Saturday, July 26, 2008
The Coins Are Here
I picked up the box of coins from the post office today. As expected, it was a small, heavy box. Luckily, shipping was free with the Direct Ship program. I'll have to hang on to these until Mike and Sean return. Then the Experiment shall begin.
Monday, July 21, 2008
The Problem with Cash Money
Over the past year, we have discussed how to fix the US money system. Not monetary policy macroeconomic stuff... just cash money. There are several problems with the current system:
Not being content with mere complaining, we have proposed solutions for each of these. For now, I will present the solution to #2: The Dollar Problem.
End result: commerce will continue without the dollar bill, and The Treasury will save a bunch of money. Using 2007 numbers, the Bureau or Engraving and Printing spends over a million dollars per day to manufacture dollar bills:
(notes per day) x (portion of notes that are dollars) x (cost of one note)
38,000,000 x .4547 x .062
We figure that somewhere around 30% of that production will switch to $2 bills, representing replacement of 60% of the $1 note's dollar value entering circulation. This will cost about 320k/day. The remainder of the dollar value will be made up using dollar coins. Comparing production cost between the $1 bill and the $1 coin is only effective if the cost per circulating month is compared; this is not possible as the current dollar coin does not have a known lifespan. But if we estimate that a $1 coin will last 2 decades -- or about 10x longer than a bill -- then the cost of minting the coin at 62 cents would result in the circulating cost per month being even between the two. Even at an unrealistic price of 62 cents, The Treasury would have a net savings of 30% per day, or about $80M per year. At current metals prices though, actual savings is likely to be north of $100M.
Let's do it.
- The Penny currently necessary, but largely hated. Pennies tend to fall out of circulation, ending up in mason jars and storm drains. This requires The Mint to make more, at cost to the tax payer. Additionally, the cost of making a penny rises with materials cost (zinc and copper).
- The Dollar Bill often used, but not durable. Dollar use has increased over time due to inflation (where one dollar used to suffice, now you need two; that's double the wear). The dollar bill accounts for almost half of all currency production, and each bill only lasts about 21 months in circulation. Coins are much more durable than bills, able to last for decades.
- US Bills 7 different notes, 1 shape and texture. US cash money is bad news for the blind population, as it is impossible to feel the difference between any of the bills. This can lead to shortchange scams against the blind and other problems.
Not being content with mere complaining, we have proposed solutions for each of these. For now, I will present the solution to #2: The Dollar Problem.
- Introduce a Dollar Coin Check.
- Increase production of the $2 bill Consumers will still need a convenient way to pay strippers. Making the Jeffersonian Note a commonly-used bill will effectively halve the demand for the $1. Additionally, this will reduce the heavy-pants problem that would occur if only $1 coins were used to make change; with sufficient $2 bills in circulation, customers should only ever get one dollar coin in their change, max.
- Withdraw the $1 from circulation Who needs it?
End result: commerce will continue without the dollar bill, and The Treasury will save a bunch of money. Using 2007 numbers, the Bureau or Engraving and Printing spends over a million dollars per day to manufacture dollar bills:
(notes per day) x (portion of notes that are dollars) x (cost of one note)
38,000,000 x .4547 x .062
We figure that somewhere around 30% of that production will switch to $2 bills, representing replacement of 60% of the $1 note's dollar value entering circulation. This will cost about 320k/day. The remainder of the dollar value will be made up using dollar coins. Comparing production cost between the $1 bill and the $1 coin is only effective if the cost per circulating month is compared; this is not possible as the current dollar coin does not have a known lifespan. But if we estimate that a $1 coin will last 2 decades -- or about 10x longer than a bill -- then the cost of minting the coin at 62 cents would result in the circulating cost per month being even between the two. Even at an unrealistic price of 62 cents, The Treasury would have a net savings of 30% per day, or about $80M per year. At current metals prices though, actual savings is likely to be north of $100M.
Let's do it.
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