Off the Kuff Rotating Header Image

GAO

Is this the end for the dollar coin?

Fine by me if it is.

Millard is keeping hope alive

The dollar wars have raged for years, with various sides battling over what a dollar should look like: Should it be a green piece of paper (cotton, actually) that you can slide in your wallet? Or should it be a metal coin that you put in your pocket?

On one side are the vending machine companies, the miners, and anyone who has traveled enough in Europe to know the convenience of a coin worth one or two euros or pounds. On the other side is Crane, the company that makes the paper for dollar bills, and the banks and retailers that prefer the convenience of paper bills.

A working assumption has been that coins would be cheaper, in the long run, for the government. They cost more to make but last much longer than paper money. The Government Accounting Office estimated the move could save $4.4 billion over the next 30 years. Others have been doubtful that such savings would materialize, as Wonkblog’s Brad Plumer details here.

Now, researchers at the Federal Reserve are weighing in, and they, too, find that getting rid of $1 bills entirely wouldn’t be the panacea that some analysts have claimed.

The most important points of the new working paper, by Michael Lambert, Shaun Ferrari and Brian Wajert, boil down to this: Coins aren’t all they’re cracked up to be.

See here for my previous entry in this ongoing bit of obsession, and be sure to read that Brad Plumer piece from last year as well. Basically, the Fed questions the “seigniorage” effect, which is the primary driver of savings for the government, and points out a bunch of costs that hadn’t previously been taken into account. The net result is that the presumed benefit of switching to coins is likely to be pretty small, especially considering they’re spread over a long time period. As noted at the end, the pro-coin people disagree with this finding, so my hope that this debate is over is almost certainly premature. But I can hope.

The dollar coin is an idea that just won’t die

It keeps turning up like a bad penny, as it were.

I have still never seen one of these

American consumers have shown about as much appetite for the $1 coin as kids do their spinach. They may not know what’s best for them either. Congressional auditors say doing away with dollar bills entirely and replacing them with dollar coins could save taxpayers some $4.4 billion over the next 30 years.

Vending machine operators have long championed the use of $1 coins because they don’t jam the machines, cutting down on repair costs and lost sales. But most people don’t seem to like carrying them. In the past five years, the U.S. Mint has produced 2.4 billion Presidential $1 coins. Most are stored by the Federal Reserve, and production was suspended about a year ago.

The latest projection from the Government Accountability Office on the potential savings from switching to dollar coins entirely comes as lawmakers begin exploring new ways for the government to save money by changing the money itself.

The Mint is preparing a report for Congress showing how changes in the metal content of coins could save money.

The last time the government made major metallurgical changes in U.S. coins was nearly 50 years ago when Congress directed the Mint to remove silver from dimes and quarters and to reduce its content in half dollar coins. Now, Congress is looking at new changes in response to rising prices for copper and nickel.

The bit about changing the composition of existing coins in order to save money makes sense and is something I’d support. The rest is a story we’ve heard before, so I’ll just refer you to the points I made the last time this report was in the news. Brad Plumer echoes my arguments and adds some further information. As I’ve said before, I doubt anyone’s mind will be changed by any of this, so as always we’ll see what if anything comes of this.

Still trying to kill bills

Planet Money reports on the continuing efforts to eradicate the paper dollar bill and replace it with dollar coins.

I have still never seen one of these

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?

The quest for a dollar coin that people will use continues

Now with extra special deficit reduction capabilities!

Americans are a tight-fisted people when it comes to their dollars.

So in order to replace the paper currency with dollar coins — a long-advocated move that could save the government an estimated $5.5. billion over 30 years — the General Accountability Office called on Congress, the Federal Reserve and the Treasury to help yank the $1 note from circulation.

In the past 20 years, the GAO, Congress’ investigative arm, has issued four recommendations for a switch to metal dollars in order to save all the money spent to replace worn-out dollar bills. Dollar bills last longer than they used to and now have a life span of up to 40 months. But the coins have an average life span of 30 years.

