From manufacturing to circulation: Why does the most season numismatists get it wrong

It never ceases to amaze me that even the most seasoned and esteemed numismatists do not understand how United States coinage goes from manufacturing to circulation.

Recently, Harvey Stack wrote a column that appeared as a Viewpoint in Numismatic News (November 18, 2018). In the column, he blamed the U.S. Mint for problems with the distribution of the 50 State Quarters program. In the article Stack wrote that “the distribution of the new designs did not get full nationwide distribution. The Mint sent to most banks nationwide whatever they had available, with some districts getting large quantities of the new issue and other districts getting relatively few, if any.”

The U.S. Mint does not distribute circulating coins to any United States bank except the Federal Reserve. At the end of every production line is a two-ton bag made of ballistic materials that collect every coin produced on the line. When the bag is full it is sealed and later transported to a processing center designated by the Federal Reserve.

The U.S. Mint is a manufacturer. When they complete making the product, it is packaged in bulk and the customer, the Federal Reserve, picks up the product. Once the product is delivered to the client, that product’s distribution is no longer in the U.S. Mint’s control.

During the time of the 50 States Quarters program, the U.S. Mint had an agreement with the Federal Reserve to distribute the new coins first in order to get them into circulation. When the new coins were transferred to the various Federal Reserve cash rooms in the 12 districts, the Federal Reserve did circulate the new coins first.

What gets left out of the discussion is the logistics of transferring the coins from the cash rooms to the banks. The Federal Reserve does not deliver. Like many government agencies, the Federal Reserve relies on contractors to carry out that job. The Federal Reserve “sells” the coins to the logistics companies that bag and roll the coins and eventually deliver the coins to in armored vehicles to the banks.

In order to save money, these logistics companies keep their own supply of coins. This supply comes from the Federal Reserve cash room operations or excess they are given by the banks. Sine the logistics companies were not part of the deal that the U.S. Mint made with the Federal Reserve, a bank that asked for a delivery of quarters may have received quarters from the logistic company’s stock rather than new issues from the Federal Reserve.

Logistics is the coordination of complex operations and it is the job of these logistics companies to fulfill the inventory needs of the bank in the most efficient manner possible. It was more efficient to supply the banks in less densely populated areas with coins from current stock than transporting large amounts of coins from one of the Federal Reserve cash room operations that may be hundreds of miles away.

The U.S. Mint may do many things that collectors might take exception to, but the distribution of circulating coins is not their responsibility.

Coin image courtesy of the U.S. Mint.

LOOK BACK: Paper v. Coin Dollars

Following the introduction of the Presidential $1 Coin program and the discussion about replacing the Federal Reserve Note with a coin, I wrote an article explaining how the situation will not change. Not much has changed in 10 years!

Whenever a proposal or law that creates a new dollar coin, there is always a discussion as to how to make the program more successful. In the past, the Gallup organization has polled the public on a few occasions asking about the potential acceptance of dollar coins.

Regardless of the questions asked, the only way to increase the circulation of the dollar coin is to stop printing the one-dollar Federal Reserve Note and begin to withhold it from circulation. It is a move that will force the people to use the coin as the population of the paper currency is reduced.

There are many emotional arguments on both sides of the issue. Whether one is for or against the printing of the one-dollar note, the US is one of the extreme few first-world countries issue its unit currency on paper. Looking beyond the emotional arguments, each side has dominant arguments to support their positions.

Those who want to eliminate the one-dollar note use at the cost of is production and the savings to the government as the dominant reasons. According to the Bureau of Engraving and Printing, 95-percent of all Federal Reserve Note printed for circulation are used to replace damaged and worn notes that are being taken out of circulation. Using BEP’s 2017 production report, 2,425,600,000 one-dollar notes were printed. With 95-percent being replacement notes, 2,304,320,000 notes were printed just to maintain circulation levels. With it costing 4.385-cents to produce one note of any denomination, the cost to just replace notes removed from circulation was $100,422,265.60 in 2017.

Rather than printing paper dollars, if the US Mint strikes coins the cost to replace those 2.4 billion notes would cost 21-cents per coin (according to the U.S. Mint’s 2014 Annual Report, the last documenting seigniorage for the dollar coin). The total production cost would be $483,907,200.

