The Economics Of Presidential Dollar Coin
The United States Mint has been working around the clock to turn out the first of its new series of Presidential Dollar coins for their debut today. And it has been working just as hard to make sure that the new coins don’t end up as just another collector’s item.
This time the Mint has taken a new approach to designing the coins as well as promoted them with the retailers, banks and transit systems that will play the biggest role in making the coins circulate effectively.
But the x-factor in any dollar coin catching on is the possible withdrawal of the dollar bill, an issue that for now remains unaddressed by Congress, the Treasury or the Federal Reserve Board.
Authorized by Congress in 2005, following the model of the highly popular 50 State Quarters series, the new dollars show portraits of all deceased American presidents, starting with George Washington and continuing with four more each year for at least a decade.
The striking portraits, in three-quarter view, are larger than on past coinage, and another novelty is the use of edge lettering for the first time since the 1930s: “E Pluribus Unum,” “In God We Trust” and the date and mintmark are cut in tiny letters into the outer rim.
The technology needed for this edge lettering, which was mandated by Congress, was planned and installed in just nine months, according to Richard R. Robidoux, the plant manager at the Philadelphia Mint.
The new dollars are also being burnished and treated with a chemical to make them stay shiny longer.
They are made of manganese brass sandwiched around copper, the same color and size as the “golden” dollars featuring Lewis and Clark’s guide, Sacagawea, that were released in 2000, so vending machines that already accept dollar coins will not need to be readjusted (The dollars featuring the suffragist Susan B. Anthony, although a different color, still work in vending machines, too). At just over eight grams, a dollar coin weighs about a third of what four quarters weigh.
A visit last week to the five-acre, four-story production line in Philadelphia, just steps away from the serenity of Independence Hall and Benjamin Franklin’s quiet graveyard, revealed a high-speed operation, thundering and clanging. Wheeled hampers, each holding more than 100,000 of the gleaming dollars, were being busily shunted from one workstation to the next.
First, huge rolls of sheet metal from outside suppliers are unwound into a machine that stamps out blanks, called planchets. Each planchet is squeezed between rollers to give it a raised rim and then softened by heating. Then it is burnished and coated, to produce the highly polished look.
The planchets are then fed into a press that applies over 80 metric tons of pressure, firing like a car engine to turn out as many as 750 coins a minute. The freshly minted dollars are carted to another machine where the edge lettering is pressed into them (right side up or upside down, at random) before being weighed, counted and poured into large Kevlar bags ready for shipping.
The mints at Philadelphia and Denver are each turning out more than three million new dollar coins a day on their way to fulfilling the Federal Reserve’s initial order for 300 million.
In a few weeks, production of the Washington design will end, and John Adams will step into the limelight, succeeded later this year by Thomas Jefferson and James Madison. Meanwhile, the Mint will continue producing Sacagawea dollars, since Congress stipulated that a third of each year’s total production must continue with the old design.
The Mint has also been organizing seminars and sending out training kits and promotional materials to banks and national retailers. A promotional event this morning at Grand Central Terminal will feature the Mint’s director, Edmund C. Moy, spending one of the first of the Washington dollars, and Mint employees will exchange morning commuters’ bills for coins.
John C. Rasmus, a senior official of the American Banking Association, praised the efforts by the Mint and the Federal Reserve to “accommodate the needs of the public.” For example, banks will have a six-week window to order rolls and bags of each new design unmixed with other dollar coin designs, to make it easier for them to fulfill customers’ requests.
Most vending machines and transit ticket machines were refitted to take dollar coins after the Sacagawea’s debut in 2000. Indeed, the vending industry is eager to recoup its costs and is hoping for increased sales from having higher denomination coins in use, in addition to saving $200 million to $300 million annually that is lost because of difficulties with paper dollars.
In the meantime, despite the lessons learned, the dollar bill will continue to be printed and circulated — a factor that would appear to condemn the new coins to the same fate as their predecessors.
A study released by the Federal Reserve Bank of Cleveland in late 2004 examined the failure of past dollar coins and the experiences of other countries like Australia, Britain and Canada that have replaced low-denomination bills with coins.
Initial public resistance to a new coin is inevitable, the paper stated, and likely to last many months. It cited a 1995 report from the Government Accountability Office noting that the French public accepted a 10-franc coin, first issued in 1975, only after the competing 10-franc note was withdrawn some years later.
The American dollar is now one of the smallest-value banknotes remaining in circulation in the world. Thirteen European nations use one- and two-euro coins, worth $1.32 and $2.64 respectively, and the smallest bill there is five euros, or $6.60.
Japan circulates a 500-yen coin, worth $4.14, with the smallest bill worth 1,000 yen, or $8.28. Most other Western nations have similar value levels for their largest coins and smallest bills. The most widely used coin in the United States, of course, is just 25 cents.
Paradoxically, Sacagawea coins are popular in countries like Ecuador that use American currency.
Before making any decision to withdraw the dollar bill, Congress, the Treasury and the Federal Reserve would have to re-examine all the costs involved, both to the government and to the public. The psychological barrier to withdrawing the greenback, a global symbol of America’s economic might, is obvious. The financial issue is subtler.
Dollar coins cost about 20 cents each to make, but last for up to 30 years; bills cost only about 4 cents each, but must be replaced every 18 to 22 months.
The cost of money is more than just production, however. Storage and handling must be factored in, as well as the different kinds of seignorage, or profit to the government from putting currency into circulation. When a dollar coin is issued, the Mint “earns” the difference between its production cost and face value — now about 80 cents. If a collector saves the coin, another must be issued to replace it.
A banknote, since it is redeemable, counts as a government liability, and the Federal Reserve has to back it by buying securities, which earn interest. According to the Fed, there are now about eight billion dollar bills in circulation, so that interest income is considerable. Coins do not yield such income.
But Mr. Rasmus, the banking association official, said that for now, banks were not worried about the added costs of handling coins, preferring to focus on satisfying customer demand by making the new dollars available.
Congress would have to mandate any formal changeover from bills to coins. In the meantime, representatives for both the Mint and the Federal Reserve say it is up to the people to decide whether they prefer coins or bills — or neither, since electronic payments are catching on.
NYTimes.Com
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posted by UncommonBusiness @ 12:40 AM
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