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Looking for Budget Cuts? Maybe We Should Stop Printing Paper Money

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Production of $1, $5 and $10 dollar bills dropped significantly in 2010. According to data from the US Bureau of Engraving and Printing, reported in the New York Times, production of $1 bills fell to a modern low, $5 bills to a 30-year low, and $10 bills were not produced at all. This downward shift was balanced out, to some extent, by an increase in the making of hundreds and twenties.

Interestingly, the US Mint’s 2010 report features almost the opposite pattern: production of pennies and nickels went up in the last year, while the number of higher denomination coins went down. While currency production varies from year to year based on demand and a number of other factors, these shifts do point to a couple of larger trends.

First off, the Mint’s report suggests that decreased demand for new coins relates to decreased economic activity. The report states that demand for new coins went up in the second half of 2010, as increased retail activity reduced coin inventory. If the data from the Mint is accurate, then shifts in the second half of 2010 may signal a slight economic recovery.

Data from the US Bureau of Engraving and Printing also suggests that decreased production relates somewhat to the economic downturn. Production of lower denomination bills has trended downward steadily since 2007. The fact that it continues to do so, however, may be related to another trend: a move away from cash.

That possibility -- that the increased use of secure e-payment technologies is significantly reducing the share of payments made in cash -- was fully explored in yesterday's Times article. Although the reporter acknowledged that data on cash usage is difficult to come by, he did point to some statistics, as well as a decent amount of anecdotal evidence, that suggest decreased use of bills and coins.

Statistically, the most convincing evidence comes from these numbers on the percentage value of cash in circulation as a part of the nation’s economic activity: “In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.”

The Times also interviewed a number of people who try not to use cash at all, and reports on some businesses that have become cash-free. The article makes it clear that the death of paper and coin money is still a long way away, but there's ample evidence to suggest the shift is happening.

The idea that cash has lost its regal status is also the focus of a forthcoming book, The End of Money, by David Wolman. The book isn't due out until next winter, but a preview of Wolman's arguments appears in this 2009 Wired article, in which the author lists several reasons that the U.S. government should get out of the money printing business all together. Among his reasons, "it ain't money for nothing."

He says:

"The cost to taxpayers in 2008 alone was $848 million, more than two-thirds of which was spent minting coins that many people regard as a nuisance. (The process also used up more than 14,823 tons of zinc, 23,879 tons of copper, and 2,514 tons of nickel.) In an era when books, movies, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let's dump it."
Well, as long as we're looking for places to cut....
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