But do not let the 381-percent increase in cost fool you. For the real picture, the costs have to be predicted over time. According to the BEP and the Federal Reserve, the lifespan of a one-dollar Federal Reserve Note is 5.8 years. When the U.S. Mint makes plans for circulating coinage, they accept that the lifespan of a coin is 30-years. To help with the calculation, it will be assumed that the price of manufacturing coins and currency s will stay constant. In order to keep the $2.4 billion of one dollar notes in circulation for 30 years, it will cost the BEP $522.6 million dollars.

By comparison, since the U.S. Mint will be striking new coins for circulation and (theoretically) not replacement coins (not including the coins already in storage), the U.S. government would save about $117 million over 30 years. The following table illustrates these costs:

Denomination Production Total Number of Replacement Notes Cost of Production for Replacements Cost of Replacements over 30 years
Paper Dollar (2008) 4,147,200,000 3,939,840,000 $177,292,800 $1,772,928,000
Paper Dollar (2018) 2,425,600,000 2,304,320,000 $101,044,432 $522,643,614
Coin Dollar (2008) N/A 3,939,840,000 $626,434,560 $626,434,560
Coin Dollar (2018) N/A 2,425,600,000 $509,376,000 $509,376,000

While this might be a compelling argument to stop printing one dollar notes, such a move has political ramifications for some powerful members of Congress. With over 1500 people working in the Eastern Currency Facility in downtown Washington, DC, they are represented by several leaders of both parties. When it comes to jobs in their districts, members of Congress will not allow anything that will reduce the production capacity of the Bureau of Engraving and Printing and where constituents could lose jobs.

Before Congress changes the law to stop the printing of the one-dollar note (31 U.S.C. §5115(a)(2)), the BEP will have to supplement production in order to protect jobs. The way this could be done would be to print foreign currency. However, it seems that the BEP is having problems selling their services to foreign governments.

Although the Bureau of Engraving and Printing has experimented with polymer notes and other printing substrates, the Federal Reserve has said that it does not consider these alternatives viable for United States currency. However, the Federal Reserve and Bureau of Engraving and Printing has been testing rag-based paper from companies that can produce new anti-counterfeiting features.

If there was a change to the supplier of currency paper, that would raise concern by the Massachusetts congressional delegation whose constituents include Crane Currency, the subsidiary of Crane & Company. Crane has been the exclusive supplier of currency paper to BEP since 1879. Although BEP has tried to open the competition for purchasing currency paper (see GAO Report GAO-05-368 [PDF]), the cost of entry into the market has prevented other manufacturers from competing for the business. If BEP would stop printing over 2 million one dollar notes without replacing it with similar paper production, the Massachusetts-based company could lose significant business.

Regardless of the measures taken by the US Mint to increase the circulation of the one-dollar coin, public perception is that the one-dollar paper note is easier to use than the coin. 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 one-dollar note is here to stay until a significant event causes a change in policy.

The original post can be read here.

Diehl & Moy endorse change

Could the recent cyber attacks and growing severity of cybersecurity issues become the motivation for Congress to vote to reform United States currency?

According to Philip Diehl and Edmund Moy, former Directors of the U.S. Mint, the discussion as to remove the cent and paper dollar from circulation should be part of the current budget and tax overhaul debates.

The discussion is the same as it has been. The cost of zinc has risen causing the manufacturing costs of the Lincoln cent to climb above its face value. Even with operating efficiencies that have brought down the cost of manufacturing to its lowest levels in many years, the price of zinc keeps makes the materials cost more than the coin is worth.

As for the paper dollar, the Government Accountability Office has published several reports over the years that demonstrate the cost savings between using the paper dollar versus a coin dollar. The last GAO report (GAO-13-164T) concluded that using a dollar coin instead of the paper note “could potentially provide $4.4 billion in net benefits to the federal government over 30 years.”

This is not a new discussion. The only change is that this is being suggested by former Directors of the U.S. Mint from both sides of the aisle. Diehl was appointed by Bill Clinton and served from June 1994 through March 2000. Moy was appointed by George W. Bush and served from September 2006 through January 2011.

