The Folly of the New Presidential Dollar Coins

Today's Washington Post contains an interesting and amusing story questioning why the U.S. Mint is issuing new dollar coins when the world is moving away from cash to electronic forms of money.

Sit down in the handsome office of Edmund C. Moy, the director of the Mint. Ask him to comment on the quote attributed to Albert Einstein: "Insanity is doing the same thing over and over again, expecting different results."

Point out that the future of money is relentlessly shifting away from physical cash. Ask him if he has lost his blooming mind. The Congress made me do it, he replies.

Moy is referring to the Presidential Dollar Coin Act of 2005 which requires the mint to issue new dollar coins featuring the images of U.S. Presidents.

Post staff writer Joel Garreau reports that percentage of transactions made in cash versus check or debit or credit cards has declined from 21% in 2003 to an estimated 15.7% in 2008. Use of electronic payment methods, on the other hand, is expected to grow to 65% with checks taking the remaining share of the payments market.

Cash is increasingly reduced to three arenas, [cultural anthropologist Jack] Weatherford says. It is used for transactions performed by poor people -- "the unbanked population," as they are picturesquely known; anybody's small purchases -- like an ice cream cone; and for illicit activities like tax evasion, extramarital trysts and drug scores -- for which anonymity is at a premium.

Garreau notes that the transformation of money from cash to computers has occurred in a short span of time.

Computerized money produces the world we live in today. It may be hard to remember, but at the beginning of the 1990s, only 5 percent of grocery stores accepted credit cards. Now, you sign for your pomegranates. Similarly, travelers to distant lands no longer stock up on exotic cash. They are confident their money cards will meet their every need the instant they land, wherever that might be.

The next frontier is to delete even the plastic from our "plastic," says Tim Attinger, who describes himself as being in charge of ridding the United States of cash and checks. He is the senior vice president of product innovation and development for Visa USA. "I dream of a day when kids on the corner selling lemonade will take Visa payments," he says. "Not next year, but it can happen."

In Asia, it is already common to pay for things by simply waving your chip-equipped cellphone at a point-of-sale terminal, moving money with a beep as quickly as commuters sail through the Dulles Toll Road with an EZ Pass. Devices are being deployed in the United States that allow you to pay simply by pressing your fingertip to a scanner.

At that point, our bodies become our money.

His last line may be a bit too Orwellian, but his point is well taken.

And what about the initial question of why the government would start a long term dollar coin program when prior similar coins have failed and people are moving away from cash anyway? The answer is "seniorage."

Because it costs the Mint 20 cents to make the new dollar coin, and people pay a dollar for it, the margin on each one is 80 cents. If people proceed to squirrel the coin away, and not put it in circulation, this is wonderful. The government gets to keep that 80 cents forever.

The economics of minting coins may be a bit more complicated than that analysis, but it's true that the point of the new dollar coins, just like the 50 state quarters and Lewis and Clark nickels, is to make money off of coin collectors.