Follow-Up: Dollar Coins Are Not a Waste of Money

    
     Since my September post, Dollar Coins Are Not a Waste of Money, http://williamcinfici.blogspot.com/2011/09/dollar-coins-are-not-waste-of-money.html, I have since learned some interesting news. According to the United States Mint, some people were buying large quantities of presidential dollar coins by credit card in order to gain rewards points (e.g. frequent flyer miles) and then cashing the dollars in at banks. As a result, the Mint no longer accepts the purchase of dollar coins by credit card, as the intent of minting these coins was for them to circulate.

     This abuse may account at least in part for why the coins are not circulating as much as hoped and are instead piling up at Federal Reserve warehouses. Thus, their lack of circulation may not all be attributable to the coins’ unpopularity. Indeed, even apart from such abuses, the idea that a coin is necessarily unpopular because it hardly circulates is not true. It may seem paradoxical, but the absence of a coin from circulation suggests its popularity, as it is an indication that a coin is being hoarded by the public.

     The Kennedy Half Dollar, for example, is seldom seen in circulation precisely for this reason. Consequently, the Mint stopped striking the coin for general circulation in 2002; only uncirculated and proof Kennedy Halves are still minted for collectors – at an even higher seigniorage than coins struck for general circulation. A similar phenomenon occurs with the seldom-seen $2 Federal Reserve Note, which is either exchanged because it is not considered practical or it is hoarded as a novelty, yet there are no calls to eliminate either Kennedy Halves or $2 bills as wasteful of public money.

     Meanwhile, I also learned of an organization dedicated to promoting the dollar coin. The Dollar Coin Alliance proposes the withdrawal of the $1 bill as the only way to encourage greater usage of the dollar coin, as many foreign states have done with their lowest denomination notes because of inflation. In addition to some of the points I made in my last post on this subject about the cost-effectiveness of the dollar coin versus paper $1 Federal Reserve Notes, they observe that paper bills cause businesses financial loss by getting stuck in vending machines. 

     I shall continue to follow this issue and to post about any significant further developments.