Dollar Coin Is Really A Dollar Con
I first posted about the budget stupidity of the dollar coin more than two years ago.
At that time I stipulated that, in theory, a dollar coin makes a great deal of budget sense because it costs more to keep a dollar bill in circulation over a long period of time than it does to have a coin. Therefore, as the Government Accountability Office has said on many different occasions, the federal government could spend less by switching.
But...as I also said two years ago...the key phrase is "in theory." The savings only occur if dollar coins replace rather than supplement the dollar bill, that is, if consumers do something they've absolutely shown no inclination to do by not using bills, and if retail businesses are willing to pay the higher costs to them of using coins.
This is not a guess or supposition; I headed the team of consultants who helped introduce the Golden Dollar coin in 2000. I know from very personal experience (I can show you the scars) that no matter how much fiscal sense it might make in theory, and no matter how much consumers say they like the coin (surveys in 2000 showed they were very popular), the loyalty to the dollar bill is very high and there is little to no willingness to switch. Retailers who handle a great deal of cash (think 7-11) demonstrated that they were unwilling to pay the additional cost of having coins delivered to their stores. And vending machine manufacturers and owners -- who had lobbied extensively for the coin in the late 1990s -- refused to pay to have their equipment retrofitted to accept Golden Dollars; they wanted the U.S. Mint to do it. The retailers' enthusiasm for the coin fell rapidly when the Mint refused
That changes the budget savings equation dramatically. Dollar coins produce savings only if they are a substitute for bills. But if the coins are produced in addition to the bills, that is, if the bills aren't taken out of circulation and the two exist side-by-side, the savings vanish and spending increases because the government is now producing two products where only one is needed.
This is virtually a classic definition of waste, fraud and abuse.
I'm posting about all of this again now because a subcommittee of the House Financial Services Committee last week held yet another hearing about dollar coins and once again claimed that great budget savings would result if the U.S. switched. The witnesses included Philip Diehl, the former director of the U.S. Mint when the Golden Dollar was introduced, and Lorelei St. James, who testified on behalf of the GAO.
Unfortunately for the Dollar Coin Alliance, the coalition that flacked the hearing last week, GAO's testimony was not as supportive as it appears. In fact, Ms. St. James confirmed that a coin would only produce budget savings "if the note is eliminated and negative public reaction is effectively managed.”
Given the public's repeated refusal to use dollar coins in the U.S. (The Susan B. Anthony and Sacagawea dollars were huge busts as circulating coins, and few people have ever received one of the current dollar coins in change), it's not at all clear when or if there will ever be a majority in either the House or Senate that will support eliminating dollar bills and mandating that coins be used instead.
That means that, rather than saving money, the whole effort to substitute a dollar coin for a dollar bill has actually made the federal budget situation worse. After all, how much have all the GAO studies, congressional hearings, and previous failed attempts at having a dollar coin cost taxpayers?