WASHINGTON - The latest assault on the U.S. dollar comes not from currency traders but from cost-cutting legislators.
The House Banking subcommittee on domestic and international monetary policy, headed by Rep. Michael Castle, R-Del., takes up legislation today that supporters say would save the government hundreds of millions annually by replacing the dollar bill with a coin.
"There will be tremendous savings," says the sponsor, Rep. Jim Kolbe, R- Ariz.
But savings for the government may mean higher costs for banks, which will have to buy new coin-handling equipment and pay higher charges for transporting currency, according to Kawika Daguio, a lobbyist for the American Bankers Association, which opposes the coin bill.
Old Kent Bank, Grand Rapids, Mich., for example, has spent nearly $1 million in recent years for automatic coin dispensers, said David Kerstein, head of retail banking.
If the coin bill passes, "I'm sure that our currency and coin equipment would have to be retrofitted," he said.
Banks also would bear the public relations costs of putting dollar coins in the hands of American consumers, who spurned the Susan B. Anthony dollar coin over a decade ago, Mr. Daguio added.
"This would be government doing something (to save money) that would increase costs to private industry," he said. "And it's not something the public particularly wants."
But vending machine manufacturers, amusement park operators, public transit agencies, copper companies, and organizations representing blind people want the coin. A lobbying group, the Coin Coalition, is leading the charge on the dollar.
The dollar bill is obsolete, they say, devalued by inflation, costly to produce, and ill-suited to a world where everyday transactions are increasingly conducted with machines that don't operate easily with paper.
Opponents, led by sellers of the paper and ink used to make bills, dispute these claims and warn that the coin would fuel inflation by encouraging vending machine operators to raise prices above the dollar mark.
Rushing to defend the greenback in Congress are Sen. Trent Lott, R- Miss., and Rep. Thomas Davis III, R-Va. Each has introduced legislation that would preserve the paper dollar.
"None of us really want to see a repeat of the Susan B. Anthony drama," Sen. Lott said in a statement, noting that over 300 million unwanted "Susies" languish in government warehouses.
Coin backers insist that the public will accept the dollar coin this time, provided that the dollar bill does not remain in circulation, as it did when the Susan B. Anthony dollar was introduced.
"If you pull the dollar bill, it's got to work," said James Benfield, executive director of the Coin Coalition.
The hearing scheduled in the House Banking subcommittee on domestic and international monetary policy represents a step forward for the coin forces. Previous dollar coin proposals never got hearings.
"I think we will see action on this proposal this year," Rep. Kolbe said, noting that a majority of the House has in the past expressed support for the dollar coin.
The fate of the proposal may rest in large part on the outcome of the debate over the potential cost savings from the coin. According to the General Accounting Office, the coin would save the government $395 million annually. The Congressional Budget Office pegs the savings at only $100 million over five years.
The agencies agreed that currency production costs would decline with the coin, which costs more to make but is expected to last for 30 years. Bills wear out in a year and a half.
Part of the difference in savings estimates arises from seigniorage, the practice of crediting the government's bank accounts with an amount equal to the difference between the cost of minting coins and their face value. These credits reduce the federal deficit and thereby save interest payments.
The GAO estimated that seigniorage from the dollar coin would save $430 million in interest annually. CBO rules prevent it from recognizing interest savings from seigniorage, but an analyst at the agency acknowledged that such savings are real.
Coin opponents dismiss seigniorage as a budgetary charade.
"Seigniorage is an accounting device that has nothing to do with the size of the deficit or anything else," said former Federal Reserve Board member Andrew Brimmer, a consultant to the Save the Greenback Coalition, a lobbying group fighting the dollar coin.
Mr. Cahill writes for Medill News Service