Tuesday, May 5, 2015

We Need a 21st Century Currency


If you were a business, would you spend ten cents to produce something that was worth only five?  Would you spend two cents to produce something worth only a penny?

Who on earth would make such poor decisions?  The U.S. Government, that's who!  Indeed, the government does spend two cents to produce a single penny and ten cents to produce a single nickel. (*1)  Talk about "wasteful government spending"!

Due to inflation over the many decades, we need to update our currency for the 21st century.
First, we need to reintroduce the $500 bill.  In 1969, the Bureau of Engraving and Printing discontinued producing these bills as well as those larger, "due to lack of use." (*2)  Another reason for stopping circulation of these larger bills was in the fight against organized crime.  The idea being that if $100 was the highest denomination, it would be more difficult to ship millions of dollars in cash somewhere.

However, this was done nearly a half-century ago and inflation since then has made the $500 bill quite feasible for use today.  In 1969, the average monthly household income was six $100 bills.  Today, the average monthly household income would be forty $100 bills (or eight $500 bills.) (*3)  (Retailer's cash registers rarely even carried $100 in total change back then!)

However today, consumers now need a conspicuous wad of bills to purchase things that are bought everyday.  Take automobiles, for example: if you want to pay cash for a $20,000 car, you need to show up with 200 single $100 bills that need to be counted. With a $500 bill available, it would only be 40 bills that need to be counted.

Even with a $500 bill, it would still be difficult for organized crime to move millions of dollars in cash secretly.  It would take 2000 individual bills to make one million dollars--hardly something that can be hidden in one's pocket!

Secondly, we should also discontinue the expense of making the $2 and the $20 bill.  They are simply not necessary. The ten-dollar bill and the fifty-dollar bill will work as well as one's and five's do today.



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Now to the touchy issue of coins:

Coins can be a tremendous value in the production of currency.  Although they can be twice as expensive to produce than paper bills, their lifespan is up to ten times longer.  The $1 and $5 bills are expected to last less than 6 years while coins last many decades (reducing production costs significantly.)

The problem with introducing new coins in the past is that the american consumer has proven that four different coins is all he or she is willing to carry.  The introductions of any fifth coin (the dollar or the half-dollar) were failures.

Still, the time has come to discontinue the penny and the nickel.  They are a complete waste of taxpayer dollars!

For those who are nervous about losing the few cents in change, remember that only CASH sales would be affected.  Pennies will still exist electronically.  Payments by credit, debit or check would be completely unaffected for the exact amount.  Generally, with cash sales, the consumer would be out zero to four cents.*   But remember, giving you that few cents in change is costing you TWICE that amount as a taxpayer!  If you want to pay the exact amount, simply use a check or plastic!

What will happen to these "extra cents" that merchants collect?

That should be up to each individual state.  48 states collect sales-tax now and have the infrastructure in place to collect this money already.  Perhaps a state will use the money toward education or sidewalks and roads.  Perhaps some states will let the merchants keep it.   However, adding a single line to a sales tax form that businesses are already used to is far better than requiring a new, separate form to be filled out for a brand new federal bureaucracy.

With pennies and nickels gone, we would only have dimes and quarters and potentially two spots for new coins.  The best use of taxpayer money would be to replace the penny and nickel coins with a dollar and $5 coin.  Millions would be saved annually in printing costs and we would no longer be spending twice the amount in production that pennies and nickels are worth!  Additionally, consumers wouldn't have to carry any more coins than the four they do now.



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Metal Lobbies & Political Viability:

One of the strongest forces against change in our coinage has been the metal lobbies.  They are afraid of lost revenue and lost jobs.  Will we need as many $1 and $5 coins as we need pennies and nickels? No, but these new coins will be guaranteed to be popular (there would be no other choice) and they would be larger in mass--requiring more metal to produce each one.  It might end up being close to "a wash" as far as metals purchased by the mint.

The author believes we should keep the flow of metals heading into the US Mint--there's absolutely nothing wrong with that.  We simply should do it without wasting taxpayer dollars!

21st century currency should sport four coins and four bills.  The coins should be: dime; quarter; $1; and $5 ("Fiver").  The bills should be: $10; $50; $100; and $500.  This solution is simple, cost effective, and finally takes into account the rise of inflation over our many years.


*(Unless the total is 1-5 cents over the exact dollar or first dime, in which case the loss could be up to 9 cents; ($5.01 or $1.11, for example.)  But remember, that 9 cents is costing you 18 as a taxpayer!)

SOURCES:
(*1) US MINT
(*2) http://www.moneyfactory.gov/uscurrency/largedenominations.html
(*3) http://www.davemanuel.com/median-household-income.php
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