Consumer groups are lining up to force the Federal Reserve to push more – many more - $1 coins into circulation. Groups like Citizens Against Government Waste are getting particularly aggressive, claiming the savings of turning to coins are substantial, and that coins are much more durable. But will the Fed play ball?
It’s not like the U.S. government is against the idea of issuing more $1 coins. Louise L. Roseman, director of Reserve Bank Operations at the Federal Reserve, told the U.S. House of Representatives Financial Services Sub-Committee on July 20 that the government is printing more $1 coins.
“Taking into consideration the Reserve Banks' net payments to circulation and the Mint's direct payments to circulation,” she stated, “total demand for $1 coins in 2009 was nearly triple that of 2006.”
“It is unclear what portion of $1 coin demand is for transactional versus collector purposes, or where demand for $1 coins will ultimately stabilize,” she added. “What is clear, however, is that the legislative requirements associated with these programs are resulting in steadily rising Reserve Bank inventories and the attendant costs of dealing with those inventories.”
So with demand up and the government at least somewhat supportive of issuing more $1 coins, advocacy groups are striking while the iron is hot.
On Sept. 27, Citizens Against Government Waste (CAGW) sent a letter to U.S. Treasury Secretary Tim Geithner urging the government to “aggressively increase” the circulation of the $1 coin.
It’s CAGW’s position that the U.S. Treasury Department, which directs policy over the issuance of U.S. currency, and the Federal Reserve aren’t interested in pushing the $1 coin. In a statement from CAGW, the group says that the U.S. Treasury is engaged in a “turf war” with other government agencies over currency policy, and that the $1 coin has suffered as a result.
“The advantages of using the $1 coin, however, are substantial and should not be so easily ignored,” the group said in the unsigned letter. “According to an April 7, 2000 Government Accountability Office (GAO) report, replacing the $1 bill with a coin would save taxpayers $522.2 million per year. The savings would likely be even higher today.”
The group says that coins are more durable than bills, and would extract major savings by hiking the supply of $1 coins. “The Bureau of Engraving and Printing produces approximately 3.4 billion $1 bills each year, each of which costs 4.2 cents to manufacture,” the CAGW letter states. “Each bill has a lifespan of approximately 21 months. By comparison, the $1 coin costs slightly more to produce – 12 to 20 cents – but has a lifespan of 30 years or more.”
Taxpayers would be on board for a shift from paper to coin currency in $1 denominations, the group claims. Saving about $500 million year would appeal to the increasing demand among consumers to take concrete steps to cut government spending.
Congress is open to the idea, as well. In 2005, Congress passed a bill that supported a program that would make the $1 coin as commonplace as the $1 bill. But CAGW said that the Federal Reserve “erected barriers” to block access to the $1 coin by banks, businesses and consumers.
But Roseman largely dismisses the idea of a significant increase in $1 coins – telling the congressional sub-committee in July that “most” of the interest in such coins comes from “collectors.”
She may have a point. The Federal Reserve has about $1.1 billion worth of $1 coins stacked up in its vaults. If the $1 coin is to really take flight, it’s going to need a bigger push from its primary user – the Great American Consumer. And that has proven to be a tough sell. In testimony to Congress in September, U.S. Mint Director Edmund Moy laid it on the line.
“We have tried every major idea that we can come up with, with limited success," Moy said. "Americans are creatures of habit. They are very used to using the bill. They're not used to using coins in regular retail transactions."
That mindset is going to have to change before the U.S. government begins pumping out more $1 coins – no matter what advocacy groups say.