Planet Money reports on the continuing efforts to eradicate the paper dollar bill and replace it with dollar coins.
In its most recent report, the GAO recommends switching to coins, which could make $4.4 billion for the government over 30 years. But the report says the government benefit does not come from the fact that coins are more cost effective. Instead the benefit comes from something called “seigniorage.”
Seigniorage is the profit the government makes from having money out in the economy. More money out there means more profit for the government.
Over time, coins earn more seigniorage for the government, but only because we don’t like using them.
“Lots of people when they take coins out of their pocket or purse at the end of the day put them in what we call a coin jar,” says the GAO’s Lorelei St. James, who oversaw the agency’s most recent study.
As a result, the GAO estimates that if the government were to eliminate $1 bills and switch to coins, it would have to replace every two bills with three coins, because one of the coins would sit idle.
So more coins means more profit for the government. But where does that profit come from? It comes from us — the public.
If you put a dollar coin in a coin jar, that’s a dollar you haven’t invested, a dollar you’re not doing anything with. Economists consider this a kind of tax.
I’ve said before and I’ll say again that I’d rather have a wallet full of bills than a pocket full of coins. That’s basically a matter of taste, so let me give two more reasons why I don’t care for this, and why I think it’s as unlikely as ever to happen.
One reason is vending machines. Remember when they only took coins, and only coins up to a quarter? There was an argument that once they all converted to accept dollar coins, they’d finally get a foothold. There was always a certain chicken-and-egg quality to that argument – did we need the newer vending machines to drive acceptance of the dollar coins, or did we need acceptance of the dollar coins to push the adoption of the newer vending machines – but that’s all moot now. This is because nowadays every vending machine out there accepts bills. And the next generation of vending machines after that won’t be of any help because what they’ll have in place of a coin slot is some form of connectivity – Bluetooth and/or an IP address – to accept payment from your smartphone. For the dollar coin, that ship has sailed.
I’m also skeptical of the seigniorage argument. For one thing, projecting out over 30 years is tricky business. Hell, we could be completely cashless by then. For another, I just have a hard time believing that a significant number of dollar coins would get tossed into a jar or change drawer and forgotten about. Actually, that’s probably what happens now while they’re basically novelties. I almost never take coins with me when I leave the house in the morning, so on those rare occasions when I get one as change, I suppose I do just toss it in with my collectible coins and never spend it. My point is that if those were the only dollar singles I had, I wouldn’t do that. Why would I, once they’re no longer novelties? The $4.4 billion over 30 years works out to about one lost dollar coin per person every two years, so I suppose it’s not a ridiculous assumption. It just doesn’t strike me as being particularly persuasive, and that’s before we discuss whether seigniorage is a good way for the government to get revenue.
Anyway, just another entry in the great bill-versus-coin debate. Has anyone’s mind changed on this topic over time? I can’t say I feel any differently now than I did a decade ago. What about you?