Thursday, February 15, 2007

Why the new dollar coin won't work

Today, the United States Mint is unveiling a new dollar coin. The new coin, featuring the likeness of George Washington, will be the first in a series of dollar coins bearing images of the Presidents of the United States. Later this year coins for John Adams, Thomas Jefferson and James Madison will be released into circulation. This program, which follows in the footsteps of the current 50-state quarter program, will last until at least 2016. The Mint hopes that these new dollar coins will succeed where previous attempts at a dollar coin - the Susan B. Anthony and the Sacagawea - have failed.

I'm sure they'll be a hit with coin collectors. I'll probably collect them, just as I currently collect the 50 state quarters (can't wait to get my hands on that James A. Garfield coin!). But will the general public use the coins, instead of the venerable dollar bill, for day-to-day purchases? Don't get your hopes up.

Coin experts, however, questioned whether the rotating designs will be enough to allow the new presidential $1 coin to succeed where the Susan B. Anthony dollar, introduced in 1979, and the Sacagawea dollar, introduced in 2000, failed.

“I don’t know of any country that has successfully introduced the equivalent of a dollar coin without getting rid of the corresponding paper unit,” said Douglas Mudd, author of a new book on the history of money, “All the Money in the World.”

To be sure, by doing away with the dollar bill and requiring everybody to use coins, the federal government could save hundreds of millions of dollars every year. Metal coins, after all, last much longer than paper bills. Other central banks around the world have already done this; Great Britain phased out the one-pound note in favor of the £1 coin during the 1980s, Canada replaced their dollar note with the "loonie" in 1987, and the European Union uses coins instead of notes for its €1 and €2 denominiations.

However, here in the United States, an overwhelming majority of people (including some local bloggers) are opposed to phasing out the dollar note in favor of the dollar coin. Some people like dollar bills because they're lighter and easier to carry than dollar coins. Others like bills simply because they don't like messing with coinage. (An argument I hear amazingly often in favor for the dollar bill is that you can't stick dollar coins into the g-strings of the dancers at topless clubs!) Even if it makes economic sense to phase out the dollar bill in favor of a more durable coin, people have an emotional attachment to the greenback, and the Federal government is loathe to buck that public preference (that's also why the Mint still strikes pennies, even though they now cost more to make than they're worth).

As long as there is both a paper bill and a metal coin in circulation, people are naturally going to prefer using the bill. And that's why this latest incarnation of the dollar coin, as interesting as it might be, is likely destined to flop.


Mike said...

I can conceive of a scenario which would allow both to live with a gradual triumph of the coin: many more toll roads. Maybe that's TXDOT's secret evil agenda all along? Too bad they screwed it up by pushing TxTag so hard.

After trying to get subway tickets in NY over New Years', I'd have loved to have had the option of loading up on dollar coins. The credit card only worked twice; dollar bills were very very very sketchy, and they limited the amount of change they'd give, making using a $20 (which I had) instead of a $10 impractical.

Anonymous said...

Well, they work for me. I'm not a big user of the coin, but I do use them for gas and at my local grocery store's self check out line.