March 16, 2012

AS OF DECEMBER, the U.S. government is no longer in the business of minting $1 coins with the faces of U.S. presidents on them, except a limited number for collectors. The Obama administration said that the decision would cut government waste. Americans use so few coins that banks end up returning 40 percent of their allotments to the Federal Reserve each year. The Fed has accumulated 1.4 billion of them, which it must store in warehouses at considerable expense. Suspending production of new coins for circulation will save $50 million per year over the next few years, according to the administration.

Case closed, right? Well, not exactly. Advocates of the dollar coin are pushing back. In the Senate, Democrat Tom Harkin (Iowa) and Republican John McCain (Ariz.) have introduced a bill that would require Federal Reserve banks to stop issuing the paper dollar within four years or when circulation of $1 coins exceeds 600 million annually — whichever comes first. A similar measure is pending in the House.

Their point is that it’s silly to expect the public to use coins when the old George Washington paper buck is still circulating as an alternative. Over time, coin supporters argue, substituting the dollar coin for the paper bill will produce more savings than halting coin production.

We agree. In fact, if Americans knew how much they are paying for their paper-buck habit, they might think differently about it. Just this month, the Government Accountability Office reported that the government would save an average of $146 million per year over the next 30 years if it switched to coins. The switch would cost the government for the first seven years, but thereafter savings would snowball, totaling $4.4 billion over three decades. The savings result from the fact that dollar coins generate more seigniorage — the government’s profit from issuing money that costs less to produce than its face value.

This estimate represents a decline of about a fifth in projected savings since the GAO’s last report a year ago, because of efficiency gains in note production and steps the Fed has taken to lengthen bills’ useful lives. Still, it’s almost three times more annual savings than the administration claims for its paper-only proposal.

The battle of notes vs. coins is almost a parody of legislative trench warfare in Washington, a perennial issue that pits vending machine interests and mining companies in Mr. McCain’s home state of Arizona against printing companies, paper makers and the Mount Vernon Ladies’ Association — who have formed a united front called Americans for George. As it happens, the printers are in Massachusetts, whose senators, Republican Scott Brown and Democrat John F. Kerry, defend the paper buck.

To the extent it’s possible to weigh the matter objectively, facts favor the coin. Almost all industrialized countries have eliminated small-denomination bills, because metal objects last longer than paper ones. Protecting the long-run interest of taxpayers is what Congress is supposed to do.