Earlier this year, Sen. John McCain (R-AZ) introduced the Currency Optimization, Innovation, and National Savings Act of 2017 (COINS Act) (S. 759). McCain’s bill would require:

  • Suspending the production of the one-cent coin for 10 years except for collectibles. After three years, the GAO would doe a study to determine whether production should remain suspended or should be reinstated. This would not demonetize the cent.
  • Change the composition of the nickel to 80-percent copper and 20-percent nickel. This should bring down the cost of materials used in striking the five-cent coin to be on par with its value. Efficiencies in manufacturing could lower costs further.
  • If the bill becomes law, two years after it is enacted, the Federal Reserve will begin removing $1 Federal Reserve Notes from circulation. This will probably be done by the banks who will take the notes on deposit and send them back to the Federal Reserve where they will be destroyed. Coins would take their place. The $1 FRN could still be produced for the collector market.

Sources report that the chances of McCain’s bill getting a hearing are minuscule. While having lunch with on congressional staffer, I was given three reasons why Congress will not address this issue:

  1. States with a large rural population primarily west of the Mississippi River represented by Republicans are unlikely to support the removal of the one-cent coin. Removal of the coin is viewed as a hidden tax against the people with fear mongering that suggest the government is keeping the extra money that would become on the rounding of prices.
  2. States with large poor populations, primarily in the south, and their advocates who believe that taking away the pennies are a way to separate more money from poor people who can least afford to lose the ability to pay in cents.
  3. Surveys show that most of the people older than Millenials are against removing the paper dollar. Since this population constitutes the majority of the voters and donors, the politicians are not about to make those people upset.

Another issue is that McCain is not popular amongst his fellow Republicans. If the issue is addressed, it is likely to be discussed as part of a bill that does not bear McCain’s sponsorship.

Given the partisan nature of politics and the perceptions of the members of Congress, there is a very little chance of the Coins Act or any similar legislation being enacted during this session of Congress.

End of the Term, What Now?

January 20, 2017, marks the end of the Presidency of Barack Obama, the 44th President of the United States. At noon the 45th president will be inaugurated.

Also, as of noon, Obama’s appointments to Executive Branch positions will resign from their position to be filled by the new president’s appointment. Of the people resigning are Secretary of the Treasury Jacob “Jack” Lew and Principal Deputy Director of the U.S. Mint Matthew Rhett Jeppson. Jeppson was nominated to be the 39th Director but the nomination died with the end of the 114th congress.

Attempts to contact the U.S. Mint to ask them about the bureau’s leadership starting Friday has gone unanswered.

The position of Treasurer of the United States would have also resigned but is currently vacant after the July 2016 resignation of Rosie Rios. Treasurer of the United States is a presidential appointment that does not require Senate confirmation.

The Bureau of Engraving and Printing is not affected by a change in administrations because the position of the director is a career appointment. Len Olijar will remain Director of the BEP as long as he is a government employee in good standing.

Members of the Federal Reserve Board are appointed but they are not considered part of the Executive Branch. The Fed is independent and the Fed Chair, the Federal Reserve Board, and the president of the regional Federal Reserve Banks are appointed to four-year terms irrespective of political timelines. Janet Yellen, Chair of the Federal Reserve, has announced she will serve her full her full four-year term that will expire on February 3, 2018.

The Plum Book, which documents more than 9,000 Federal civil service leadership and support positions in the executive and legislative branches, lists quite a number of positions that supports numismatic production. Of course, significant changes will be reported here!

Certainty

Since the election, there have been a number of stories about the “Trump Effect” on the markets. The narrative is that the economic bounce is tied specifically to the election of Trump.

The premise is that the market is reacting to the election of Donald Trump and is the direct cause for the change in the economic factors in the markets. Unfortunately, the narratives being promoted is shortsighted. Markets are not reacting to the election of Trump. The markets are reacting to the certainty that the election is settled.

Markets hate uncertainty. When there is uncertainty, the markets tend to react to everything and sometimes in an exaggerated manner. Fortunately, the economic indicators have been good and the markets have reacted accordingly with exaggeration.

