Would reducing paper money help the federal deficit? The House Committee on Financial Services investigated the concept in a Nov. 29 hearing as the Government Accountability Office presented its conclusions that replacing dollar bills with coins would save $4.4 billion over the next 30 years. The U.S. Mint also reported in the hearing, “The Future of Money: Dollars and Sense,” that coin production has substantially increased in the past year, and the cost of creating nickels and pennies now far exceed their face values.
Several individuals spoke on behalf of the dollar coinage concept, including the Royal Canadian Mint chief operating officer Beverly Lepine, who said the introduction of the nation’s $1 coin was so successful it was followed a decade later by a $2 coin. The $1 coins has saved Canada $175 million in production costs since its 1987 introduction.
“We’ve never bitten the bullet to remove the $1 bill as every other Western economy has done,” former U.S. Mint director Philip Diehl said. “If you did, it would have the same success the Canadians have had.”
Rep. Bill Huizenga (R-Mich.) agreed with the Canadian embrace of the dollar coins.
“I don’t know anyone who would go back to the $1 and the $2 coins,” he said.
The GAO’s Lorelei St. James told the House panel although it would take several years to benefit from making the switch from bills to coins. Equipment would need to be purchased and mass numbers of coins minted to replace bills taken out of circulation. Plus, coins would be more economical since they can stay in circulation for 30 years while paper bills must be replaced after four or five years.
“We continue to believe that replacing the note with a coin is likely to provide a financial benefit to the government if the note is eliminated and negative public reaction is effectively managed through stakeholder outreach and publication.”
Former Office of Money and Budget Director James Miller, however, argued replacing dollar notes with dollar coins was nothing more than a “budget gimmick,” and would not seriously cut costs. He noted the public’s tendency to save dollar coins rather than use them and questioned the GAO’s savings estimates.
Rep. Lacy Clay (D-Mo.) agreed that dollar coins would be unpopular among the populous. She said men do not like carrying coins in their pockets or in their suits. Rep. Carolyn Maloney (D-N.Y.) added $1 coins would look too similar to quarters.
“If the people don’t want it and they don’t want to use it, why in the world are we even talking about changing it?” she said.
Over the past five years, the U.S. Mint has actually produced 2.4 billion Presidential $1 coins. Most of them are stored by the Federal Reserve rather, than sent into circulation, and the Mint suspended production a year ago. According to Diehl, the $1 coins had little chance of success, however, since the Federal Reserve required banks order each new coin within two weeks of its release.
Other discussion revolved around the concept of replacing the metals used in producing coins, particularly pennies and nickels. Rep. Steve Stivers (R-Ohio) explained a penny currently costs more than 2 cents to make, while a nickel costs more than 11 cents to produce. By producing the coins with multiplated steel, the government could save almost $200 million each year, he said.
Americans for Common Cents’ Mark Weller spoke on behalf of multi-plated steel, which is currently used for coinage in Canada. Although some Americans have called for eliminating the penny from circulation entirely, Weller argued the coins significance in hedging against inflation. Plus, he said, eliminating the penny would disproportionately affect lower-income Americans because rounding figures usually ends up working against the consumer.
The metal composition of U.S. coins hasn’t changed in almost 50 years when Congress issued a directive to remove silver from dimes and quarters and reduce the metal from half-dollar coins. The U.S. Mint will issue a report in mid-December detailing the results of its almost 18-month investigation into new metal compositions and tests. Although he would not indicate the report’s details, Mint acting director Richard Peterson told lawmakers, “several promising alternatives,” were discovered.