Since the introduction of the Presidential $1 Coin, many numismatic venues have discussed how to make the program more successful. Reports are being made that Gallup has been calling people asking questions that lead to the impression they are researching the circulation of dollar coins.
When asked about how to increase the circulation of the dollar coin, the dominant suggestion has been to remove the one dollar federal reserve note from circulation. It is thought that the move would force people to use the coin when the paper currency is no longer available.
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 may be the only nation to print its unit currency in 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 as the dominant reason. The Bureau of Engraving and Printing reports that 95-percent of all notes printed are used to replace notes that are taken out of circulation. Using BEP’s 2007 production numbers, 4,147,200,000 one-dollar notes were printed. With 95-percent being replacement notes, 3,939,840,000 notes were printed just to maintain circulation levels. With it costing 4½ cents to produce one note of any denomination, the cost to just replace notes removed from circulation was $177,292,800 in 2007.
Rather than printing paper dollars, if the US Mint strikes coins the cost to replace those 3.9 billion notes would cost 15.9-cents (according to the Mint’s 2007 Annual Report [PDF]) per coin. The total production cost would be $626,434,560.
But do not let the 353-percent increase fool you. The BEP predicts the life of a one-dollar paper note is three years while the US Mint predicts the life of any coin is 30 years. To help with the calculation, let’s assume the price of printing notes will stay constant. In order to keep the $3.9 billion of one dollar notes in circulation for 30 years, it will cost the BEP $1.77 billion dollars. Since the Mint will be striking new coins for circulation and (theoretically) not replacement coins, the US government would save about $1.15 billion 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|
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. Amongst the protectors of the employees in the facility include House Majority Leader Stenny Hoyer (D-MD), House Campaign Finance Leader Christopher VanHollen (D-MD), Former Chairman of the Government Reform Subcommittee Tom Davis (R-VA), Del. Eleanore Holmes Norton (D-DC), and the well respected Senator John Warner (R-VA). These powerful 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.
While there are no official statements from the US or foreign governments, the dominant request is for the printing of polymer notes. According to unconfirmed reports, BEP is experimenting with different types of polymer substrate without notable success. If the BEP can adjust their equipment to print on polymer paper, they can solicit business from other countries to produce their currency. Once the BEP builds its portfolio, they are prepared to go to congress to recommend discontinuing production of the one-dollar note. Until then, the BEP will continue to produce one-dollar notes in order to keep workers employed in key congressional districts.
If BEP starts to use polymer notes, it would raise the eyre of Senator Edward M. (Ted) Kennedy, the powerful senior Democrat from Massachusetts. Amongst Sen. Kennedy’s constituents are the employees of Crane & Company from Dalton, Massachusetts. Crane & Comapny has been the exclusive supplier of currency paper to BEP since 1879. Although BEP tried to open the competition for purchasing currency paper used in printing currency (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 4 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.