Wednesday, July 20, 2011

$1 Billion in unused dollar coins

I saw a blurb the other day about $1 billion in unused coins sitting in a government vault. It seemed a bit odd and not quite right, so I researched it - and it turns out, it's true.

The federal government has been printing presidential $1 coins. You've seen them, right? Me neither.

I do remember the Susan B. Anthony dollar coin. In fact, I've never used one but I did get 10 extra credit points in a marketing class in college for being the only one to correctly answer a question about it.

Q: "Why wasn't the Susan B. Anthony dollar successful at replacing the paper dollar bill?"

A: Because there was no demand for a replacement to the paper dollar.

And I do remember the Sacagawea dollar coin (as 'successful' as Susan B. Anthony) but just learned of the law that requires 20% of dollar coins to bear the Indian guide's image. Turns out, changing the name and person on the coin doesn't create a market demand for it.

And apparently, even presidents can't make the public want to use a dollar coin. The Presidential $1 Coin Act became law in 2005, and the U.S. Mint started producing the coins a couple of years later. I guess congress didn't learn from the lesson of the '80s and was doomed to repeat its mistake.

So have you ever even seen a $1 presidential coin? They're up to Rutherford B. Hayes, our 19th president, so they have a ways to go.

But it's costing us a mint (pardon the pun) for the first 18.

Each coin costs $.30 to make so we've spent about $300 million making coins that nobody wants - and that amount could double by the time the program ends in 2016.

It's hard to imagine so much money sitting inside a vault unwanted, but it's there. As an NPR story explained: a report to Congress last year, the Federal Reserve said the coins are now being held "with no perceivable benefit to the taxpayer," and that banks are sending them back to the Fed in increasing numbers.

"We have no reason to expect demand to improve," the Fed said. "We also note that a 2008 Harris poll found that more than three fourths of people questioned continue to prefer the $1 note."

NPR also wondered if switching to dollar coins would benefit taxpayers.

A Government Accountability Office study out this spring says that switching to a dollar coin "would provide a net benefit to the government" of about $5.5 billion over 30 years.

But it's not because coins are cheaper. The report says the government would not recover the cost of switching from bills to coins over that period.

Instead, the benefit to the government would come only from the profit it makes by manufacturing each coin for 30 cents and selling it to the public for a dollar.

When this profit, known as seigniorage, is factored out, switching to the dollar coin would actually cost taxpayers money over three decades, according to a Federal Reserve analysis of the GAO's figures. The cost works out to $3.4 billion.

The sad part is that we didn't need to be in this position. The Congressional Budget office warned Congress when it was considering the Act that demand for dollar coins was 'low.' That's an understatement.

But you know those members of Congress - they know so much better than we do so they went ahead and passed the law, making it three strikes against the dollar coin.

Yet the U.S. Government is still making them. I believe this qualifies for 'stuck-on-stupid' designation.

Considering our current fiscal situation, isn't this a program that could be cut in order to save money and help address the debt limit issue we're facing? What member of Congress will be brave enough to actually end a government program?

I won't hold my breath.


Timothy W Higgins said...

Though you have to ask yourself this is proof that a dollar simply isn't what it used to be, another and perhaps more important question comes to mind.

In this incredibly twisted version of supply and demand, has the government slowed down the printing presses cranking out paper dollars; or have they simply discover two ways to add to the volume of increasingly worthless currency that they produce?

Mad Jack said...

This is a great example of what is wrong with government, and not just the Federal government either.

The government spends .30 on an item that is (arguably) worth $1.00, and that no one wants. What happens to the .70 cents profit? How is that declared?

We used to have half-cents and quarter-cents in circulation, along with half-dimes alongside nickels. We don't have these any more and the Fed hasn't minted any in a long, long time. The coins were unwanted.

The only possible reason for one dollar coins are vending machines and slot machines. That being the case, if Vegas isn't buying the one dollar coins then we certainly are making something that no one wants.

Keith B. said...

My wife and I are collecting the Presidential dollars for ourselves and for our 3 grandchildren. That is the only reason I go to the bank to get them when they come out. I have never seen one in circulation.

Black Swamp Road Geek said...

When analyzing the costs of this, you need to include the cost of printing the paper dollar bill. The paper dollar does not last as long as the coin. So if the next step was taken, stop printing dollar bills, this would actually be fiscally prudent.

Maggie Thurber said...

BSRG - you are correct about the life of the dollar bill. And I'm certain that if the government stopped printing the dollar bill, they'd also save money.

But that ignores the market demand. People prefer the bill and the government, when mandating the creation of the coin, KNEW THAT!!!

What a stuck-on-stupid government we have to have embarked upon this particular path knowing what was clearly evident, resulting in millions wasted.

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