There is, however, one aspect of the American lifestyle that has remained small over the years. Namely, Americans have always insisted on utilizing small coins as currency.
Pennies, nickels, dimes, and quarters still pervade the American monetary system. So why should we expect Americans to accept the newly proposed trillion dollar coin?
Small Change to Large Coins
Because of the costs of producing small coins, and because of their limited purchasing power, many developed nations have ceased minting pennies and cents. Many have also converted their paper dollar, euro, pound, and yen “bills” to large coinage.
Japan was the first major western economy to do so, retiring all “sen” coins (i.e. coins worth less than a yen) sixty years ago. Australia and Canada have since ceased minting cent and penny coins as well. And the Netherlands and Finland only produce tiny numbers of one cent and two cent coins for collectors, while permitting retailers to round cash prices to the nearest five cents.
Meanwhile, Britain first introduced a large coin with its “round pound” in 1983; it then withdrew pound bills from circulation five years later. And Canada followed with its “loonie” dollar coin, named after the loon bird which appears on it, in 1987. Like Britain, it withdrew its dollar bill from circulation two years later.
Indeed, many nations have opted to replace small change and paper bills with far larger coinage. But how have such proposals fared in the United States?
Susan B. Anthony to Sacagawea
From time to time, various parties in the United States have proposed to retire the penny from circulation. No such proposal has ever become law, though a pair of noteworthy efforts have resulted in the issuance of dollar coins.
In 1979, for instance, the United States Treasury began minting a coin with an illustration of the suffragist leader Susan B. Anthony. And in 2000, it began to issue a similar coin with an illustration of Sacagawea, a female native American who led American explorers Lewis & Clark across the frontier. Neither coin, though, captured the imagination of the American public, and paper dollars were never retired from circulation.
Surprisingly, though, the New York City subway system earned the admiration of currency administrators around the world when it successfully weaned commuters from token coins during a period of several years. But it opted to replace its small tokens with devices that resemble prepaid debit cards, not larger coins.
So why, considering this track record, is any one discussing an American trillion dollar coin?
The Fiscal Cliff
The rationale for such a coin can be attributed to the ongoing debates in Congress and the White House about America’s federal government deficit. Just two weeks ago, for instance, the entire government worked through the New Year’s holiday to avoid a “fiscal cliff” of expiring tax benefits and proliferating spending cuts.
By no means, however, was this fiscal cliff an isolated incident. Two summers ago, the federal government almost shut down over a dispute about expanding its borrowing limit; Standard & Poor’s downgraded the credit rating of the United States government as a result of that debacle. And a similar borrowing limit debate is expected to recur next month.
So how would the issuance of a trillion dollar coin resolve this situation? Well, if the federal government could no longer borrow money to finance its operations, it could instead produce a single collectible platinum coin with a stated value of $1 trillion. It could sell the coin to the Federal Reserve Bank of the United States for $1 trillion. And it could then utilize the $1 trillion to finance its operations.
But how could “the Fed” secure $1 trillion to purchase the coin? Simply put, the Fed could borrow $1 trillion from the very same parties that have always loaned money to the federal government.
Three Shells And A Pea
Have you ever witnessed a game of “three shells and a pea”? Also known as “the shell game,” it involves the shifting of a pea (or a coin, for that matter) from one overturned shell to another. Participants wager on their own abilities to follow the location of the pea as it passes from shell to shell.
Is this trillion dollar coin scenario not a shell game? The coin itself is analogous to the pea. And the federal government and Federal Reserve Bank are analogous to the shells.
Nevertheless, most astonishing of all may be the fact that American ingenuity is now focusing on the development of such games. Why not focus, instead, on eliminating the budget deficit through economic growth?