Feb 15, 2007

I don't like dollar coins

I already have too many coins making my wallet bulge. So I sincerely hope they won't take dollar bills out of commission.
Before making any decision to withdraw the dollar bill, Congress, the Treasury and the Federal Reserve would have to re-examine all the costs involved, both to the government and to the public. The psychological barrier to withdrawing the greenback, a global symbol of America’s economic might, is obvious. The financial issue is subtler.

Dollar coins cost about 20 cents each to make, but last for up to 30 years; bills cost only about 4 cents each, but must be replaced every 18 to 22 months.

The cost of money is more than just production, however. Storage and handling must be factored in, as well as the different kinds of seignorage, or profit to the government from putting currency into circulation. When a dollar coin is issued, the Mint “earns” the difference between its production cost and face value — now about 80 cents. If a collector saves the coin, another must be issued to replace it.

A banknote, since it is redeemable, counts as a government liability, and the Federal Reserve has to back it by buying securities, which earn interest. According to the Fed, there are now about eight billion dollar bills in circulation, so that interest income is considerable. Coins do not yield such income.

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