Debate in the US is heating up over the issue of replacing the country’s beloved dollar note with a coin.
The United States’ Government Accountability Office (GAO) report suggests that switching to $1 coins could save $4.4 billion over the next 30 years.
This sparks some interesting questions that are of great relevance to everyone here at The Royal Mint. We have over 1,100 years of experience in minting, and we are currently the world’s leading export Mint. Having been through the same experience some 30 years ago when we switched from the £1 note to the £1 coin, we simply had to respond to this fascinating debate.
We asked our Circulating Coin team to answer some of the questions people have been asking.
How do you feel about the prospect of the US replacing notes with coins?
Andrew Mills (Director of Circulating Coin) – It is an interesting debate and one that we had here in the late 1970s when the UK made the change from the historical £1 note to the £1 coin.
There was a lot of emotional attachment to the banknote but quickly after the coin was introduced and the banknote withdrawn the public accepted the new coin. For the coin to succeed, the banknote has to be withdrawn.
Simon Lake (Area Sales Director) – The note/coin boundary is always an interesting debate and if you were to ask most members of the public they may claim to prefer a banknote to a coin.
However, people perhaps don’t appreciate that banknotes cost the tax payer whilst coins generate funds to the public purse. Why the cost difference?
Well, if we say for example that the cost of making a $1 note is 10c the US Treasury would initially generate a profit (otherwise known as a seigniorage) of 90c when the note is issued into circulation. This note circulates at a great cost to the retail/banking infrastructure (as it has to be sorted and re-issued) and eventually returns back to the US Treasury for destruction and they have to return the $1 value back to the final depositor. In effect the Treasury would make a loss of 10c (or whatever the difference is between the face value v cost) in addition to the sorting and destruction costs.
Now if you consider a $1 coin it is a different story. If the coin also costs 10c to make, the US Treasury would make 90c profit when it is issued into circulation. Coins don’t return. As a result, when a coin is issued into circulation the US Treasury generates a retained profit (seigniorage).
62% of voters on the Wall Street Journal website voted ‘Yes’ to the question ‘Should the US switch entirely from dollar bills to dollar coins’ – does that surprise you?
Andrew Mills – In the population as a whole I wouldn’t expect to see this. One can imagine that the WSJ readership is more swayed by the economic arguments and less by emotion.
Simon Lake –. The voters obviously realise the financial benefits of coins hence the 62% saying yes.
Briefly, what do you see as the pros and cons of notes versus coins?
Andrew Mills – In a nutshell coins have a life of around 25 years whereas a low denomination banknote can have a life of less than a year! There will also be some new machine readable security features available for high denomination coins.
The United States’ GAO refer to a 30-year vision of currency. Where do you think currency is going, and where will paper money, coins and digital payments be in ten, 20 or 30 years time?
Andrew Mills – Big question, but I think we will see a growth in micro-payments and chip technologies that enable smaller transactions to be undertaken digitally. Don’t forget that new payment methods don’t just replace cash, they also replace other non-cash payment methods. Here in the UK we have seen a big switch from credit cards to debit cards. There are still lots of people for whom coins and notes are the only means of payment they use. I believe there will be a role for coins far into the future, much as computers have not yet entirely replaced the pen and paper!
What lessons did the UK learn in switching from the pound note to the pound coin?
Andrew Mills – We learned that when you make the switch you must be prepared to demonetise and cease production of notes to make it work.
Do you think a $1 coin will need a $2 coin to be issued to make it viable?
Andrew Mills – I think the £2 coin plays an important role in making UK coinage work. I think it may be wise to let the US public gain acceptance of the new dollar coins before considering the roll-out of a $2 coin, but yes, it works for us.
The US have talked about a move to a dollar coin several times in the past. Do you think this time is likely to be any different?
Andrew Mills – Honestly I don’t know. I think in a time of austerity where public savings are so high profile it may make more political sense than it has previously, as people are more inclined to accept such changes. I believe it would be a wise decision with a lot of long and medium term benefits.
A lot of people in the US are saying ‘Get rid of the penny as well’ – is that a logical next step?
Andrew Mills – Any currency system has to evolve to stay relevant and this means that the coins and banknotes have to be relevant, so adding higher denominations at one end may also mean removing low denominations at the other. This year we have seen the last 1c coins minted in Canada and the last 5c coins minted in South Africa.
Our thanks to the Circulating Coin team at The Royal Mint for responding to our questions. The Royal Mint has extensive experience in providing services to Mints large and small across the globe. You can view the range of services we offer on The Royal Mint’s Circulating Coin website
If you would like to join the debate, leave us a comment below or contact us on Twitter.
Say Happy Birthday to the £1 coin
The UK celebrates 30 years of the £1 coin in 2013. In that time we have released well over 20 designs. For 2013 a new series of floral designs have been developed to update the orginal floral designs released from 1984 onwards.
You can buy collector quality examples of these coins at The Royal Mint website.