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Do You Want That
In Paper, or Metal?
By ROBERT J. BARRO and
Two weeks ago, the Senate Banking Committee passed legislation to
replace the unsuccessful Susan B. Anthony dollar with a coin similar in
weight and size but with a gold color and distinctive edge. And a House
committee has begun hearings on similar legislation.
Legislation creating a $1 coin has been introduced in Congress several
times over the past decade. But until now, bad memories of the Anthony
dollar's introduction in 1979 and the contentious issue of whether to kill
the $1 bill have prevented serious consideration of new proposals.
Unfortunately, Congress's failure to act has deprived the American taxpayer
of a cheaper and more efficient currency.
Almost every other advanced country, with the notable exception of
Italy, has a widely circulating coin with a value above $1: Germany has one
worth $2.80, England one worth $1.60, France one worth $1.70 and Japan one
worth $4.10. Even Mexico has a popular coin worth $1.30. Given the success
of larger-denomination coins almost everywhere, the question is why the U.S
has had to make do with quarters. The obvious answer: The Anthony dollar
was widely rejected because it is virtually indistinguishable from a
Opponents of a new $1 coin are led by Save the Greenback, an
organization supported largely by paper and ink companies, the main
beneficiaries of continued $1 bill production. They argue that Americans
don't like coins because they are burdensome to carry and they wear out
pockets. However, this argument ignores the vast number of quarters now
required for parking meters, vending machines, buses and many other staples
of life. For a lot of transactions, an attractive $1 coin would be a great
convenience. And although we would all be walking around with a few $1
coins, they would be replacing several quarters. The only people who are
likely to suffer from an overload of $1 coins are those who get large
quantities of $1 tips, such as waiters and strippers.
Canada's experience suggests that a $1 coin would be accepted, perhaps
after a brief period of resistance. Canadians, like their American
counterparts, were reluctant to replace their $1 bill with a coin in 1987.
Two years after the Bank of Canada introduced the coin, it ceased issuing
C$1 notes. Soon, Canadians began to forget that they were ever opposed to
the coin. By 1992, a Gallup survey showed that only 18% of Canadians
disapproved of the coin. By 1996, the C$1 coin was so popular that the
government introduced a C$2 coin, today worth US$1.43.
The U.S. Congress has so far managed to avoid the thorny issue of
whether to stop production of $1 bills. Since many people view the $1 bill
as part of our national heritage, there is considerable reluctance to
abandon it. In fact, Save the Greenback decided to support the Senate $1
coin proposal because it does not mandate the elimination of the $1 bill.
Indeed, it may be unnecessary to halt the printing of $1 bills altogether.
If the new coins are well designed and convenient, then people would freely
choose to use them, and the bills would die a natural death. But stopping
printing of the $1 bills would be justified even if they remained popular,
because individual users don't bear the costs of printing and
The full substitution of the $1 coin for the $1 bill would save the
federal government around $450 million per year over the next 30 years,
according to estimates of the Federal Reserve Board and the General
Accounting Office. The savings come from several sources, the most obvious
of which is the difference in production costs. A $1 bill costs four cents
to produce, whereas a coin costs eight cents--but the bill wears out in an
average of 1.4 years, compared with 30 years for the coin. If one coin
replaced each $1 bill, the government would save roughly $150 million per
year thanks to the coin's longer life.
The replacement rate is actually expected to be about two coins for each
bill because of the greater demand for coins. This would provide a further
benefit to the Treasury: seignorage income, the revenue obtained by getting
the public to exchange interest-bearing assets for coins or paper
Additional savings stem from the long-term capital investments that
could be avoided by not producing the $1 bill. Although a new $1 coin would
require 30 months to prepare for production and an estimated $73 million of
investment at the U.S. Mint, eliminating the $1 bill would cancel the
Bureau of Engraving and Printing's planned investment of between $158
million and $250 million for a new facility.
Perhaps the key issue now is to ensure that the new coin is well
designed. Two things to avoid: a coin that's indistinguishable from a
quarter (such as the Anthony dollar) and one that is overly large and heavy
(such as the old Eisenhower dollar). The British £1 coin is a pretty
good model--gold in color and with a distinctive edge, relatively small and
light, but sufficiently thick to appear valuable. At this point, the Senate
bill leaves the issue of who would be on the coin up to the Treasury. The
one thing that seems to be agreed is that it will be a woman--but not
necessarily Lady Liberty, who graces the most widely discussed prototype.
If only Queen Elizabeth were American, we would have that problem solved,
Mr. Barro, a contributing editor of the Journal, is a professor of
economics at Harvard University and a senior fellow of the Hoover
Institution. Ms. Stevenson is a Ph.D. candidate in economics at
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