How the markets have reacted to uncertainty in economic news

When looking at the collecting markets, whether it is numismatics or antiques, you can look at the precious metals markets as a key indicator. In basic terms, the price of precious metals is indirectly proportional to the strength of the markets and economy. It translates to if the economy is strong making investing less of a risk, then the precious metals markets will be weaker. it means there is more cash circulating creating discretionary income that buyers use to spend on non-essentials, like hobbies.

A strong market and economy means that investments in businesses are a better bet. Strong employment numbers and the movement of goods and services mean that there is money to be made by investing in business. If there are good investment opportunities, it does not make sense for investors to tie money up in precious metals.

Investment in metals makes sense when investing in their value is better than the expected rate of return on business investments. Once investors turn to precious metals, the price is based purely on supply and demand. Since the supply stream is relatively constant, demand mostly influences the price of metals. If the demand is high and the supply cannot keep up with the demand, the price will rise. What helps regulate the price is that there continues to be a supply but the demand has been known to outpace the supply.

The fact of the matter is that economic indicators have improved. Prices of metals have been steadily dropping since August as the investment in stocks been going up. Even before the election, the markets were in growth mode but skittish with uncertainty.

All the election brought was a certainty. Markets know who the next president will be, who will be in congress, and who will control the state houses. If markets hate uncertainty then the currency that fueled the rally was the removal of uncertainty.

After the week following the election, the markets leveled off with the next goal to figure out what the Federal Reserve would do. With the uncertainty surrounding the December Federal Open Market Committee (FOMC) meeting, the drive to record levels stalled. When the FOMC announced the increase in interest rates, rather than reacting negatively, the reactions was as if the markets were saying, “It’s about time.” with the uncertainty of what the FOMC would do, the markets reacted by climbing to record levels.

Market reactions to various news and economic events

In the meantime, the metals markets have been on a steady decline. Since the capital markets are providing a good return on investments, there is no incentive to invest in metals. Although people are buying, the fewer buyers are beating the prices down making bullion-based collectibles cheaper.

Gold free fall began on Election Day 2016

Silver downward trend started on Election Day

What does that have to do with higher end collectibles such as rare coins?

When capital markets are adding to the general wealth of the investor community, they will look for different places to invest their winnings. The new money will start to buy high-end items to supplement their other investments. This is why the collector market thrives during good economic times. Prices of fine art, prime real estate, collector cars, and even rare coins rise.

Rare coins have been resilient since the decline in markets. Rare coins became a safer bet and have attracted new investors which has bucked the trends of the past. This was not lost on the broader investing community who may be looking for diversity in their portfolios.

In review, the markets have been on a six-year rise as the economy has recovered from the Great Recession. Economic indicators are on an extended positive run. The election created certainty in the future of the government and the Federal Reserve created certainty when it raised interest rates. Since markets like certainty, the reaction is not because of the result of the election it is that the election is over.

Certainty is driving the markets, not the details of the results.

Credits

  • Dow Jones Industrial Average charts courtesy of Yahoo! Finance.
  • Gold and silver charts courtesy of Kitco.

We still need help PLEASE

Mrs. Janas of Juniata Park Academy in  Philadelphia, PA (Grades 6-8)

Mrs. Janas of Juniata Park Academy in
Philadelphia, PA (Grades 6-8)

Last month I came across a listing on the fundraising site DonorsChoose.org to raise money for a class in Juaniata Park Academy in Philadelphia so the “students would love to expand their knowledge and be able to identify with the real world today and visit places around the area.” This would allow the class to visit the Philadelphia Mint and the Philadelphia Federal Reserve Bank to learn more about our money.

The project can be funded for a paltry sum of $512.92. With the donations matched by the Dottie Lutz Foundation, we can send underprivileged students to visit the Mint and the Fed for $256.46!

As I said in my original post, maybe a few would become interested in numismatics. Seeing the exhibits and learning how money is made can inspire these children to become collectors. And as inner-city students in a minority community, adding this diversity to the hobby is one of the best gifts we can give the hobby.

There is ONE MONTH to go on this project.

Previously, I asked to see if nine readers of the Coin Collectors Blog would step in with a $25.00 donation. Thankfully, it appears that only one person did step up. This effort now needs $413.00 to be funded meaning it will take is $206.50 in donations for this to be funded!

I am asking for everyone to give any amount to fund this project.

