Should the government continue to make our money?
By John D. Turner
25 Oct 2014

Should the United States continue to mint and print its own currency? This is not a question I would normally have ever thought to ask myself, but one which I stopped to consider after reading an article stating that Denmark will quit producing its currency by the end of 2016.

My first thought was “of course not!” How would a country be able to function without a physical currency of some kind? I know that many transactions these days are carried out using credit cards and even smart phones; I read an article the other day about a business that was going to stop accepting cash all together. Apple, for example, doesn’t accept cash at the Apple Store, not even for an iPad. Some restaurants reportedly don’t accept cash.

There is no law requiring a business to accept cash, despite the writing on the notes that states “This note is legal tender for all debts, public and private.” What this means is that the banknotes can be used for all debts, public and private. It doesn’t mean they must. Business’ must accept payment in dollars; they can’t for example, insist on payment in euros or pesos. The form of the payment in dollars is, however, left up to them. According to the U.S. Treasury, “Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise.”

And apparently, in all 50 states, there is not one that has a state law mandating payment in cash.

There are advantages to using plastic and not cash. A big one is the speed of the transaction. It takes practically no time at all to swipe a card. Last night at HEB, I waited extra-long in line while one customer paid for their purchases with a check. I had forgotten how much longer that took than simply swiping a card, or paying in paper bills for that matter. Perhaps a “no check” policy might make sense. And of course, if you are the sort of person who likes to have an itemized list of everything you buy, using a card gives you that ability also.

Then again, if you are the sort of person that doesn’t want everyone to know exactly what you are buying, perhaps you prefer cash instead. Indeed, some businesses go the other extreme and eschew plastic in any form, accepting only cash.

So how could a country function without cash? It is so handy, for everything from giving tips (which sometimes, but not always can be done using plastic) to purchasing things at places where using plastic would be awkward, to say the least, such as the “snack shack” in the squadron where I work. And of course, every time you swipe that card to make a purchase, the business you are using it at gets dinged around 4% by the credit card company for the privilege of allowing you to make the purchase using their card, which is why some businesses give a discount for cash (or alternatively, charge you more if you use plastic). That cost is passed along to all of us whether we use plastic or cash, making things that much more expensive for everyone. Remember TANSTAAFL – There Ain’t No Such Thing As A Free Lunch, my friend.

If there were no cash, how would I have a yard sale? If there were no cash, how could we have fund raisers like car washes or bake sales or selling cold water on the side of the road in the summer for a buck? How would kids raise money by washing cars, mowing lawns, or, that mainstay of childhood entrepreneurialship, run a lemonade stand? How would beggars operate? Everyone would have to be able to take credit cards (or something like them). How would that work?

On the other hand, there are those in government who would actually like to get rid of all cash, no matter what the hardships that might impose on the rest of us. The reason? The “War on Drugs“ and any other kind of black market goods or “under the table” transactions. If there were no cash, so the theory goes, the drug trade would disappear as well, since no one would be able to purchase illegal drugs on their MasterCards. Personally, I think that they are underestimating the ingenuity of people who want something that someone has available to sell.

But upon actually reading the article, it seems that isn’t what Denmark has in mind at all. Cash is still in use in Denmark – they are not on the brink of becoming a “cashless” economy. What they are doing is getting out of the business of making their own cash themselves. The overhead costs of doing so are no longer justified; instead of printing and minting their own currency, they are going to outsource that to a private company.

Hmmm. That makes sense. Why couldn’t we do that here?

Article I section 8 of the U.S. Constitution imbues Congress with the power to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” Note that it says “coin” money, not “print” money. The ability to coin money is the exclusive purview of the federal government; Article I section 10 reinforces this, stating, “No State shall…coin Money…make any Thing but gold and silver Coin a Tender in Payment of Debts…”

It says nothing about paper currency, which is a type of negotiable instrument, also known as a promissory note, made by a bank and payable to the bearer on demand. Today we are most familiar with the Federal Reserve Note, which is what you commonly carry around in your wallet. Federal Reserve Notes are issued by the Federal Reserve Bank, and are a “promissory note, backed by “the full faith and credit” of the United States Government. There is another type of bank note you might encounter on occasion, as there is an estimated $239 million worth of them still in circulation. This is the United States Note, which was printed from 1862 until 1971, issued not by the Federal Reserve, but rather by the U.S. Treasury. These used to be common overseas and are still valid for use, although increasingly rare.

During the period 1782-1866, the government issued almost no paper money and it was the responsibility of the individual bank to print and authorize their own money, based on their deposits. Of course, there was no guarantee that a bank would not print more than it could redeem. There was also no guarantee that the bank, whose note you held, was still in business; if the bank went bust, so did the currency it issued. Counterfeiting was also a problem; a counterfeiter could make up a currency out of whole cloth since no one had a list of all the banks producing currency. Therefore, people preferred coins to paper money, and currency from a non-local bank might trade for much less than it’s printed face value.

