Dollar notes to be replaced by coins – The Royal Mint view

Debate in the US is heating up over the issue of replacing the country’s beloved dollar note with a coin.

Dollars - coin and notes

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

Andrew Mills

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There was a lot of emotional attachment to the banknote but quickly after the coin was introduced and the banknote withdrawn the public accepted the new coin. For the coin to succeed, the banknote has to be withdrawn.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

Simon Lake

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

2013 pound coinsThe 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.

Click here to buy 2013 Annual Uncirculated sets

 

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  • Siddharth

    I have gained much insight into the issue through this article.I must say that the UK stays ahead of the times.It’s time the US replaced the dollar bill with a coin.

  • http://www.facebook.com/mbuckhurst Mike Buckhurst

    Dollar coins have been available for years, just no one wants them in the States, we’ve got one kicking around the house at the moment, like slightly better quality toy money, I don’t understand their attitude, but then you only have to look at other things like gun control etc. the general population seems to hate being told what to do. I’m sure in the UK the pound coin was welcome as much because it comes out the wash better than anything else.

    • Richard

      “Available”? Yes, in a way! Stationed in Berlin thirty years ago, I found that the US was stuck with such a pile of Susan B coins, that no one at home wanted, that they were unloaded on the troops via the AAFES PX system – soldiers had little choice then!

    • James van Scoyoc

      Available? Actually, no. Whatever coins we do use, nearly always, come in the form of change when we use bills to pay for things. It’s the merchant who orders specific quantities and denominations of coins and notes for their shop or other small business, and this obviously dictates what coins will be in the till when they give out our change. I don’t know all the reasons why shopkeepers do or don’t want dollar coins, but the vast majority don’t use them.

      Once in awhile I do see dollar coins in a cash drawer, and when that happens I do ask for them in my change.

  • http://www.facebook.com/PaulDWalters Paul D Walters

    This debate has been on/off going for decades with the same outcome–The US public simply does not like circulating dollar coins! Especially the non-silver smaller size Anthony and Sac coins. The dollar bill is much easier to use in daily commerce instead of heavy coins in your pocket. Banks and financial institutions have millions of the dollar coins in their vaults. The vending industry has never adapted to accept these coins but they did adapt fully for paper dollars. When they are used in retail commerce, they are quickly returned to the banks and simply are not put back into circulation. As for the cent( US does not use the penny–UK does), I also doubt it will ever be done away with. The dollar and half-dollar coin(which has not been minted for everyday circulation-just proof/mint sets) should both be discontinued! I do forsee in the future the possibility of a new dollar banknote with improved security. Time will tell.

    • Jonathan Morris

      Just a note to correct Paul : the cent in the US is colloquially known as a penny, which also shoes how conservative the Americans are on the subject of their coinage !

  • http://twitter.com/tasha_eaton Natasha Eaton

    I think we accept change and authority more in the U.K., which may or may not be a good thing. In America everyone has a strongly held opinion and are happy to voice it. Personally I preferred the pound notes, have I ever said this… No

    • James van Scoyoc

      You wouldn’t think we’d (most Americans, but not myself) get so worked up over something this trivial, though. After the Revolution this country continued to use British and other foreign coins for many decades; we obviously didn’t use to have our national identity so bound up with little pieces of metal and paper.

      I think one can argue that it doesn’t make sense to have more than four or five denominations of coin in circulation; if the dollar coin is to be “forced” into circulation through the withdrawal of dollar bills, then another coin should be eliminated–the penny. If we ever go to $2 coins, then another coin will need to go, perhaps the dime (eliminating nickels would rather complicate things).

  • RonCoin

    If they do make the change one hopes they will have a dual metal coin that cannot be easily forged. That was the mistake made by the Royal Mint with the pound coin. The second pointer for success would be not to issue multiple designs as this means users are not familiar with the detail of every design and that fact helped the forgers in the case of the UK pound coin.
    The point was made above it will be necessary to withdraw the $1 banknote. and because so many are in circulation all over the world that might be impossible.

  • DKFidler

    Very interesting discussion. Some insights from an American who has a British wife and in-laws and lived in the UK during the transition to coins.

    * Love the British pound coin because it feels like old-fashioned “real money” (as in the old penny coin).

    * Hate the American dollar coins because they are too close to our quarter, and it only takes a few for one to start carrying a clinking load in one’s pocket

    * The large silver Morgan and peace dollars were “real money” and the small ones are not.

    * The American government has been stupid about coin designs as typified by the small Susan B. Anthony silver dollars (derisively referred to as
    “Suzy B’s”) were seen as propaganda for special interest feminist groups and totally unpatriotic within our historical traditions. That move cast rather a negative view over the dollar coin in general.

    * Among older Americans, dollar coins can be associated with an unpopular event–FDR took us off the gold standard in the mid-1930s and seized American citizens’ gold (except collectible coins) and ended the “sound dollar” so cherished by Americans.