It would be wonderful if the numismatic community stepped up to help fund the visits to the Mint and Fed for these students. Let’s see if we can influence some students to become numismatists.

Will you please join me?

Image courtesy of DonorsChoose.org

Riding off into the sunset

2016 Reagan coins

2016 Ronald Reagan dollar & 2016-W Nancy Reagan $10 gold coin

If there is news that you want buried, you would release the news on Friday afternoon. Washington politicians are notorious for creating these media dumps late on Friday. By the time the media can digest the dump, the press offices are closed for the weekend leaving the media to try to explain the stories based on what they have. However, the public is into its weekend and fewer are paying attention.

On the Friday before the Independence Day celebration weekend, the U.S. Mint released the Ronald Reagan dollar and Nancy Reagan first spouse coin marking the end of the program.

The Presidential Dollar program has had an interesting history. Passed by congress in December 2005 and later signed by President George W. Bush, the Presidential $1 Coin Act (Pub. L. 108-145) ordered the U.S. Mint to create a $1 coin to commemorate the Nation’s past Presidents and an accompanying $10 gold coin to commemorate the President’s spouse (First Lady). Coins appeared in order that the president served and the president must be deceased for two year prior to the coin’s issue. Since Jimmy Carter is still living, he was bypassed and the last coin was for Ronald Reagan.

2012 First Spouse coin featuring Alice Paul

2012 First Spouse coin featuring Alice Paul

First Spouse gold coin, they bore the image of the first spouse of the corresponding president with historical information about the spouse on the reverse are issued for each spouse. For the cases where the president was widowed prior to taking office, the obverse of a contemporary coin was used and a historical image is used on the reverse. The only exception was the 2012 coin honoring Alice Paul to coincide with the Chester A. Arthur presidential dollar. Since Arthur was widowed prior to his inauguration, the law gave the honor to Alice Paul, a suffragette who was born during Arthur’s administration. The program ended with the issue of the Nancy Reagan coin.

For the first time in the modern era the date, mintmark, and mottos “E Pluribus Unum” and “In God We Trust” struck into (incuse) the edge of the coin. The last time edge lettering was used on circulating U.S. coinage was in the 1790s.

With the edge lettering a new process for the U.S. Mint, it was no surprised that coins left the Mint without the mottos stamped in the edge. Dubbed the “godless dollar” the error caused an uproar over some people suggesting that the government was conspiring against religion by leaving the motto off of the coin. This was described as either a willful omission or a way to attack religion. There was no narrative that accepted that this was just a mistake.

Our national nightmare ended when congress updated the law (Pub. L. 110-161) to move the motto from the edge to the obverse of the coin. E Pluribus Unum, the date and mintmark was left on the edge.

Then there was the breathless story by National Public Radio that decried the tax dollars being wasted by the approximately $1.4 Billion of dollar coins being stored in the Federal Reserves’ vaults. The story was filled with partial truths and did not properly explain the situation. When I tried to reach out to NPR, I was rebuffed by a reporter who decided a low-level Treasury staffer who did not have the first clue about reality was more credible

While the media was blaming the U.S. Mint and the Federal Reserve, they forgot to read the law. According to the law, there were mintage minimums that congress wrote into the law including the one that said the Sacagawea dollar was to comprise one-third of the dollar coin production. As part of the legislation, the U.S. Mint and Federal Reserve were supposed to promote the coin’s use and provide educational materials for the public.

Congress, who wrote and passed the original legislation, was tripping all over themselves to introduce bills to end the program while pounding their collective chests claiming they were acting in the public interest.

This nightmare ended when then Treasury Secretary Tim Geithner ordered a reduction in the production of all dollar coins. None of the bills introduced to eliminate the dollar coin were ever heard in committee and died at the end of the 113th congress.

But the series couldn’t continue without one more controversy. The way the law was written, it was interpreted that it would end with the first living president. In this case, the program would have ended with the coin honoring Gerald Ford since Jimmy Carter is still living. This did not sit well with the fans of Ronald Reagan who have spent the time since his convalescence and death trying to plaster his name all over everything including an airport that employed air traffic controllers he fired placing the nation’s skies at risk.