For the record, I just checked my wallet, and I have three Series 2003 dollar bills, and three Series 2006 dollar bills. Forgive me if I look skeptically on that “life span of up to 40 months” claim.

“The United States is one of the most conservative countries when it comes to the use of coinage,” said Ute Wartenberg, executive director of the American Numismatic Society and a member of the government’s Coinage Advisory Committee, a group of citizens that weighs in on currency policy and designs.

Several surveys commissioned by the GAO suggest that the public is wary of giving up its George Washingtons, simply because it’s what they know and because they are reluctant to carry around more coins.

In the most recent survey, a Gallup poll conducted in 2006, 79 percent of respondents opposed eliminating the $1 note and replacing it with $1 coins. Even when respondents were told the replacement would eventually save taxpayers a lot of money each year, the opposition was still at 64 percent.

“You have to withdraw the actual dollar bills, because we already have plenty of dollar coins and no one even knows what they are,” Wartenberg told AOL News. “They don’t use them and people refuse to accept them.”

We’ve been through this before. I don’t know about you, but I carry dollar bills in my wallet. I carry coins in my pocket. I’d rather have a walletful of bills than a pocketful of coins – the latter is annoying and can make you feel heavy if you have too many of them. Nobody gives dollar coins in change, and vending machines have long accepted bills. The savings from ditching the greenback are quite modest. Why is anyone still pursuing this? The Express News sums it up nicely.

I do have one alternate suggestion, to balance Americans’ love of the paper dollar with the desire to save a bit on printing costs: Why not print more $2 bills? You only need half as many of them, after all. I also happen to have a pair of deuces in my wallet, both of them Series 1995. It’s a win-win! More here.

BAE gets a reprieve from the GAO

The Government Accountability Office has set aside the Army’s decision to award a $2.6 billion contract to build combat trucks to Oshkosh Systems, giving at least a temporary victory to BAE Systems of Sealy, which currently has that contract.

Michael R. Golden, GAO’s managing associate general counsel for procurement law, announced that his agency had “sustained or upheld the protests” lodged by BAE Systems and Navistar, rivals for the contract that had been awarded to Oshkosh Corp. “The Army’s evaluation (of the contract proposals) was flawed with regard to the evaluation of Oshkosh’s proposal.”

Golden said GAO recommended that the Army “make a new selection decision.”

The official added: “We also recommended that if at the conclusion of the re-evaluation Oshkosh is not found to offer the best value, the agency should terminate Oshkosh’s contract for the convenience of the government.”

Background on this story is here, here, and here. A statement from BAE Systems is beneath the fold. It must be noted that this doesn’t mean BAE will retain the contract. It just simply means the Army needs to take another look at how it made its decision and have another go at it.

The GAO decision is limited in scope and does not recommend that the Army reopen the competition for the truck contract, but rather reevaluate the bids the three companies originally submitted. It says the Army should reevaluate the three bids based on the “capability factor,” and also that it should conduct a new evaluation of Navistar’s past performance on contracts.

The GAO denied BAE’s challenge regarding the evaluation of Oshkosh’s price.

“Our review of the record led us to conclude that the Army’s evaluation was flawed with regard to the evaluation of Oshkosh’s proposal under the capability evaluation factor, and the evaluation of Navistar’s past performance,” Michael Golden, GAO’s managing associate general counsel for procurement law, said in a statement.

“We also denied a number of Navistar’s and BAE’s challenges to the award to Oshkosh, including challenges to the evaluation of Oshkosh’s price,” Golden said.

After the Army reevaluates based on GAO’s recommendations it would have to issue a new solicitation decision. The GAO recommends that if at the conclusion of the reevaluation the Army finds that Oshkosh does not “offer the best value” the Army should terminate the current Oshkosh contract.

The Army has 60 days to inform the GAO how it will proceed based on the recommendations provided.

So the Army could re-run the numbers and decide that Oshkosh is still the best bet. Or, if they throw everything out and start all over, Oshkosh could submit a different bid that still wins. BAE is still in the running, but in effect it’s been granted a new trial, not a directed verdict. BOR has more.

(more…)