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The E-Sylum:  Volume 10, Number 4, January 28, 2007, Article 12

FRANCOIS VELDE'S STUDIES ON SMALL CHANGE

Dick Johnson writes: "My proposal to revalue the cent was published
in this newsletter September 25th of last year. On Monday this week
Reuters carried a news article on the same subject. The Chicago
Federal Reserve Bank’s senior economist, Francois R. Velde, has come
to the same conclusion!

"The news article was based on the "Chicago Fed Letter" for February
2007 that was written by Mr. Velde. Its title: "What’s a Penny (or
Nickel) Really Worth?" This monthly letter is published by the Research
Department of the Chicago Federal Reserve Bank, of which Mr. Velde is
a research member.

"Economist Velde has written on the subject before. He wrote a similar
Chicago Fed Letter for October 2006 on "Solving the Problem of Small
Change." He is also the author, with Thomas J. Sargent, of "The Evolution
of Small Change," published December 1997 (see recommended website below).
But even more impressive is the Princeton University Press book, "The
Big Problem of Small Change" published in 2002, also co-authored with
Thomas Sargent.

"With this extensive research -- much of it in numismatic literature! --
the authors have studied monetary systems of the past. But their clear
thinking has brought Velde to the same solution I offered for the rising
costs of minting cents – revalue existing cent coins, abolish striking
more, and round off cash transactions. He used a delightful term for
this, "rebasing" he calls it.

"I contacted Mr. Velde this week. One of my early questions was how
does 'rebase' differ from 'revalue?' 'It doesn’t,' he said. I asked
how would you answer critics who say that those who have large quantities
of cent coins would receive an unearned profit?

"His answer is important (note well if you own bags of cents!): 'Call
them capital gains. Right now, we (as taxpayers) are all making a loss
on the pennies and nickels that the mint produces. Capital gains for
some seems better than losses for everyone.'

"There is a difference between my plan and what Velde purposes. He wants
to rebase cents alone (although he stated the thought of rebasing nickels
had occurred to him). My plan is to revalue both cents and nickels at
once – all at one time – in a master plan of reconfiguring all U.S. coins.

"Velde concurred somewhat.  He said: 'It looks like the nickel is on its
way out as well.' But, he adds, his views are his own and do not reflect
the opinions of the Chicago Federal Reserve Bank or the Federal Reserve
Banking System.

"The average U.S. household has on hand about $30 worth of change, cents
and nickels. My revaluation plan would result in this automatically worth
$300. This despite, as Velde points out, "since 1982, the Mint has
produced 910 pennies for every man, woman, and child in the U.S. It
estimates that 100 billion pennies currently circulate." Those 100
billion cents would suddenly be valued at $10 billion. Interestingly,
it would be spread out over every citizen, bank and retail outlet in
America."

  To read my original proposal:
  DICK JOHNSON'S DRAMATIC SOLUTION TO THE RISING COST OF CENTS
  esylum_v09n39a13.html

  To read the Reuters news article: Full Story

  To read the February Chicago Fed Letter:   Full Story

  Wayne Homren, Editor

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To submit items for publication in The E-Sylum, write to the Editor 
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