The same members of congress that introduced bills to eliminate the program were now demanding the program be extended by one president. Ironically, they waited until after the resignation of Mint Director Edmund Moy and approached the acting Director Richard Peterson. Although Peterson was named acting director, he was a career government employee with impeccable credentials but had to have a different relationship with the politicians than an appointed director would. The matter was deferred to Treasurer Rosie Rios and Secretary of the Treasury Jack Lew who approved the extension of the program.

Presidential Dollars
2007:
George Washington, John Adams, Thomas Jefferson, James Madison
2008:
James Monroe, John Quincy Adams, Andrew Jackson, Martin Van Buren
2009:
William Henry Harrison, John Tyler, James K. Polk, Zachary Taylor
2010:
Millard Fillmore, Franklin Pierce, James Buchanan, Abraham Lincoln
2011:
Andrew Johnson, Ulysses S. Grant, Rutherford B. Hayes, James Garfield
2012:
Chester A. Arthur, Grover Cleveland, Benjamin Harrison, Grover Cleveland
2013:
William McKinley, Theodore Roosevelt, William Howard Taft, Woodrow Wilson
2014:
Warren Harding, Calvin Coolidge, Herbert Hoover, Franklin D. Roosevelt
2015:
Harry S Truman, Dwight D. Eisenhower, John F. Kennedy, Lyndon B. Johnson
2016:
Richard M. Nixon, Gerald Ford, Ronald Reagan

First Spouse Gold $10 Coins
2007:
Martha Washington, Abigail Adams, Thomas Jefferson’s Liberty,† Dolley Madison
2008:
Elizabeth Monroe, Louisa Adams, Andrew Jackson’s Liberty,† Martin Van Buren’s Liberty†
2009:
Anna Harrison, Letitia Tyler,‡ Julia Tyler,†† Sarah Polk, Margaret Taylor
2010:
Abigail Fillmore, Jane Pierce, James Buchanan’s Liberty,* Mary Lincoln
2011:
Eliza Johnson, Julia Grant, Lucy Hayes, Lucretia Garfield
2012:
Alice Paul,¶ Frances Cleveland (first term), Caroline Harrison,‡ Frances Cleveland (second term)
2013:
Ida McKinley, Edith Roosevelt, Helen Taft, Ellen Wilson,‡ Edith Wilson††
2014:
Florence Harding, Grace Coolidge, Lou Hoover, Anna Eleanor Roosevelt
2015:
Elizabeth Truman, Mamie Eisenhower, Jacqueline Kennedy, Claudia Taylor “Lady Bird” Johnson
2016:
Patricia Ryan “Pat” Nixon, Betty Ford, Nancy Reagan
Footnotes:

President was widowed prior to inauguration
First Spouse died during the president’s term
††
Married the president during the president’s term
*
James Buchanan was the only bachelor president
President Chester Arthur was widowed prior to inauguration. However, the authorizing law gives the coin honor to Alice Paul, a suffragette who was born during Arthur’s administration

When the Reagan dollar was issued, 39 presidents representing 40 terms were issued.

Along with Nancy Reagan, 35 other first spouses were honored (Frances Cleveland appeared twice), four different Liberty coins were issued, and one was issued to honor suffragette Alice Paul.

President Reagan horseback riding at Rancho del Cielo

President Reagan horseback riding at Rancho del Cielo with Freebo (his daughter’s dog) and Victory the golden retriever following.

As the program now quietly rides off into the proverbial sunset, maybe it is time to let the America the Beautiful Quarters® complete their run through 2021 and give the circulating commemoratives a rest.

Credits

  • Coin images courtesy of the U.S. Mint
  • Reagan on horsback “April 4, 1986 photo courtesy Ronald Reagan Presidential Library and Museum.” Downloaded from PresidentialPetMuseum.com

Making new green with old green

5 lb. bag of shredded currency contains $10K in cash

5 lb. bag of shredded currency contains $10K in cash

What happens when the Federal Reserve shreds old money?

We have seen the many packages of shredded currency. From the little packages with $5.00 of shredded currency to 5 pound bags filled with approximately $10,000 shredded money, this was the primary way currency did not just get thrown away. Since 2014, the Federal Reserve has been working with recyclers across the country to turn that shredded cash into something else useful.

