John Glenn signed $2 bill. (Image courtesy of Heritage Auctions)
The United States government currently produces $1 and $2 Federal Reserve Notes. In the previous decade, it was issuing $1 coins for circulation. A question that has been frequently considered for the past few decades is whether the government should issue $1 and $2 legal tender in only currency or coin form.
Even Congressional studies from the past decade or so have concluded that the US government would reduce its cost of issuing legal tender by ending the paper dollar and only issuing that denomination in coin form. But, is that still true today?
The global trend has been toward retiring low face value currency and replacing them with coins.
Circulating legal tender in many other nations or jurisdictions issue roughly equivalent units only in coin form. Among them are the Eurozone, Australia, Canada, Japan, New Zealand, Singapore, Switzerland, and the United Kingdom. Nations that issue low face value in currency form include Brazil, China, and Mexico.
In deciding which form of US $1.00 and $2.00 legal tender to issue, there are political, financial, economic, and cultural issues to consider.
Political considerations: Since the late 1800s, Crane Currency, headquartered in Boston, Massachusetts, has been the sole provider of the paper used by the Bureau of Engraving & Printing to create US currency. Unofficially, I was told years ago that the Massachusetts delegation in Congress, Senators and Representatives, were firm in maintaining this monopoly arrangement and in opposing any efforts to discontinue printing the dollar bill and replacing it with a circulating coin. Crane Currency was acquired by Crane Company two years ago, which has its headquarters in Connecticut. Still, I think this commitment by Massachusetts’ legislators is a political force that would be hard to overcome, especially since there is not a single politically potent constituency that could advocate for striking $1 and $2 coins.
Financial considerations: Late last year the Federal Reserve Bank of San Francisco reported that cash was used for payment for about 30 percent of all transactions (down from 33 percent in a 2015 survey), and for 55 percent of all transactions under $10 in value. In this survey, people aged 18-25 and 45 and older used cash to pay for 34 percent of transactions.
There are European nations where cash is used for payment in 10 percent or less of transactions. Obviously, the use of cash for transactions in the US and worldwide is diminishing over time. With fewer transactions being paid in cash, the question of paper or coin form becomes less important.
Economic considerations: One factor to consider is the cost of producing $1 and $2 legal tender issues in either coin or currency form, while also factoring in the durability. Paper currency costs less per unit to produce, but the durability and longevity of coins more than offsets this production cost advantage of paper.
Cultural considerations: Long ago, Americans were used to almost always making payment in coins. The US government, because of prohibitions in the Articles of Confederation and the US Constitution, did not issue paper money until 1861. During the Great Depression, when gold coins were removed from circulation, Americans had become mostly comfortable with spending paper currency. The US Mint last issued Silver Dollars for circulation in 1935. Ever since, people in this country have become accustomed to handling dollar bills.
Other considerations: Demand for US coins and currency is strong around the world. With a track record of so many failed or inflation-riddled currencies that have not yet failed, many foreigners would prefer to hold US coins and currency. That accounts for significant demand for $100 Federal Reserve Notes beyond America’s borders.
However, what may be a more important consideration in the decision today whether to issue US $1s and $2s in coin or currency form is the other nations that use US coins and currency for its circulating legal tender. The dollar is circulating money in Panama (since 1904), British Virgin Islands (1959), Caribbean Netherlands (2011), East Timor (2000), Ecuador (2000), El Salvador (2001), Marshall Islands (1944), Federated States of Micronesia (1944), Palau (1944), and Turks and Caicos Islands (1973). Some of these countries, such as East Timor, Ecuador, and Panama issue their own coinage.
Other currencies such as the Bahamas and Bermuda dollars are freely exchangeable at par with the US dollar. The US dollar is also one of a handful of currencies (along with the euro, Botswana pula, British pound, Chinese yuan, and South Africa rand) that are legal tender in Zimbabwe. There are additional nations that fix their currencies to the US dollar, but the dollar does not circulate there.
In particular, I find the situation in Ecuador most intriguing. After suffering rampant inflation, that government on March 13, 2000 made the US dollar its only circulating legal tender in place of its own issues. But, most Ecuadorian citizens prefer handling coins rather than currency. My understanding is that the US government sent 500 million Sacagawea Dollars to Ecuador in the year 2000 to meet demand for commerce there. I assume that Ecuador’s economy still needs significant quantities of US coinage for transactions.
When foreign nations use US coins and currency for legal tender, such usage generates either profits or at least an interest-free loan to the US government.
It is possible that providing circulating coinage for Ecuador in particular may present the strongest argument that the US should be striking and issuing $1 and $2 coins and retiring those currency denominations. What do you think?
Patrick A. Heller was the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award 2012 Harry Forman Dealer of the Year Award, and 2008 Presidential Award winner. He was also honored by the Numismatic Literary Guild in 2017 and 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).