If you pay any attention to American politics you know the one thing American lawmakers aren’t known for having is common sense. It’s this lack of focus on simple, straight forward, effective policies that leaves Washington in a gridlock, and with outdated, arbitrary rules and Senate procedures such as the filibuster, that seem to have no place in modern legislating. Another area where we see a clear lack of common sense in policy-making is America’s currency production. While this may seem rather inconsequential, a change could be very beneficial to the government and the economy.
First, we’ll look at the smaller denominations of coins: the penny and the nickel. These coins simply fail to carry out the facilitation of goods and services which is the role of money. Instead, they sit unused in piggy banks and coffee cans. Seriously, when was the last time you paid for something using a penny? In fact, many stores wouldn’t even let you pay for an item that cost over a few dollars in pennies or nickels. This means that federal government wastes money creating currency that doesn’t help the flow of capital in the economy. That’s not the only harm of pennies and nickels though, they also cost more to produce than they are even worth. According to the most recent studies a penny costs in between 1.7 and 2.4 cents to produce and a nickel cost around 2.4. That means at times it costs TWICE as much for the government to make the currency than the currency is actually worth. If the government stopped producing pennies it would save an estimated $132 million a year.
While rather small in the scope of government budgets of billions, $132 million is still an incredibly large amount of money to be wasted producing coins that have no economic purpose. Defenders of the penny will claim that if we abolished it there would be an increase in inflation or a decrease in charity donations (due to charity fundraisers based on pennies and cents) however not only has the United States already abolished a coin in its past (the half-penny in 1857 when it was worth less than a modern dime) other countries like Canada and the Netherlands have abolished their pennies with little to no negative consequences.
However, even when we move into larger currency there are still problems. A dollar bill costs about 5 cents to make, meaning that it overall is still very profitable for the government. However, unlike coins dollar bills don’t last very long in circulation, only about two years on average. Compare this to a dollar coin which costs twice as much to make, but lasts around 30 years. That means on a per year basis the coin is 15 times more cost effective than the coin, and would the save the treasury and minting service in the federal government both time and money producing less currency, less often, for an overall lower cost. That’s not the only benefit of switching to dollar coins, though. It would also drive up consumer spending. Why you ask? Studies have shown that individuals are more likely to spend coins rather than bills even if they total to the same amount. This is known as the denomination bias. This means switching to a dollar coin would help increase consumer spending, which in the United States is one of the main drivers of economic growth. Any critics of this policy could once again look to countries like Canada or the Eurozone where $1 or even $2 (or euro) coins are commonplace. On top of that, we already have the existing minting of a $1 coin we would just need to increase production and convince vendors to accept them more readily.
These simple policies relating to currency could help the United States save billions over the next several decades and drive economic growth rather than encouraging poor economic policy by allowing stagnant currency like pennies and nickels to persist growing cobwebs in people’s jars. If Washington wants to show they are out to make real change, this is an easy place to start.