According to the Federal Reserve Bank of San Francisco, the Federal Reserve pushed for more recycling of currency in 2011. Since each Federal Reserve bank manages its own cash operations each works with local recyclers to provide the cash. In most cases, the recycler hauls away the shredded cash for no charge to the bank and turns it into other products.

Examples of what is done with the cash is that the San Francisco district supports burning of the shreds for “green power,” a fitting name for recycling U.S. currency. So does the Federal Reserve Bank of Philadelphia.

The story caught my eye was about the New Orleans branch of the Federal Reserve Bank of Atlanta that provides shredded currency to a company that composts the cash, mixes it with other soil so that it is used for growing vegetables.

If compost is not your idea of fun, how about using the shreds to make art:

"Another Day, Another Dollar" by Jason Hughes

“Another Day, Another Dollar”
Artist: Jason Hughes
Sadat Art for Peace (2012): First Prize, Category: 2 Dimensional
Medium: American Currency

Credits

Can the U.S. go cashless?

Could the call to end the 1p and 2p coins in the UK have an effect in the US?

Could the call to end the 1p and 2p coins in the UK have an effect in the US?

There have been stories running around the Interwebs talking about the end of money.

Not necessarily the end of money but the end of physical currency.

With all the talk about ending the production of low value coins, whether it is the one-cent coin here in the United States, or the one or two pence coins in Great Britain, there seems to be movement to reduce the dependence of coinage.

Amongst the examples cited by those looking to make these changes are Canada, who ended the production of their one-cent coin in 2012, and Sweden, where physical currency makes up 3-percent of the economy.

Could the DC Metro’s Smartrip Card be the future of a cashless society?

Could the DC Metro’s Smartrip Card be the future of a cashless society?

Sweden is an interesting example that may not apply to the United States. The country that introduced the first banknotes to Europe in 1661 has transformed itself into a larger digital economy. Many shops and most banks have stopped handling cash. In areas that were traditional cash-related transactions, there has been a ticket or electronic system in installed. Busses require pre-paid tickets. Other mass transit relies on credit cards or pre-paid debit cards like the Metrocard in New York or the SmartTrip Card in Washington. These cards are less expensive to produce than paper tickets or tokens.

But could a cashless society work in the United States?

A key measure of the power of an economy is the Gross Domestic Product, the total cost of goods and services produced by the economy. As of 2012, the most recent statistics available, Sweden’s GDP is $184.8 billion (converted to US dollar equivalent) versus $1.56 trillion for the United States—eight times the Swedish economy. Sweden’s economy ranks 28th and the U.S. 2nd only behind the combined European Union.

For the record, China’s 2012 GDP, third on the list, was $8.36 trillion, just over half of the U.S. GDP.

The United States makes more money, spends more money, trades more money, and has more economic impact than any other country in the world.

The first problem with trying to replicate what Sweden is doing is one of scale. The United States has the single largest economy in the world. While the European Union has a larger GDP, it is made up of cooperating countries with their own sovereign interests. While some might say that it is the same as the 50 states, the federal structure of a single republic versus several cooperating republics of Europe makes like the equivalent of swallowing the ocean in one gulp versus several gulps controlled by cooperating governments in Europe. Even when European governments do not cooperate, they can individually work better than what has been going on in the United States.

Another key indicator is the poverty rate. It is important to consider those in poverty because they usually do not have the resources to participate in the advanced structures of society. People living in poverty do not have access to credit regardless of where they live, even if they do have some access to the technologies that support cashless access. Although companies are giving away smartphones in many poverty stricken areas, those customers continue to have problems paying their bills. These are the people who rely on cash.

What may account for Sweden’s low use of cash is their low percentage of its citizens in poverty. With a poverty rate of 3.97-percent, this may account for the 3-percent average currency usage. Poverty in the United States is 5-times more than Sweden at 20.59-percent. While this in itself may not be a definitive indicator, it could explain why there is a vocal opposition of anti-poverty groups when discussion turn to eliminating the cent or a cashless society.

Those who preach a cashless society and point to Sweden also fails to consider one factor that only few countries have faces: the United States has probably one of the most diverse populations. Current politics notwithstanding, the United States has historically been more open to immigration than most other nations. Sweden, while a wonderful place, has a lesser and more homogenous population. Swedes are rightfully proud of themselves, their heritage, and history and has a culture more conducive to working together.

