Time for More Change in American Money System
Michael J. Ring
There has been a lot of change in the United States currency system recently. Some changes, like the quarters commemorating each of the 50 states, have been merely cosmetic. Others, like the new 20-dollar bill designed to thwart counterfeiters and the new dollar coin to be introduced next year, are more utilitarian.
As long as we are in a period of reflection on the design and structure of our money, now is a good time to make further changes. I propose three which will greatly simplify everyday transactions. The elimination of the penny and one-dollar federal reserve note, combined with the introduction of a two-dollar coin, will result in a more efficient national currency system.
We are in the midst of a national penny shortage. Even as we speak, the US Mint is cranking out extra pennies to fill this gap, producing the one-cent coins at a rate 33 percent higher than in 1997. Rather than go through all this trouble to insure an adequate supply, however, the US Mint and the American public should catch up to the times and realize that in today’s economy, the penny is just about worthless.
The current shortage is a result of the extremely low regard with which the American public holds the penny. Few bother anymore to pick one up off the street, and in today’s busy life it hardly seems worth the time to roll the coins for a measly 50 cents of payoff. So most Americans have in their possession tens or hundreds of loose pennies, tearing up their pockets or collecting dust around their homes. The times of “penny candy” and other substantive uses for the one-cent piece are gone, and the federal government should respond to the lack of interest in the coin by phasing it out.
As the penny shortage swept through New York this summer, some retailers began the practice of rounding purchases to the nearest nickel. This policy is also frequently observed in US military stores overseas. It should be adopted nationwide.
Next year, the Mint will introduce a new $1 coin. Although the coin will be the same size as the Susan B. Anthony dollar (SBA), its gold color and smooth edge will eliminate any confusion with the quarter, the affliction that doomed the SBA to failure.
Traditionalists may cry foul at the elimination of the one-dollar bill. The $1 greenback has been the most identifiable icon in the American currency system for many years. Considerations of both usage and cost, however, will show the $1 note is obsolete.
Coins are designed to facilitate small, everyday purchases -- a newspaper, a cup of coffee, a loaf of bread -- while bills should be reserved for more expensive purchases. The small size and portability of coins makes them easy to carry around and pull out of one’s pocket at a moment’s notice, in stark contrast to paper money wedged into a billfold.
A generation ago, we had a coin which could make all of these small purchases -- the quarter. Inflation, however, has rendered the quarter by itself useless for these transactions. Such daily staples as a half-gallon of milk or a cup of coffee easily cost $1.50 -- requiring the use of six quarters to purchase them if one wishes to use commonly-circulated coins. The introduction of a new dollar coin is much overdue and merely reflects the inflation in our money supply. It should become the sole method for making these transactions.
The elimination of the $1 note also makes financial sense to the taxpayer. Paper money has an extremely short average life -- 17 months -- while the average coin lasts 30 years. According to the Congressional Budget Office, the direct savings resulting from the switch from bill to coin would be $300 million a year, and many consider that estimate conservative.
Other government agencies would benefit from the elimination of the $1 note. Many authorities, including the United States Postal Service and various transit agencies, are using the SBA. For such agencies engaging in primarily small transactions, coins are much cheaper to handle than bills. The Chicago Transit Authority, for example, spends $22 to count 1,000 notes, but only $1.64 to count 1,000 coins. Other transit agencies would enjoy similar cost savings through the elimination of the $1 note.
A one-dollar coin could also help conserve, at least in a small way, one of our most precious and scarce resources: time. Given that many highway toll plazas now charge $1, a coin of that denomination would allow motorists simply to drop one coin at the exact-change lane, rather than fish for four quarters. Vending machines, notoriously finicky about reading bills, cheerfully accept coins. Think of how much faster the line for tokens at the T would move with vending machines accepting the $1 coin.
Of course, all that is said about the $1 coin could equally as well be applied to a $2 coin. Such products as Sunday newspapers, gallons of milk, or specialty coffee drinks are priced at or above two dollars. A $2 coin, like its $1 counterpart, would be a small, portable form of currency convenient for use in everyday purchases.
The use of large-denomination coins is common in the rest of the industrialized world. Canada has had such success with their $1 coin, or “loonie” (worth about $0.65), that they proceeded to issue a $2 coin, or “twoonie.” Japan uses coins for denominations up to 500 yen ($4.50). Even the revered and stately British pound ($1.60) now appears exclusively in coin format.
For too long the design of our money supply has been controlled by curmudgeonly conservatives resistant to any tinkering whatsoever. It’s time we made some changes to the system to reflect the worth of a dollar, or two, or one-hundredth, in our daily lives.