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:
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 For our friends at NPR, money used by the U.S. Mint is withdrawn from the United States Mint Public Enterprise Fund (PEF).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.