A radical proposal to make coins useful again

Like most people these days, I've got a jar on my desk at home with something like 20 bucks in change in it. I'd very much like to have that money, of course, but it's just too much of a hassle to go through it very often. So it just sits there, accumulating my daily coin harvest, until it gets so heavy it threatens to collapse my desk. Then I go through it and enjoy a nice windfall of a few months' pocket change. That's U.S. coin policy: A very inefficient and metal-intensive beer money program.

However, this week I got to thinking: When I lived in South Africa, I used to carry around change all the time. I didn't have the visceral reaction to paying in cash that I do here. Why is that? Two reasons, I suspect. First, South Africa has a value-added tax which is included in the total price, so you didn't usually get weird totals like 3.47 that we do with our obnoxious sales tax. But more importantly, in South Africa coins were worth something.

That's the key issue. Here in the U.S., you've got to carry around pounds of metal to have enough money to buy anything you might conceivably want. But if value is sufficiently concentrated, then coins work as money; they have for thousands of years. It's time to make our coins worth something again.

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Every so often there's an internet outrage burst over the existence of pennies. Here's a representative example from CGP Grey:

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And he makes a good case! The problem is that ditching the penny doesn't go far enough. The problem isn't just pennies, it's every U.S. coin. Even the quarter doesn't earn its weight, if my coin jar is any indication.

Here's my solution: multiply the face value of every U.S. coin by 10. A penny will be worth 10 cents, a nickel 50 cents, a dime one dollar, a quarter $2.50, and a dollar coin 10 bucks. (We could also reinvent the half-dollar, which is barely produced now, as a nice $5 coin.)

This will have several beneficial effects: first, it will make change real money again. The whole point of having money is to facilitate the process of exchange, but studies have shown that people tend not to spend even the vaunted dollar coin. It's no surprise, given that we've been training people for decades to think of change as worthless. And multiplying by 10 sounds like a lot, but if anything, it isn't going far enough — the BLS inflation calculator only goes back to 1913, but even so, one dollar from that time was worth the equivalent of $23.87 today! The one-cent coin was the smallest then, and people still somehow survived. Rounding to the nearest tenth of a dollar in cash transactions today will be no problem.

Second, it will be easy to accomplish. We won't have to have a big fight with the zinc lobby or Abraham Lincoln fans over whether to stop production of a particular coin, or rebuild all the vending machines around differently-shaped coins. Instead, we just alter the mint plates slightly with new numbers. (Making U.S. money more coin-based would also save the government a bit of money, since coins last much, much longer than paper money.)

Third — and this might be the most contentious part of this proposal — changing coins could be a nice piece of badly-needed economic stimulus. Effectively, we'd be printing up a bunch of new money and handing it to whoever has coins on hand. We'd have to think carefully about the details, but the idea would be to allow people who have old coins to hand them in for fresh new versions worth 10 times as much. Vending machines can be easily reprogrammed to help soak up the old currency (which will be exactly the same size and weight as the new stuff), and banks could be required to exchange for the new versions for a few years. To keep them from being swamped and to ease the effect, we could say banks don't have to exchange more than $50 worth of new currency per person per day, or something similar.

Now, this wouldn't be exactly fair, since coin-hoarders would get the biggest benefit, but distributionally it would be practically saintly compared to, say, quantitative easing. Some people will make out like bandits, to be sure, but I doubt they would be owners of large asset portfolios.

How much money are we talking about? According to the Federal Reserve, as of 2010 there was about $40 billion worth of coins in circulation, which constituted 4.3 percent of the U.S. currency stock. We'd be increasing that by $360 billion at a stroke, which would actually be a pretty powerful economic stimulus. Indeed, it might cause a bit of moderate inflationary pressure, as all the coin hoarders with soup tureens full of pennies went on spending sprees. However, that would be exactly the kind of situation the Federal Reserve is equipped to handle. I doubt any inflationary pressure would be sustained long, but if so, it would be a godsend to the Fed, which has been stuck at the zero lower bound and mostly below its inflation target since the financial crisis. Indeed, there is a very strong case that a bit higher inflation target is wise economic policy for the future.

In any case, this is the kind of bold economic idea that this nation so desperately needs. Coin reform now!