Monday, February 28, 2011

How and why we should change our pocket change (Nov. 29, 2006)

Today's headlines contain the story that changes are planned for U.S. paper money so that the visually impaired can tell different denominations apart. Good idea, but not good enough. What's really needed is a wholesale revamping of our coins and paper money.

Cut to the quick: Every denomination below $10 should be modified or retired.

Inflation is the main culprit. Fifty years ago, a nickel and dime could buy you what you pay a dollar for today, and 100 years ago, you'd only need the nickel. Working from that single fact alone, we could eliminate not only the cent, but also the nickel and dime, but I won't go that far.

The problem is in the lack of truly useful coin denominations. Cents and nickels, and to a lesser extent, dimes, make up the bulk of the coins in our pockets, both in terms of count and weight. We have two larger denominations theoretically in circulation, the 50-cent and one-dollar coins, but few people use them. Similarly, I contend that the cent and nickel do not circulate, either. You get them, pocket them, and put them in jars, but rarely spend them. Most cents and nickels in circulation today grade at least XF-40 on the 1 to 70 scale of coin wear, which means they're just not getting used. A coin can be as low as 50 on that scale and still have some of its original shine.

A second problem is that we Americans don't like anything to change. We're still using the same denominations we had in 1796, excepting the half-cent piece, which was discontinued in the 1850s, and paper money replacing gold coins. To give an idea where silver stopped and gold began, the $2.50 gold coin, our smallest, long-running denomination, had the buying power in 1906 that a $50 bill does today. (As an aside, outside of western states, the silver dollar coin never did get a lot of use, similar to the 50-cent coin today.)

Silver (and gold) dollars themselves were not all that common back then, but 50-cent silver coins got the snot beaten out of them. A century-old 50-cent piece will be typically found worn almost flat from use. Now, think of the use a $10 bill sees today -- back and forth and on and on, in constant motion. It's that "20x" factor again.

So here is my proposal:
  • One-cent coin: Discontinue now.
  • Five-cent coin: Discontinue after further changes are made.
  • Ten cent coin: No changes at all.
  • 25-cent coin: Discontinue after further changes are made.
  • 50-cent coin: Shrink in size, make octagonal.
  • $1 bill: Discontinue now.
  • $1 coin: No changes at all.
  • $2 bill: Discontinue after $2 coin is in place.
  • $2 coin: Introduce along with $1 bill discontinuance.
  • $5 bill: Discontinue once $5 coin is in place.
  • $5 coin: Introduce along with $1 bill discontinuance.
This would give us coin denominations of 10, 50, 100, 200 and 500 cents; and bills of $10, 20, 50 and 100. This would make things quite similar to 1906, when we had circulating coin denominations of 1, 5, 10, 25 and 50 cents, and bills of $1, 2, 5, and 10. Higher denominations of each existed, of course, but were little used by the general public.

Unstated so far is rounding, so let's tackle that straight on: We round to the nearest ten cents for every cash transaction. We didn't need the half-cent 100 years ago; we didn't need it 150 years ago, either. It was discontinued after 1857. Today's dime functions as the 1850s half cent. Really we could dispense with the dime altogether, too, but that's going to be too much of a leap for now. But we no more need the one-cent or five-cent denomination than we needed to make the one-mil (one-tenth of one cent) coin in 1793. It now takes two one-cent coins to comprise the value of the 1793 mil. We are far beyond time to trash the cent, so far beyond that the five should go, too, and as I said, even the 10. But for political reasons, I advocate just rounding to a dime, at least to deal with at this end of the 21st century.

What of the nickel and quarter? The quarter is the only coin that sees true circulation today, and so cannot just be discontinued. Similarly, the nickel is needed to make even change for the quarter. But with 10- and 50-cent coins doing the work of small change, the quarter will eventually become unneeded. With it will also go the five-cent. Properly, they should both be eliminated now, but the quarter's entrenchment will make that difficult.

Well, that's enough for one argument.

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