.”
While the Federal Reserve is holding about $1 billion in dollar coins in its coin vaults, its assertion that, “Some 2.4 billion dollar coins have been minted since the start of the program in 2007, costing taxpayers about $720 million,” is false. To quote myself:
NO TAX DOLLARS ARE USED IN THE MANUFACTURE OF COINS AND FEDERAL RESERVE NOTES IN THE UNITED STATES!
The U.S. Mint can strike trillions of coins that will sit in the Federal Reserve’s vaults, but none of the money used to strike the coins comes from taxpayer dollars. For our friends at NPR, money used by the U.S. Mint is withdrawn from the United States Mint Public Enterprise Fund (PEF). The PEF is the account where the seigniorage, the profit from selling the coins, is deposited. As sales are deposited in the PEF, the law requires that the U.S. Mint use the money in the PEF for budgetary reasons like to manufacture coins, maintain facilities, pay employees, etc. No tax money is deposited in the Public Enterprise Fund.
While the NPR story says, “The government has made about $680 million in profit by selling some 1.4 billion dollar coins to the public since the program began,” they failed to mention that this profit comes from the money paid by the Federal Reserve to buy the coins. Excess profit over and above the U.S. Mint’s operations funds are returned to the Treasury general fund.
Wait! Did you say that the program actually made a profit?
Yes, I did and so did the NPR story. And it did not cost the taxpayer anything to make that profit. Not one red cent!
But what about the $1 billion in the Federal Reserve’s vaults?
Those coins were not purchased from the U.S. Mint using taxpayer money. Each and every dollar coin in those vaults were paid for by the Federal Reserve at face value. Since it costs the U.S. Mint about 30-cents to strike one dollar coin, the U.S. Mint made a profit (seigniorage) of 70-cents per coin. The money was paid by the Federal Reserve and NOT taxpayer money.
Think about it: the U.S. Mint is generating 70-percent profit for striking $1 coins with most of that money will eventually make its way to the Treasury general fund.
If it is not taxpayer money, then whose money is it?
It is the money earned by the Federal Reserve through its banking operations as the United States central banking infrastructure. Deposits made to the Federal Reserve are made by member banks. Fees are paid by those banks for cash services, check clearing, and transfer services. The Federal Reserve also earns its money from making loans made to member banks. Some Federal Reserve branches make money on other services. For example, the New York Fed stores gold for foreign countries and sells currency overseas.
But it’s our money, right?
Yes, it is the money that is the heart of the economy of the United States. It is not classified as taxpayer money because no tax dollars were collected in order to fill its coffers.
You don’t make it sound like a problem. Why did the story go viral?
Actually, the $1 billion in coins sitting in the Federal Reserve’s vaults is a problem. It represents $1 billion of working capital that is not circulating in the economy. It is money that cannot be invested by loaning it to other banks or be used in other banking operations. In a tight economy, it is not a good idea to have $1 billion sitting idle. Unfortunately, the NPR story and subsequent follow-ups by various news outlets made it sound like it was $1 billion of taxpayer money being wasted by the government. On the contrary, the federal government earned $680 million!
If those dollar coins sitting in the Fed’s vaults is a problem, what can be done about it?
Stop printing $1 paper notes! The United States is the only “first world” country still producing its unit currency in paper. Two currencies whose value has stood up against the dollar during the current economic crisis, the British Pound and Euro, use coins for their unit currency and not paper. In fact, European Union use coins for the 1 Euro and 5 Euro denominations.
I know that “public sentiment” says to keep the $1 note. But when is governing about bowing to public sentiment. I thought government was supposed to do what is in the nation’s best interest. If it will save money in the long term, then let’s drop the paper for coins. American’s are resilient, they will get used to it.
May 22, 2011 | BEP, dollar, policy
Last March, the Government Accountability Office, the investigative research arm of the legislative branch, issued a report with the alliterative title “Replacing the $1 Note with a $1 Coin Would Provide a Financial Benefit to the Government” (GAO-11-281 [PDF]). The report opens by saying that “According to GAO’s analysis, replacing the $1 note with a $1 coin could save the government approximately $5.5 billion over 30 years. This would amount to an average yearly discounted net benefit—that is, the present value of future net benefits—of about $184 million.”
In 2008, I posted a similar analysis of the benefit of using “Paper v. Coin Dollars” with the political reasons of that time as to why the paper dollar would continue to be printed. Although the political landscape have changed, the will of the politicians to make this change does not exist.
Last month, a coalition that includes Brink’s, Inc., independent car wash operators, and public transportation officials responded against the GAO report citing the alleged logistical issues and increased costs in handling a dollar coin versus paper.
On their side opposing the sole use of a $1 coin is the Department of the Treasury and the Federal Reserve. They cite the differences in the weight and the public’s attachment to the paper dollar. In a USA Today/Gallup poll conducted in 2006 found that while 54-percent thought the Presidential $1 Coin thought the program was a good idea, 79-percent said that they do not want the coins to replace the paper dollar.
The political and economic environment has change. The GAO’s report bolstered the Dollar Coin Alliance, who has reportedly spent $250,000 to lobby congress since December. With the emphasis on the budget, a plan to find ways to generate revenues with little political risk has the concept of eliminating the paper dollar being taken seriously. This has the anti-coin dollar coalition worried.
Another factor working against the anti-coin dollar advocates is the loss of a major ally in congress. The late Senator Ted Kennedy (D-MA) did not want to see the paper dollar eliminated because it would hurt the Dalton, Mass. based Crane & Co.. Crane is the sole supplier of currency paper that the Bureau of Engraving and Printing uses to produce the one dollar note. John Olver (D-MA) represents the the Massachusetts First Congressional District that includes Dalton.
Although the political environment favors the elimination of the paper dollar, the risk adverse members of congress will look at the 2006 poll and probably not vote to eliminate the paper dollar. Unless key congressional leaders agree that ending the printing of the one-dollar note is in the best interests of everyone, including their political careers, the political reality is that printing of the dollar note is here to stay.
Dollar note image courtesy of the Bureau of Engraving and Printing
Dollar coin image courtesy of the U.S. Mint
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