Seigniorage ain’t manna.

WaPo editorialized, on the dollar-bill-versus-dollar-coin debate, that “objectively, facts favor the coin.” This is a surprisingly narrow view of the issue of what form our money ought to take. There are better questions to ask about money than whether to print it on paper or mint it from metal.

Business interests too small to be worthy of the name (vending machine operators in Arizona? seriously?) and a bit of New England pork (paper companies from our fair Commonwealth) do not constitute savings for the general public. WaPo acknowledges that the coin suppliers’ contracts would more than offset cuts to Crane’s government business. Government outlays would go up, not down.

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.

No, WaPo’s argument hinges on seigniorage. Think of the $700 million we taxpayers would “make” every year. That’s akin to arguing that if everyone promised enough scrip to each other in the form of Berkshire Bucks we’d all be billionaires. Money wouldn’t grow on trees, it would grow on scrap paper! Perfect. Why not use Berkshire Bucks to pay our taxes? Everything sounds great until you have to miss your kid’s soccer game to make good on the IOU, or get a summons from the IRS for its months of promised labor.

Seigniorage is a wealth transfer from people that hold money to people that print money. Counterfeiting is also a wealth transfer from people that hold money to people that print money. One is a sovereign right, and the other is a felony.

Speaking of which, Paul Collins (Slate) claims that as many as 3% of pound coins in 2010 were thought to be counterfeit by HM Treasury. That is a shockingly high number. Collins’ source quotes $400m as the lower bound for what similar counterfeiting of US coins would cost, if we used dollar coins.

And what about the $600k in lobbying fees for just one of said business interests? Doesn’t that grow GDP by the same token? We ought to mandate that vending machines take both coins and bills, so that they would be more expensive, creating yet more revenue. Wait, we did try that. (Federal law requires postal vending machines to accept dollar coins.)

WaPo is implicitly making the right argument–that the government will cut costs by buying more durable coins. But they’re selling the position with funny accounting: booking profits that we pay to ourselves out of debased coinage. It’s akin to arguing counterfeit is another form of monetary stimulus, rather than crooks’ loot. We might as well count Collins’ forecast of $400 million as profit too.

Instead we should be focused on why people cling to money, when payments could really save us some shoe leather. Think of all the trucks that move cash around the country, the safes to hold it and the armed guards to watch it. Payments largely sidestep the problem of moving valuable stuff around in public. Payments can take the form of cards (debit, or credit, or prepaid, or transit cards, or store cards) or the form of encrypted messages (websites and mobile phones).

So why do we prefer to carry cash around? Is there too much competition, so consumers don’t know which cards to get? Are there too few consumer protections and disclosures? Do too few companies control the payments business, resulting in high fees? Are people so worried about bank fees that they prefer to keep bills stashed under the mattress? Do people think theft of electronic funds is a bigger risk than theft of tangible cash? Are we so scared of Big Brother and cyber crooks that we simply refuse new payment systems?

Let’s let lie the question of how best to print money, and start talking about how to make payments safe, instantaneous and cheap.

In defense of the dollar coin – The Washington Post.

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