The next time you are slipping the valet a couple of folded dollar bills, take a good look at those George Washingtons. You might never see them again.
Every few years, there is a renewed push for the United States to replace the dollar bill with its shiny cousin, the one dollar coin. The move is typically supported by companies that mine the ore, manufacture the metal, and supply vending machines, which digest coins more easily than bills. It is opposed by the company that has supplied the Treasury with paper for the dollar bill for more than a century. Judging from American’s lack of appetite for dollar coins, most of the public couldn’t care less.
Agitation in favor of the dollar coins typically leads to government reports analyzing the costs and benefits of the switch, such as those issued by the Government Accountability Office in 2011 and 2012 and, more recently, by researchers at the Federal Reserve Board. These are followed by media reports on the costs and benefits of “killing the bill.”
And then the issue dies.
Until it resurfaces several years later.
The United States is clearly an outlier when it comes to the use of paper money. The one dollar bill, the smallest denomination US currency note, is worth far less than the lowest value bank note in any other advanced industrialized nation. The minimum denomination notes in circulation Britain, Canada, the Euro-zone, Japan, and Switzerland are the equivalent of five to ten dollars, and countries that once-upon-a-time had equivalents of the one dollar bill abandoned them years ago.
Coins are certainly more durable than paper, although the difference in longevity of bills and coins has shrunk considerably during the last two decades: in 1990, the dollar bill lasted, on average, less than two years; by 2012, its useful life was nearly seven years. That pales by comparison to the useful life of a dollar coin, which is measured in decades.
A cost-savings argument made in favor of the coin is the resulting “seigniorage” that accrues to the government. Because dollars are, in a slightly roundabout way, a debt of the US government—a debt on which it pays no interest—the more of them there are in circulation, the larger the government’s interest-free loan. Most analyses suggest that dollar coins are more likely than bills to end up sitting in the coin a jar in your closet or among the loose change sitting in your car until you need it to feed a parking meter or pay for a cup of coffee, meaning that they stay in circulation longer than one-dollar notes.
A drawback of the dollar coin is that lacks the many security features built into the dollar bill. Following the UK’s introduction of the pound coin in 1983, it was estimated that as many as 2.8 percent of pound coins in circulation were forged, undermining confidence in it. If dollar coins were counterfeited at the same rate as British one pound coins, more than half a billion fake dollar coins would make it into circulation every year. By contrast, the estimated rate of bogus dollar bills is estimated to be less than one thousandth of one percent of the total in circulation.
Another, more potent drawback to the coin is that the public does not seem to be inclined to use it. The Susan B. Anthony dollar was first minted in 1979, but because its size, color, and shape is similar to that of the quarter, it never gained traction with the public. The Sacagawea dollar, first minted in 2000, similarly never became popular. Just ask the Federal Reserve—they have a stockpile worth approximately $1.4 billion.
The prospects for the adoption of the dollar coin are pretty dim. Given public apathy about the coin, the substantial costs of transitioning from bills to coins, and current low interest rates which give Uncle Sam access to ample cheap borrowing, there is no pressing reason give the dollar coin serious consideration… until the next time the issue surfaces.
Featured image credit: United States one dollar bill, obverse. Public domain via Wikimedia Commons.