Recent reports by NPR, NBC and ABC have highlighted the millions of $1 coins sitting in Federal Reserve vaults across the country. The images are stark — bags of coins piled high in dank government warehouses, the result of a 2005 law mandating the production (until 2016) of $1 coins bearing the likeness of each president. The problem is, these coins aren’t making it into circulation. Americans don’t know about the coins and are, in many cases, confused about how to use them. Couple that with arcane Federal Reserve ordering rules which make it difficult for businesses to purchase the coins and you have a recipe for inventory overflow. And yet, production continues.
A classic government boondoggle, right? Well, not so fast.
Believe it or not, the real villain here — and the real example of government waste — is the continued production of the $1 greenback. Paper currency wears out quickly and requires constant replacement. Each year, the Bureau of Engraving and Printing produces around 4 billion $1 notes. Most of these bills are needed to replace the 3 billion $1 notes pulled from circulation, shredded and sent to landfills each year. A single dollar coin, meanwhile, is 100 percent recyclable and could do the job of up to 17 dollar notes during the course of its 30-plus-year lifetime.
Widespread usage of the dollar coin would save Uncle Sam (and you and me) a ton of money. The nonpartisan Government Accountability Office (GAO) has looked at this issue for decades and always reached the same conclusion — replacing the dollar bill with the dollar coin would reduce our nation’s deficit by billions. In its latest report, the GAO found savings of $5.5 billion over 30 years — itself a very modest estimate. Previous savings projections have been as high as half a billion per year.
Regardless of exactly how much we’d save, what’s not in dispute is that the U.S. government is unnecessarily adding billions of dollars to the already record budget deficit by continuing to use the outdated paper dollar. We are virtually the only developed country in the world that continues to produce such a small form of paper currency — a $1 bill today buys about what a quarter did in the 1970s. Canada, the UK, Japan and others all transitioned to low-denomination coins 20 or even 30 years ago. (And the euro zone has never produced anything smaller than a €5 note — equal to about seven U.S. dollars). All of these nations benefited greatly from making the change. Indeed, Canada’s transition to a $1 coin in the 1980s saved the Canadian government 10 times the initial government projections. Canada has since added a $2 coin.
So, why can’t we make the dollar coin work here? Largely, it’s because we’ve always tried to do it halfway — producing two forms of the same currency, the $1 bill and the $1 coin, at the same time. As the GAO itself noted, eliminating the dollar note paper currency was “essential to the success of [the] transition” in countries that made the switch. The reality is, no new coin series and no amount of PR or marketing will end a century of ingrained habit. We need to make the smart call and finally stop producing the wasteful, short-lived dollar bill. Do that, and these coins will circulate just as they have everywhere else in the world.
Americans are demanding that Washington find reasonable deficit-reduction measures. Abandoning the dollar bill is a simple deficit-reduction measure that doesn’t involve raising taxes or cutting programs. A January 2011 poll by the Tarrance Group and Hart Research revealed that the public actually favors a dollar coin transition by a two-to-one margin once they understand the potential cost savings. Politicians aren’t giving the American people enough credit if they think we won’t add a few coins to our pockets to save billions of dollars.
It’s time for Washington to wise up and finally make the $1 coin program work by eliminating the $1 bill. At a time when every line item in the federal budget is being scrutinized, this change is just common sense.
Former Republican Congressman Jim Kolbe served Arizona’s 8th Congressional District from 1985 to 2007. He is currently a Senior Transatlantic Fellow at the German Marshall Fund, Senior Adviser at McLarty Associates, and serves as the Honorary Chairman of the Dollar Coin Alliance.