It's Official: Dollar Coin Makes No Sense

In case the fact that 76 percent of Americans oppose ditching the dollar bill in favor of a dollar coin wasn’t compelling enough, a new study that exposes the proposal’s supposed cost savings as mere myth should finally convince the super committee to abandon this clunker of a bill and focus on real spending cuts. According to the independent study performed by economic research firm John Dunham & Associates, the study finds that rather than saving money and helping the economy, a mandated switch from a dollar bill to a dollar coin would place a heavy economic burden on businesses of all sizes and types in the midst of an ongoing recession.

From Business Insider:

The group analyzed 29 different retail and service sectors in the U.S., finding that the annual cost of running business would balloon by $201 million and cause companies to shed at least 4,300 jobs.

The added costs come from adjustments such as adding new cash registers to hold the hefty coins, changing counting machines, purchasing larger safes and the costs incurred by banks, money transfer companies and financial firms, the study says.

“Changing to a coin would be a tax increase on retail and service firms of all sizes,” said John Dunham, president of John Dunham & Associates.

The debate is sure to continue on whether such a change and its potential to save the nation cash in the long-run is worth the initial hassle.

But it appears the public so far has spoken: More than 70 percent of consumers in a recent poll said they were against the proposal.

Supporters of the dollar coin, led by Arizona Rep. David Schweikert, cite a March 2011 GAO report as support for the contention that the switch would save money in the long run (over a 30-year period). However, the study debunks that assumption as well, highlighting two key missing elements from the report:

  • The economic model employed in the GAO’s analysis only considered costs and benefits to the federal government and ignored the effects of the policy change on the larger society – i.e., the general public and businesses. The GAO did not take into account the effects on the private sector from replacing the dollar bill with a dollar coin.

  • The cost savings cited in the report are a gimmick. What the GAO report counted as the benefit of replacing the one dollar note does not result from traditional cost savings – i.e., a longer lifespan. Indeed, as the GAO report admits, “The cost of producing coins for a full replacement is never fully recovered during the 30-year analysis.” Instead, the purported benefit results from the assumed ability of the federal government to replace the existing stock of $1 notes with 50 percent more $1 coins and count the difference as revenue – basically an accounting trick.

Wait, government officials and politicians are narrowly focusing on government alone while forgetting about that pesky private sector that employs most Americans? Color us shocked. It may not be a departure from the normal Washington tunnel vision, but the super committee was supposed to get serious about making meaningful spending cuts. If this is an example of their handiwork, it seems doubtful they will hit their $1.5 billion target.

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