When was the last time that we saw the United States all together? Even after the attacks of September 11, 2001, there were segments of the population that has called it a hoax and said that the government bombed itself to press an agenda.

1853 Braided Hair Half Cent Obverse

1853 Braided Hair Half Cent Obverse – The last lowest denomination coin eliminated by the congress.

Even those who want to end production of the one-cent coins and uses the end of the half-cent as an example of the U.S. ending production of a no longer needed low denomination coin gets the reasons wrong for the reasons why its production was ended. Those who know better reminds them of the reasons and many stammer in shame before puffing out their chests and saying they are right, anyway.

In 2015, the U.S. Mint and Bureau of Engraving and Printing produced more coins and currency than ever. Both government agencies produce their main products because it was ordered by the Federal Reserve, the central banking organization of the United States. Even though paper currency may be exported, most coins are circulated in the United States for domestic use.

If there is any indication that the United States is moving to a cashless society, then why is currency production at its highest in history?

Interestingly, 2015 was the 50th Anniversary of clad, non-silver coinage except for the half-dollar that was produced with 40-percent silver until 1969. To this day there are people to decry the use of fiat money.

Regardless of what pundits say, the United States economy is more broad, diverse, and not as easy to control as in Sweden. If the United States ever gets to the point where it can support a cashless society, it might not be during the lifetime of anyone reading this today. These pundits do not see beyond their caramel macchiatos to understand the Real World.

Keep collecting this coins. Your great grandchildren may enjoy them but their grandchildren may find them interesting curiosities.

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Pennies on a hot tin roof

Dollar-CentsOver the summer, a Harris Poll was conducted to understand how Americans feel about abolishing the one-cent coin and the paper dollar note. Even though there are pundits calling for these changes and even the end of physical currency, Harris found that those wanting to keep the lowly one-cent coin continue to hold the majority opinion.

Series 1935 $1 FRN Reverse Early Design

Series 1935 $1 FRN Reverse Early Design

According to Harris, 51-percent of those polled oppose abolishing the minting and use of one-cent coins versus 29-percent in favor. In 2008, 56-percent were opposed and 24-percent were in favor. While some will see a small movement to being in favor of eliminating the one-cent coin, the change is not significant when considering that the last poll was seven years ago shortly before the height of the recession and the beginning of the bank failures.

Every so often an article is written, usually by the political elite, about ending lower denomination coins for many reasons including the high cost of mintage or the inconvenience of their existence. Others point to rise of non-cash transactions and the rise of digitally created currencies as the future.

Those of us who work in areas outside the larger commercial world has experience with a cash economy that is not tied to economic status. One of those is the numismatics industry. While many dealers will take credit cards, and will pass along the fees along to the customer, many dealers have said that most of their off-line business is a cash-based business. While larger purchases are done using checks, most will leave shows with more hard currency than other types of payments.

1909-VDB Lincoln Cent

1909-VDB Lincoln Cent

Collectibles businesses are very reliant on cash. In my business, I do accept credit cards but when I do shows the overwhelming majority of my business is in cash. A few weeks ago I did a two day show and had one of my best weekends ever but only had one sale using a credit card.

There are people who are leery of using credit and debit cards for every transaction. We use cash to limit our exposure. In this connected world, the credit and debit card leaves a digital breadcrumb that is available to be hacked. I cannot tell you how many times I watched people in local convenience stores punch in their codes in a matter I could see them and then leave their receipts behind. This could be used to steal your money and your debit cards are not covered the same as credit cards. But the public does not see this.

A week does not go by without a report of the hacking of personal information that should not be made public. Unfortunately, it is getting to be like rain on the hot-tin roof, after a while the sound blends into the background.

According to the Federal Reserve, there was approximately $1.39 trillion in circulation as of September 30, 2015, of which $1.34 trillion was in Federal Reserve notes. That represents a lot of money that would have to be accounted for if we were to go into a cashless society. It would take a significant effort that would not make for good public policy.

The calls to make changes to change are beginning to drone on as background noise like rain on a hot-tin roof.

Images courtesy of The Harris Poll, Wikipedia, and usacoinbook.com.

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