Because the dollar buys as much today as a dime did in 1950, our currency system needs to be updated
As of March 31, 2013, there was $1.2 trillion in U.S. cash (currency and coin) in circulation. Most is in $100 bills that are mainly held in other countries.
I saw that when I advised the Central Bank of Iraq in Baghdad a few years ago. Most Iraqis don’t use checks or credit cards. They want cash, either dinars or dollars, to keep money holdings and transactions private. Planeloads of U.S. hundreds were frequently unloaded in Baghdad, taken to the Central Bank, and auctioned for Iraqi dinars.
U.S. currency has its uses here too, and not just by those who want to keep their money holdings private. Demand increases 40 percent or more annually during the Christmas buying splurge. Also, when people need to be absolutely sure they have the wherewithal to make payments, they want cash. Before the feared breakdown in electronic payments at the turn of the millennium, January 1, 2000, the demand for cash doubled. In ordinary times, people need cash for tips, tolls, parking meters, small purchases, personal services, and for what they want to keep private.
Although U.S. currency remains widely used here and around the world, our coins especially need updating. Since the price level is 10 times higher than in 1950, the dollar today has the buying power of a 1950 dime and the dime of a 1950 penny.
U.S. coins simply aren’t worth much anymore.
The penny and nickel not only have minimal buying power but are worth more as metal than money. Their days are certainly numbered.
The dime and the quarter are the most-used coins, making up two-thirds the dollar value of coins in circulation. Half-dollar and dollar coins remain unpopular, mainly because they are way too heavy relative to their meager buying power.
Nonetheless, the U.S. Mint has been unstinting to get half-dollar and dollar coins into circulation. It redesigned the silver half-dollar to honor slain President Kennedy in 1964, but then reduced its silver content in 1965 as increasing silver prices made the coin worth more as metal than money, and totally eliminated silver in the coin in 1971. It stopped producing half-dollars for circulation in 1971.
The last silver dollar coin was minted in 1934. Beginning in the 1970s, the Mint tried to get newly designed base metal dollar coins into circulation. It issued the Eisenhower dollar in 1971, the same size as a silver dollar. It proved popular in casinos but not elsewhere.
Recognizing that the dollar coin was too heavy, the Mint designed a smaller dollar coin and repeatedly tried to get versions to circulate: the Susan B. Anthony in 1979, the Sacagawea in 2000, and the Presidential dollar series beginning in 2007. All are still too heavy for the public to bother with when they have the purchasing power of a 1950 dime.
So, by the billions they pile up in Federal Reserve Banks. Production of dollar coins for circulation was suspended last December.
So what’s to be done? Since pennies minted before 1982 and all nickels became worth more as metal than money, the Bush administration in 2006 made melting them illegal. The Obama administration has simply proposed making pennies and nickels out of cheaper metals.
Both miss the point. We don’t need laws to keep these coins in circulation. We need our coinage system to be updated to account for the decimation of the purchasing power of the dollar since 1950.
In a New York Times op-ed in 2007, Austan Goolesby, a former Obama economic adviser, privately proposed rebasing the penny to make it worth five cents.
That good idea doesn’t go far enough. We need all our currency to be realigned with the current level of prices in the marketplace.
We should redesign our entire currency and coinage. Without a silver dime anymore, it is anachronistic to have the nickel twice the size of the dime. The quarter and half-dollar are too large relative to the current dollar coin which in turn is too large relative to its meager purchasing power.
It also makes no sense for the largest note to be the hundred when it can only buy what a ten could in 1950. Overall the entire U.S. currency system needs to be redesigned.
The appointment of a Presidential Commission to study what can be done to update our currency and coins is long overdue. The current system was designed in the 19th Century. It functioned well enough until the inflation since 1950 decimated the buying power of money. It is time to recognize that and redesign our currency and coinage to fit what money is worth today.