    * The present American government is so statist that “ordinary citizens” are resisting the never-ending diminution of liberty. The dollar coin would be a perfect issue around which to galvanize anti-authoritarian sentiment. While the savings would be significant, American would typically see it as paltry compared to massive amount of money that the government has given out to friends and special interest groups friendly to it

    Just some thoughts

  • Gary

    I’m an ex-pat Brit living in Australia. We have $1 and $2 coins and got rid of our 1 cent and 2 cent coins a while back. 5 cents is the lowest value coin. It works a treat. I do find it a bit odd that some things are still priced as .99c etc so there is a reasonable amount of rounding up and down, but I guess you win some, you lose some. If you want to pay the price to the exact cent then you can use a credit/debit card.

  • http://www.facebook.com/dave49ers David Mansfield

    I live in Portland, Oregon USA and believe that the switch to $1 and $2 coins is the most efficent way to upgrade our note currency. It will save the US Mint millions of dollars over years to come. I know that many people don’t like coins, most Americans don’t understand the cost associated to keeping notes in circulation vs coins. I would even go as far as changing the $5 dollar note to a coin.

  • http://uk.linkedin.com/in/jameso/ James Owen

    Some great comments. There’s certainly food for thought here – this is a debate that seems to divide opinion.

  • John

    Love the British pount coin because the multiple design

  • Collin Driscoll

    As an American, I know that I am in the minority, because I would love to have $1, $2, and even $5 coins. I’m actually one of the users of the current Dollar coins. My morning coffee costs $1 and instead of charging it or having a stack of $1 notes lying around it’s very easy to keep a small stack of $1 coins in my desk drawer.

    There really are two main obstacles that we need to overcome are 1.) we need to resign ourselves to stop printing notes for whatever denominations we coin and 2.) The US Mint needs to design better coins in terms of size or shape. Up until the Susan B. Anthony dollar our coin sizes made sense. Since then, all dollar coins are slightly(and i do mean slightly) larger than our quarter and they even shrunk the size of our half dollar. I think coins the same size once you hit the $1, $2, or $5 denomination are fine but lesser coins should be easily distinguishable by size and feel .

  • David McMannus

    I don’t believe it matters whether or not the U.S. Mint issues coins or banknotes. Very few Americans carry cash. Everything is done using credit or debit cards. Starting this year, even Americans on welfare or Social Security are no longer issued checks. If you don’t have a bank account the government provides debit cards free of charge. Today I was offered a free credit card reader for my cellphone. Within a few years, when beggars ask for money, they’ll swipe your credit or debit card into their cellphone. The government already provides free cellphones for anyone on welfare through the Federal Lifeline Program. Within a few years they’ll be providing free credit card readers too. Coins, banknotes and checks are a wonderful part of our history, but aside from collectors, no’one really wants or needs them.

  • ScottishMint

    Pound notes still exist in Scotland, although are now rare. The Royal Bank of Scotland still produces pound notes, however. I think this article should be updated to reflect the fragmented nature of banknotes issue in the UK and make it clear that it’s only English bank notes it is referring to. I find it disappointing that the Royal Mint doesn’t seem aware of this.

    The treaty of union between Scotland and England guaranteed that the Scottish Mint would exist for all time, but was shut after union. This is just one breach of the articles of union (there are many) that is sadly indicative of the lack of respect Scotland and Scottish institutions have experienced in this unequal union.

    UK does not equal England. Scottish history is ignored.

    • Standard

      Scottish banknotes are not legal tender. They are effectively promissory notes issued by the banks and therefore occupy an entirely different position to that occupied by legal tender British currency.

  • Tom Maloney

    Yes, the USA needs to get rid of the dollar bill, as well as the penny. We have waited so long to do this that the best configurations in terms of size and weight for similar values have been implemented in other countries. The Treasury Department’s Bureau of Engraving and Printing could still produce dollar bills and the penny strictly for numismatic purposes.

  • Mike

    I really enjoy reading your interesting and educational blogs……keep them coming!

  • anngrey

    this is an indictment of the fiat money system
    fact america now owes over 16 billion dollars
    inflation has reduced the dollar to the point economically it makes sense to replace the dollar note with a coin
    they left the gold standard they abandoned the silver standard
    now their coins are coated steel blanks
    people aren’t stupid they know when they’ve been cheated
    keeping the presses rolling and the currency becomes worthless note or coin
    hello brave new world

    • James van Scoyoc

      They left? They owe? Who do you mean by “they”? Give me one example of a country that *hasn’t* left the gold standard. Is the Bank of England paying out sovereigns for pound notes now? I didn’t think so. BTW we left the “silver standard” around 1900 when the bimetallic standard was abandoned and silver was demonetized.

  • Sylvia,

    This is a reply from my friend in San Deigo, California when I mentioned to her about the changing og the dollar:
    They have put a coin in circulation twice but they say people don’t like it and won’t use it so circulation falls away. They have made the same mistake twice – they make is almost the same size as a quarter so it is hard to tell them apart. the second time they put it out, they made it a gold colour but the same size.
    I love the dollar coins and sometimes you get them back in change from machines. I think they just don’t try hard enough. If they told every bank that for every dollar bill they requested, they would have to take so many dollar coins, there wouldn’t be a choice and people would adjust.
    It costs more to mkae a penny than it is worth but they don’t want to give it up.

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