by Louis Golino for CoinWeek
On December 13 Vice President Biden and Treasury Secretary Timothy Geithner announced that the presidential dollar coin program will be suspended immediately, which they claim will result in a savings of $50 million annually in production and storage costs over the next decade.
But according to non-governmental groups and experts, ceasing production of the coins will actually result in a net loss of $300 million per year that would have gone towards reducing the Federal debt.
Circulation-quality presidential dollars will no longer be minted, but collector versions of the coins will continue to be made and sold by the Mint in quantities sufficient to meet collector demand.
In the past several months the presidential coin program has come under increasing scrutiny.
A half dozen House and Senate bills have been introduced to change or end the series, but the work of America’s legislative body grinds slowly. None of these bills is anywhere near becoming actual Federal law.
According to Coin Update News , six bills were introduced which “sought to abolish, limit, or suspend the production of additional $1 coins by striking or modifying the requirements set forth in the Presidential $1 Coin Act. A single bill had been introduced which instead sought to phase out $1 bills in favor of $1 coins.”
According to recent television and newspaper news accounts, Americans don’t want to use the dollar coins. So with low demand, the coins have been collecting dust in storage vaults and costing the taxpayer millions to transport and store.
Or at least this is what the media and government keep telling us.
In a December 13 press release, the Treasury department referred to the “wasteful production of Presidential dollar coins” and mentioned that there are “1.4 billion excess dollar coins are already sitting unused in Federal Reserve Bank vaults – enough to meet demand for more than a decade.”
But it is important to separate fact from fiction regarding this coin series.
First, the Mint is not a taxpayer-funded entity even though it is part of the Federal government.
It is a public enterprise fund, and all of its activities are financed through the sale of coins – coins sold to collectors and bullion investors, and circulation coins sold to the Federal Reserve, which result in the accrual of what is known as seigniorage. Seigniorage is basically the difference between the cost to make a coin and its face value.
In the case of presidential dollars, that means the Mint actually makes 70 cents on each coin, which costs 30 cents to produce. The seigniorage accrues even as the coins lie in storage. They do not have to circulate for these funds to accrue to the Treasury’s general fund.
But according to Numismatic News editor David Harper, “By the arcane rules of government accounting, seigniorage does not reduce the national debt because the coins themselves are considered an equivalent financial obligation on the books. However, the seigniorage represents a sum that doesn’t actually have to be borrowed and therefore no interest is paid on the sum.”
Here is the essence of the issue of taxpayer funding and dollar coins as I see it. The coins are made by the Mint, which is funded without taxpayer money, and they are stored and transported by the Federal Reserve, which is mainly funded by member banks.
It may or may not be turn out to be accurate that $50 million is saved per year by halting all but the relatively small production of coins for collectors. But it is not taxpayer money!
According to Mr. Harper, “The $50 million savings on Presidential dollars is government accounting, which is difficult to figure out. Certainly the Mint won’t have to incur the cost of the blanks, strike the coins or ship them to the Fed. There are real savings here but when you consider that presses and employees are sunk costs regardless of whether they strike dollars or not, the $50 million could easily be exaggerated. Worse, with less production, the overhead will have to be redistributed to the coins they do make, escalating the cost of the cent through half dollar. Any real Mint cost reductions would increase the profit the Mint turns over to the Treasury and that is how, I expect, the taxpayers can be said to benefit.”
Second, since dollar coins will no longer be made in large quantities, billions of dollars in seigniorage will be lost.
On December 13 the Dollar Coin Alliance urged the Obama Administration to reverse course on its decision to suspend circulation presidential dollars.
The Dollar Coin Alliance consists of small businesses, labor groups, transit agencies, and budget watchdogs. In its Dec. 13 press release , the group blasted the Administration, saying it wanted to continue producing dollar bills for political reasons.
My understanding is that paper dollars produce big profits for paper and ink companies that happen to be located in the districts of certain key congressional legislators.
The Dollar Coin Alliance’s statement also indicated that ending the dollar coin program will actually cost, not save money. For the fiscal year which ended on Sept. 30, 2010, almost $283 million of seigniorage came from shipments of $1 coins, or 69.7% of the Mint’s total seigniorage and net income. That $300 million a year was going towards reducing the Federal debt.
In addition, the dollar alliance called the Administration’s move a power grab, “usurping Congress’ authority in U.S. currency and coin matters.”
Third, there is no way to know at this point what the real demand level for these coins is from the public in general or from collectors of circulation quality coins.
That is because the Federal Reserve never implemented an effective distribution system for them unlike during the past decade when it was easy to go to a bank and get the latest state quarter.
With each successive year since the start of the program in 2007, it has become harder and harder to find the coins at banks, or in circulation, despite the fact that almost 2.4 billion of the coins have been minted.
Most people assume this is because everyone wants to keep using dollar bills, not coins and because they don’t like the coins, which as I argued earlier this year are not the best example of American numismatic art.
But we have no idea whether people really would use them since no concerted effort was ever made to encourage Americans to use them, or even to make them available for use.
The Administration argues that it is wasteful to produce coins no one wants or uses, but how would we know if people really want to use them since the coins are never available unless purchased for a premium in rolls from the Mint, or through the Direct Ship program, which has had so many restrictions placed on it that fewer and fewer people use the program?
If the government really wanted to save money, it would stop producing germ-carrying paper dollar bills that have a fraction of the shelf-life of dollar coins. The $50 million in alleged annual savings from halting coin production pales in comparison to the billions of dollars that would be saved by ceasing production of dollar bills. And dollar bills, unlike dollar coins, are definitely made with taxpayer funding.
In fact, in a major poll released in January and mentioned in the dollar coin group’s statement, by a two-to-one margin Americans said they favored ceasing production of paper dollars, not dollar coins, once the actual savings of using coins was explained to them.
The Dollar Coin Alliance statement noted that those savings are projected to be $5.5 billion over 30 years. And the GAO, or Government Accountability Office, a non-partisan agency, has argued for 20 years in favor of replacing bills with coins to save money.
This is a heated topic of debate among coin collectors and other people. It is one of those issues in which people on each side feel very strongly that they are right.
It will be interesting to see how this plays out in the coming years.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.
Coin World has a story today quoting a federal official who claims that the seigniorage profits are negated by storage and shipping costs. That may be the case, but it would mean the Mint is spending hundreds of millions on storing and shipping the coins, which I find a bit hard to believe. The fact remains that moving to coins only, which would force those who don’t like using them to adjust, would save billions in taxpayer money currently used to print bills and in Mint profits that are eaten up by dollar coin costs.