I had intended my next blog post to be about bubbles and the Presidential election, but when I learned that Senators McCain and Harkin had recently introduced a bill to switch from using dollar bills to using dollar coins I had to let people know about it. Eliminating dollar bills in favor of dollar coins will result in substantial savings to the Federal budget, and could potentially also have a stimulative effect on the economy. You should all write to your Senators and urge them to cosponsor Senate Bill 2049, the Currency Optimization, Innovation, and National Savings Act.

You can see the argument for killing the dollar bill in this brief and entertaining video, or scroll down to read my version in boring old text.

The Government Accounting Office has analyzed this issue a number of times and always comes to a similar conclusion: the government could save 5.5 billion dollars over the next 30 years by eliminating the dollar bill and replacing it with dollar coins. Admittedly, that’s not actually a lot of money when compared with the total Federal budget and the current size of the deficit. Stopping the minting of pennies and nickels would save more. But we’d be foolish to ignore the fact that there’s money to be saved by a simple technical change that doesn’t involve raising taxes or cutting vital programs. The savings come from the fact that printing dollar bills is relatively expensive, and that dollar bills simply don’t last long. They are handled so much that they wear out quickly and have to be replaced. That is the point at which a coin is preferable to a bill. Coins can be handled much more without wearing out, so we wouldn’t have to mint nearly as many coins as we currently print dollar bills. Not only that, but we currently have a rather large stockpile of dollar coins, so there’s not a lot of start up or switch over cost involved, all we have to do is get those coins into circulation. Most attempts to do that have failed because people are resistant to change, but this bill contains one key provision that will guarantee that coins get used and not bills: it stops the circulation of dollar bills after a certain number of coins are circulated or after four years, whichever comes first.

The other advantage to replacing dollar bills with dollar coins is the potential stimulative effect on the economy. This is due to something called the denomination effect. It basically says that people tend to spend more money in small denominations than large ones. A dollar coin effectively feels like a smaller denomination than a dollar bill and is more likely to be spent. So replacing dollar bills with coins should result in more spending, which will stimulate the economy without the tax cuts or spending increases that either side of the political aisle will oppose. Again, the effect may be relatively small, but it’s something. Right now we’re leaving both these cost savings and economic stimulus sitting on the table because of inertia, emotional attachment to the bill, and probably some lobbying from paper and ink companies (just think how much paper and ink we’re buying to print all those bills).

Resistance to change and emotional attachment will produce arguments that people don’t want to carry around that much change and will therefore empty it from their pockets and take it out of circulation. But the experience of say every other developed economy in the world shows that a coins work.

This is a nonpartisan bill that will save money and stimulate the economy. There’s simply no good reason not to do it. So take the time to go to www.senate.gov and send an email to your senators asking them to support Senate Bill 2049, the Currency Optimization, Innovation, and National Savings Act. Feel free to use anything from this blog post to make your case.