By Mike Nottleman, WINS#35
The United States Coinage needs change (no pun intended) and here's three reasons why:
Our current circulating coinage is staid, impractical, and change makes good budgetary sense. Have you ever wondered why our coinage looks like it does? Why each coin is a specific size, shape and composition? Do you know that the latest coinage act was over 45 years ago?
When the US Mint first started coining money in 1792 the composition and weight of a coin closely approximated it's value. Coins were made of gold, silver, and copper, and ranged in denomination from Half Cent to Eagle ($10 gold piece). Over time, adjustments were made in order to keep the intrinsic value of the coins near but still below their face value.
The Coinage Act of 1965 changed everything. Our coinage would no longer be made of precious metal, but made of base metal assuring that the cost of manufacturing the coins would be less than their face value. For the sake of continuity, the new coinage of 1965 would resemble the silver coinage that it replaced. Each denomination remained the same size and design of its predecessor, only the weights of each coin changed slightly. These coins were accepted readily in the marketplace and by the general public with very little resistance.
In 1982, the One Cent coin became a financial burden when it too started to cost more than face to a rise in copper prices. It suffered the same fate when the composition was changed to a 95% zinc coin with a copper coating. This solved the problem, but only temporarily.
A little noticed fact of the manufacturing of money is the concept of seignorage, the amount of a coin's face value minus its cost to be made equals the profit made on coins. The profit is called seignorage and it is quite important to the federal government. Any seignorage derived from the manufacture of coinage is a direct profit to the givernment and thereby goes directly to our cost of government and in essence paying down the national debt.
This is not a big long, political tirade on budgets and budget politics, this is just simple math. If it costs more than face value to produce a coin, then we are losing money making them. we are also losing potential seignorage from them. We currently have 2 coins that fit this description and the costs of making them adds to our national debt every day, rather than helping to alleviate it. If this were the only problem facing our coinage, the remedy would be apparent but the coinage problem is much deeper than simply fixing two denominations.
The expense of the cent and nickel are not the only problems facing our coinage, the United States also has two coin denominations that fail to circulate: The Half Dollar and One Dollar coins. Let's examine them one at a time.
During the first half of the 20th century, the Half Dollar coin was the workhorse of the American coinage. People used more Half Dollar coins than any other denomination. It was a very popular coin. Then in November 1963, President Kennedy was assassinated in Dallas. The decision was made so quickly that by the very next year, the Kennedy Half Dollar replaced the Franklin Half Dollar in the United States. No 1964 Franklins would be coined.
Millions of Kennedy Halves were produced, but very few if any circulated. The removal of silver from the coinage in 1965 was blamed for the lack of use, but even the eventual removal of all silver from the Half Dollar in 1971 failed to induce their circulation. The coin had become a memorial in the eyes of the American public and it is my opinion that this is why people continue to hoard them to this day. The hoarding has become so severe that for lack of another coin, the American public has since started to use (and now prefer) the Quarter Dollar as their denomination of choice even though a Half Dollar coin would mean less bulk in their pockets and purses.
As if the Half Dollar needed it, the vending industry has offered a final push towards extinction as a denomination. US vending machines don't accept half Dollar coins! Golden Dollars, yes. Susan B. ? Yes! Half dollars? Not on your life! The size of the coin is the likely offense and an adjustment could return this coin to it's once proud place in the public's pockets.
As for the One Dollar coin, they have never truly circulated since the inception of the United States coinage. Many times in US history the minting of standard silver dollars has gone years with no production. The late 1800s saw a more regular yearly minting of silver dollars but they were rarely used and so stockpiled that in 1904 the US Mint stopped making them. They briefly resumed production from 1921-1928, but then stopped until 1934. In 1935 the reserve had grown so large that they were never made again. There was so little demand for them that 40 years later in the early 1970s the Government Services Administration sold off the US Treasury's stockpile of silver One Dollar coins. Remarkably, there were bags of uncirculated coins dating all the way back to 1878. A true testament to the people's love (or lack thereof) for the denomination.
The Kennedy Half Dollar shows an example of how people can view our coins as memorials and the danger that idea poses. I would go as far as to say that the "memorial mindset" has taken over our coinage, and it is this mindset that has made our coinage design stagnant and staid within the short time span of 100 years.
Beginning with the Lincoln cent in 1909 and continuing to the present day, we have replaced our designs with tributes to great Americans. The list is like a Hall of Fame roll call of great Americans; Washington, Jefferson, Roosevelt, Franklin, Eisenhower, Susan B. Anthony, even a "likeness" of Sacagawea have appeared on our coins. The problem is that eventually, you run out of denominations before you run out of deserving people. I would opine that commemorative coinage exists for exactly this purpose. Spotlight every American who deserves it. Don't place emphasis on one over another by permanent status on a coin.
Memorials exist for remembrance. We want a specific memory to be permanent. That we never forget the event or the people for which we celebrate is the purpose of creating such tributes. Coinage, although a lovely tribute, is a bit too small as a venue to commemorate everyone who deserves it.
The current economic climate also encourages us to change and redesign our coinage. Budget battles blanket the headlines recently and politicians are looking for ways to make our government run more effeciently and at a lower cost to taxpayers. Currently it costs over a cent to produce our one cent coin and over five cents to produce our current five cent coin.
While most budget cuts involve political battles that some are not willing to wage, the coinage redesign is not an uphill battle, in fact, it could be a very popular program if handled in the appropriate way. It doesn't become a political liability, but rather a political benefit due to the potential popularity of such a program. A program that politicians can promote on a bi-partisan basis without fear of repercussion.
Canada has now decided to discontinue the Cent. Economically they could not sustain cent production at its current cost of manufacture. Many are unsure what the economic impacts that such a change will make. Some fear an inflationary consequence, but most admit that they don't really know what will happen.
We can watch and learn from their mistakes if we are willing to subisdize our coinage production until we decide, but given the innovations that Canada has demonstrated in the past and our complete unwillingness to follow their lead, you would understand if I was a bit skeptical of those possibilities. Coinage overhaul should happen now. It makes little sense to remain as we are. We cannot continue to manufacture coinage at a loss when we are looking desperately for ways to cut deficits, and we can't continue to promote a coinage system where 2 of 6 denominations cost more to make than their face value and 2 of the others don't circulate. Let's lobby for a coinage overhaul. Let's make our coins make cents again!
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