The point here is that constitutionally, only the U.S. Government can coin money while anyone can, at least in theory, print “money.” Constitutionally then, there is no reason why the Federal Government should have to print their own money; they should be able to contract that out if they so desire. Indeed, while the constitution gives the Federal Government the power to coin money, it does not specifically state how that is to be done; i.e., that the physical coining must be performed by the government itself. Just because it has always been done that way does not mean it has to be done that way.

Indeed, many private mints in this country produce strikingly beautiful “coins” resembling U.S. coinage. Typically these are one ounce pure silver bullion pieces, known as silver “rounds” (as opposed to silver bars). They are not however, legal tender coins that you could spend at Walmart, for example. Or use to pay your property taxes. But it does indicate that the capability to do so is present.

There is no reason that the Federal Government couldn’t contract with one or more of these private mints to produce legal tender U.S. coins. The government would still be in charge of deciding things like size, weight, denomination, composition and design. That would be part of the contract specification. Likewise they could have quality control folks ensure that what the private mints were producing were up to standard.

If this were phased in over a period of time it would give said private mints the time they need to ramp up production. The government could then divest themselves of the overhead costs of maintaining the physical mints and presses, and the people hired to produce and oversee the production of paper money and coins.

Right now, the Federal Reserve Bank contracts directly with the government for production of physical bills. There is no reason why they couldn’t contract directly with private companies, authorized by the government to produce the money. The employees of those companies would not be on the government payroll and the government would not be paying for their health care, retirement benefits, etc.

Likewise for the mints; and while we are at it, perhaps we could take a look at the currency itself and see if there might be a way we could cut some costs there as well. One of the most worthless pieces of money we have is the penny. Back in the early 1980’s, my roommate used to throw them in the trash. His comment was that they weren’t worth messing around with. And that was back when the coins were still minted using copper and had intrinsic value.

How many people have jars of pennies in their house? I know I do. I use them for markers when playing card games, and tokens when playing Axis and Allies and other war games. Other than that, they sit in the jar. Last year the Denver mint coined 3,319,600,000 pennies and the Philadelphia mint coined another 3,750,400,000. Combined that is over 7 billion pennies. Currently it cost 1.83 cents to make a penny. We will probably make around the same amount this year as we did last year. For the period 2000-2013, we have minted 98,822,287,500 PENNIES!!! That’s almost 99 billion pennies in a 14 year period. That is enough pennies for every American man, woman, child and illegal alien to have their very own penny jar containing 308 pennies.

And that doesn’t include mintage figures for the preceding 20 years. Coins are supposed to last, on average, around 30 years in circulation, although I have my doubts about the pennies and nickels we are producing today, so it is not unreasonable to assume that a large number of pennies, produced since 1980 or so, are still in circulation (or at least, still existent in penny jars and available for circulation). In 1982 for example, the Denver mint produced over 6 billion pennies while the Philadelphia mint went into overdrive, stamping out almost 11 billion. Look here if you want to see annual mintage figures for the penny back to 1909 when the Lincoln cent was first produced.

So why not eliminate the penny and round everything to the nearest nickel? It also costs more to produce nickels than pennies, but perhaps we could do something about that – make them the size of a penny for example. Nickel mintage figures can be seen here.

We could follow that up by eliminating the dollar bill and increasing the production of $2 bills and $1 coins.

It cost around 5.4 cents per note to produce the $1 and $2 bill. On average, a dollar bill in circulation lasts for around 5.9 years before it “wears out”. Approximately 42% of all U.S. currency produced in 2009 was one-dollar bills.

And while we are at it, how about re-introducing the $500 bill, last produced in 1945? At present, the $100 bill is the largest we make; and it is currently worth $7.43 in 1945 dollars. A $500 bill therefore would be worth a whopping $38.10 in 1945 dollars. And you have been wondering why the dollar contents of your wallet seem to be going up and buying less!

It has been estimated that dropping the dollar bill and using the dollar coin would save the taxpayers at least $150 million and as much as half a billion dollars per year; and with $500 bills in circulation, we could reduce production of some of those Benjamin’s as well. It isn’t enough to cover our trillion dollar deficits, but it isn’t chump change either. You have to start somewhere.

And perhaps taking a good look at our currency and how we produce it is one place we can start. The United States government has been coining its own money since its inception. Perhaps it is time that we, like Denmark, look at other ways of doing it and while we are at it, taking a hard look at the way our currency is used at the same time. The lifespan of a coin is supposed to be 30-40 years, and yet the circulation “lifespan” of a penny is only around one year, which is why we make so many of them. Logic clearly dictates that this is not because they wear out from use in only a year! Why should we spend around $130 million each year to produce coins that Americans either throw away or dump into a jar?

Like many things the government does, it makes very little sense.

Other sources: “Six Kinds of United States Paper Currency”, – very interesting and Other articles of interest: