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Money Getting Funnier?

If you haven't heard, there's yet another Susan B. Anthony-sized coin coming out. There's an interesting if opaque statement at the end of this article about the Mint's accounting difference between paper currency and coins.

When a dollar coin is issued, the Mint “earns” the difference between its production cost and face value — now about 80 cents. If a collector saves the coin, another must be issued to replace it.

A banknote, since it is redeemable, counts as a government liability, and the Federal Reserve has to back it by buying securities, which earn interest. According to the Fed, there are now about eight billion dollar bills in circulation, so that interest income is considerable. Coins do not yield such income.

I'm a little thrown by who exactly is earning this "income" (investors in T-bills or some other instrument, I imagine), but I think what they're saying is that paper currency represents a government liability on the books (and in the financial markets) but that coins are just "sold" to the public (at far higher than their intrinsic value). It's a strange distinction only partially justified by the longer circulating life of coins--yes, a coin may circulate for 30 years, but it can't depreciate, and it's engineered never to have its intrinsic value exceed its face value, so it's not really an "ownable" commodity.

This seems like an insignificant technicality until you consider the recurring push to eliminate the dollar bill. In that case, literally billions of dollars would switch accounting columns from "redeemable" to "other," essentially allowing the government to "print" more money off the books. From this perspective, it's shocking they haven't done it already.

posted by Rich @ 2/15/2007 11:05:00 AM