Common Cents # 27

 

Coins

 

An interesting current topic of conversation is about a “cashless” society and what that means to the average consumer.  We’ve heard during this time of Covid-19 about coin shortages that have made cash transactions challenging for buyers and sellers alike.  The government has not stopped minting coins, but people have not been using currency in person at the same rate as before.

Almost immediately after humans began trading with one another, there was a need to keep track of who had done what for whom. The idea of using rare metals such as gold, silver, and copper to keep score soon surfaced as ideal. Since it was hard to weigh and check metals for purity with every transaction, people in authority, such as a king, began stamping the metal, verifying the weight and purity. That is an extremely abbreviated history of coins.

Since the beginning of civilization, every culture has used some sort of coins. Today, all of the coins used in the United States are stamped in either Philadelphia or Denver. We visited the Denver Mint last summer and learned that it costs about two cents to make a penny and about ten cents to make a nickel. The mint sells the coins to the Federal Reserve Banks at face value. Fortunately, there is more profit in dimes and quarters, so the mint basically breaks even in the coin business. If the mint were a regular business, they would be getting out of the penny and nickel business and begin pushing for dollar or even five-dollar coins where there is more profit to be made.

We know that maintaining small denomination coins costs the government billions, but I have not seen any studies that try to understand how much money businesses could save if we rounded all transactions to one decimal place instead of two. Many other countries have dropped their small value coins with good success. In some countries, the smallest coin is worth about twenty-five cents.

Paper money has a different history and traces its roots to bank notes, certificates issued by banks that say that they have the money that the paper represents.

Today, the vast majority of financial transactions are done without coins or currency, but with direct transfers using debit or credit cards, electronic funds transfers, direct deposits and so forth. Checks are just another way to authorize direct transfer of money. When businesses accept plastic for merchandise, the funds are automatically deposited in their bank accounts, they then pay suppliers, employees, and the rent with online transfers and direct deposited payroll. This is a much safer and quicker method than handling cash. Few business owners enjoy carrying a bag of cash to the bank while watching over their shoulder for someone who has learned their routine. Hitting a button on the cash register or computer and seeing the number appear in their bank account is much less stressful.

In the current era of a highly contagious disease, handling paper or metal currency appears to be an unnecessary risk compared to just inserting a piece of plastic in a machine. The need to carry around pictures of dead presidents and worn out pieces of metal is rapidly declining. The downside of electronic money is the need to keep track of how much we have. As individuals and families, we need to have good record keeping habits to know how much money we have made, how much we have spent, and how much we have left. That was probably easier in the old days when we could just reach in our pockets and count out the cash.

We also must consider, though, that many people in our county still rely strictly on cash for their daily lives and they must not be shut out of this economy by businesses who refuse to accept cash as a method of payment. 

Even though the physical ways we get paid and spend money are changing, the fiscal ways of handling money have not changed. We still need to spend less than we make and invest the difference. That is all there is to it.