The Real Diehl is a weekly column by former United States Mint Director Philip N. Diehl, exclusively for CoinWeek ………..
This is the third in a series of articles in which I give readers an insider’s view of how Washington, DC, works (and doesn’t work) from my perspective as director of the U.S. Mint.
The story of the Sacagawea dollar is relevant, today, not just because it’s an interesting piece of our history, but also because it’s a window into how Washington, DC, works, and doesn’t work.
I’ve been around politics and government much of my career, in senior positions in the U.S. Senate, the Treasury Department, political campaigns, opinion polling, and in business. I’ve seen politics and government from all angles, and the story of the Sacagawea dollar captures the political process in a microcosm.
As described in my first article about the Sacagawea dollar, the Susan B. Anthony dollar was an abject lesson in how not to do a dollar coin. The SBA failed because Congress and Treasury ignored the recommendations of a Treasury-commissioned study by the Research Triangle Institute.
Why did they ignore this study? Because nobody in a position to make a difference was committed to making the SBA a success. (Our experience with the Sacagawea dollar and the 50 States Quarter program is testament to how difficult it is to get things right.) So, the coin that was ultimately produced, the SBA, was both unattractive and easily confused with the quarter, and the dollar bill was left in circulation. The final nail was hammered into the coffin when the SBA became wrapped up in partisan politics.
When Senator Rod Grams (R-MN) proposed another attempt in 1995, his staff did not consult the people who understood the causes of the SBA failure and would be responsible for making the new coin a success. Consequently, his proposal had several flaws, any one of which would doom the effort.
These are recurring themes in Washington. Partisanship obstructs sound policymaking. Knowledge crucial to the success of a program is available but ignored, for political reasons or due to a failure of leadership.
Most importantly, lobbyists and campaign contributions drive congressional policymaking. I am not naïve; money has always been in politics. But, today, money speaks so loudly it drowns out all other voices, with the possible exception of partisanship and ideology. Until we corral the power of money in politics, we will not fix what is broken in Washington.
The nation needed a functional dollar coin in 1979, just as it does now. When the Research Triangle Institute recommended minting a new dollar coin in 1976, a dollar was worth four times what it’s worth today. Or said another way, the purchasing power of a dollar today is equal to a quarter in 1976. Because the dollar coin does not circulate, the quarter is left as the workhorse of American coinage. It is worth little more than what a nickel was worth in 1976.
We have allowed U.S. coinage to slip into irrelevancy.
The highest value American coin in use, today, the quarter, is worth 13 times less than the UK’s two-pound coin, 11 times less than Europe’s two-euro coin, and 7 times less than the Canadian two-dollar coin, all of which circulate.
This is a sad state of affairs considering the illustrious origins of American coinage. Thomas Jefferson was outlining his ideas for American coinage about the same time he was drafting the Declaration of Independence. He envisioned a crucial role for coinage in the democratization of America. From Jefferson’s vision came our decimal coinage system, which he designed to simplify commercial transactions for the common man.
When President Washington appointed him the nation’s first Secretary of State, Jefferson made adoption of his coinage system and the founding of a national mint a top priority. When Congress wrote legislation creating the U.S. Mint, Jefferson insisted the Mint be place in the State Department rather than in Treasury, where it more sensibly belonged.
When it came to selecting the first director of the Mint, Jefferson persuaded Washington to nominate David Rittenhouse, a renowned scientist, inventor, mathematician, and scientific instrument maker, and a member of the American Philosophical Society. Jefferson considered Rittenhouse to be the American Isaac Newton.
And when the Mint struck the nation’s first silver coins, Martha Washington is said to have donated part of her household silver to the melting pot.
How is it that our coinage system remains stuck a century behind the rest of the Western world? Answer: the U.S. Constitution and interest group politics.
The Constitution gives Congress authority over coinage, and Congress exercises that authority to the nth degree. In most of the rest of the world, coinage matters are left to officials in central banks or the finance ministries, who do not stand for election. Therefore, their decisions are insulated from the politics that paralyzes efforts to modernize U.S. coinage. In every case, these other countries ensured the success of their new high-denomination coins by withdrawing the comparable bank notes—the crucial step we in the U.S. seem unable to take.
As a result, a dollar coin inevitably faces opposition from Crane Paper, which produces the paper on which our currency is printed. Between two and three million dollar bills are printed each year, about 45% of all bills produced, annually. Dollar coin legislation is a threat to this revenue stream for Crane.
Also, as I was to discover when we were planning to launch the Sacagawea dollar, many banks and the Federal Reserve are hostile to a dollar coin. Since the Fed and the banks is the sole channel by which the Mint supplies coins to the public, their recalcitrance is a great obstacle to success. I’ll address this matter in more detail, later.
After Senator Grams’ dollar coin bill died, I met with Representative Mike Castle (R-DE), chairman of the House Banking subcommittee with jurisdiction over coinage. We crafted new dollar coin legislation that accommodated the Mint’s requirements and gave us a fighting chance to produce a coin that would circulate in commerce, despite the fact Representative Castle’s bill did not require withdrawal of the dollar note.
While the new coin would be the same size as the SBA, it would be gold-colored with a smooth edge and a wider border to make it more easily distinguished from the quarter than was the SBA. The legislation also required the coin to have the same electro-magnetic signature as the SBA so that it would immediately work in vending machines that accepted the SBA. This was a complicating factor for the Mint since we didn’t know what alloy would meet those requirements and be suitable for mass production and long-term usage in commerce.
But, with the dollar bill remaining in circulation, we knew designing a dollar coin that was easily distinguishable from the quarter would be insufficient to give it a fighting chance to gain a foothold in commerce. We would need to create a coin that strong public demand would pull it into commerce in a way no other dollar coin had achieved.
Then we hit a brick wall.
I’ll get to that in a future article.
Philip N. Diehl was the 35th Director of the United States Mint and a former chief of staff of the U.S. Treasury. He has written about gold markets for The Wall Street Journal and Institutional Investor and currently serves on the boards of the Industry Council for Tangible Assets, the Coalition for Equitable Regulation and Taxation, and the Gold and Silver PAC. He was recently named president of U.S. Money Reserve. Be sure to check out Philip’s blog.