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The E-Sylum:  Volume 11, Number 11, March 16, 2008, Article 20

DICK JOHNSON: STEEL CENTS WON'T WORK!

[Dick Johnson submitted the following open letter to Congress,
Treasury and Mint officials with his thoughts on why steel
cents won't work.  -Editor]

Gresham's Law is still in force. Steel cents will drive out
all existing copper and copper-coated zinc cents from
circulation. Speculators will quickly recognize why you
changed composition: all existing cents are worth nearly two
cents now, and the value of their metal content may only
increase in value in the future. The Treasury ban on melting
coins is only in force in this country. Chinese will pay a
premium for those coins to take them to China to melt them
there.

With all existing cents removed from circulation you won't
be able to strike steel cents fast enough to replace, what,
100 billion cents in circulation. It will take years.
Meanwhile you will have only made the problem worse. And
the problem is twofold: the rising costs of coinage metals
-- which you are addressing in this proposed law -- and the
lowering economic value of the cent. You are attacking the
symptom, not the sickness. You are being reactive, not
proactive.

The proactive, reasonable solution is to listen to Francois
Velde, chief economist at the Chicago Federal Reserve Bank.
His solution: revalue all existing cent coins to five cents.
You can do this by fiat overnight. Then round off the final
price at every transaction to the nearest five cents. Canadians
call this rounding off the "tally price" as they are
considering abolishing their cent coin.

Velde calls this action "rebasing." It has already worked in
a half dozen countries that have abolished their lowest
denomination coins. Australia and New Zealand were the first
to do this with great success, both in the cost savings of
not striking and handling low denomination coins, and the
public's acceptance of rounding off to the nearest five or
ten cents.

A hearing was held in the House of Representatives last
Tuesday, March 11, 2008. chaired by Rep Luis Gutierrza
(D-Ill). It was considering the proposed law "Coin
Modernization and Taxpayer Savings Act of 2008." This act
calls for cents to be struck in steel, a position favored
by Mint Director Edmund Moy, and calls for this to begin
180 days after signed into law. This would be a mistake.
" target="_blank">Full Story
Here is one of dozens of news stories on this hearing:
Full Story

[Arthur Shippee forwarded this link to a national public radio story. On the
same topic. Full Story-Editor]

  Wayne Homren, Editor

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