Posted on 02/01/2012 6:46:31 PM PST by opentalk
Sens. John McCain (R-Ariz.) and Tom Harkin (D-Iowa) have introduced legislation that would permanently discontinue the $1 dollar note and replace it with a coin.
Harkin and McCain penned The Currency Optimization, Innovation and National Savings (COINS) Act in response to reports from the nonpartisan Government Accountability Office (GAO) that indicate that abandoning the note could save around $5.5 billion over the next 30 years. Specifically the COINS Act would require that Federal Reserve Banks discontinue the $1 note four years after enactment or once circulation of $1 coins exceeds 600 million annually.
(Excerpt) Read more at thehill.com ...
Putting a gram of silver into a coin would level set the dollar just a bit upwards and fix it to the price of silver. So long as a paper ten dollar bill could be exchanged for ten such coins at the bank, we will have real money for the first time in about 45 years.
I disagree. We had that system in 1964 - you had X number of grams of pure silver in each dime, quarter and half dollar. They were all freely exchangeable for paper dollars. Yet, Gresham's law has caused the hoarding of virtually all of them (a very few are still out there). This is because we printed too many of the bills (among other sources of monetary creation), causing the price of silver to climb above $1.29/oz., at which point the metal content of those pre-'65 silver coins became worth more than the face value of the coins themselves. Setting the price at $31.10/oz. (the implied price if a dollar coin has 1 gram) would be just as meaningless, just at a significantly higher level. You MUST have the number of dollars created under control (i.e. no growth except that which reflects the growth in productivity) if you want to maintain a stable price for silver, and thus have the coins staying in circulation.
I disagree and will demonstrate. I know of several establishments where if I take a dollar’s worth of pre-1965 coins I can spend them at today’s silver rate based upon their content. The operating logic is that the “dollar” I am spending, call it an AG-dollar is directly related to silver. Gresham’s law actually proves my point. So long as the government issues silver alloy coins and agrees to trade one-for-one for the face value of bills (i.e. Ten silver alloy coins for a paper ten spot) the value of US currency will be tied to the market rate of silver. It would immediately increase the purchasing power of the dollar
So what happens if the government prints 10 times the number of paper dollars without a corresponding increase in the amount of silver-containing coins? The same thing that happened in 1965 - the silver-containing coins get yanked out of circulation by ordinary folks as the price of silver rises to the point where the silver content is worth more than the face value of the coin.
I think that what you are saying is that the purchasing power of the silver-containing coin will remain constant - and there I basically agree with you (unless the supply of silver suddenly jumps or declines). However, without the supply of paper currency somehow limited such that the "reserve ratio" of silver to paper remains roughly constant, then the paper dollars will lose value compared to the coins containing silver.
The premis behind the silver alloy dollar coin is that the mint will continue to offer them one-for-one for paper bills. Once the mint stops that practice the situation reverts to Gresham’s law. As long as the mint continues that practice, our dollar is backed by silver and remains strong and sound.
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