OUR MONEY'S WORTH

One morning, my daughter tiptoed into my room holding my iPhone, woke me up and asked me – in my groggy state – to buy her a $3.99 video game. All it took was my thumbprint on the screen before I was back to sleep and she was zipping around a Space Explorer game from Sago Mini.  

This kind of monetary transaction didn’t exist when I was her age. In the 1980s, we used cold hard cash to buy our baseball cards and bubble gum – not Apple Pay, PayPal, eBay, Venmo, Bitcoin or any of today’s other cashless payment systems. 

What happens if cash vanishes completely? I decided to seek some answers with my 6-year-old, Cate. We set out on a triangular road trip from New York to the U.S. Mint in Philadelphia, the Bureau of Engraving and Printing in Washington, D.C., and back to New York to examine how old-fashioned money is made – and maybe gain some insights about the future of currency. 

“What do you know about money?” I asked Cate.

“I know that money can help you buy stuff. But I like that it can help people get well, or you can donate money to someone. That’s pretty nice.”

Where does money come from? “It comes from a money factory ...”

So, Cate, do you want to go see the factory where they make money? “Yep.”

CITY OF BROTHERLY COIN Driving on the New Jersey Turnpike to Philadelphia, I reflect on my current relationship with cash money – both coin and paper currency. On the way, we stream our favorite kids music via the Pandora app from my iPhone through our car’s stereo. It costs nothing. 

In New York City, some coffee shops, restaurants and other businesses don’t accept paper currency anymore. Instead, you pay by swiping a credit card or waving your phone with its QR code past a scanner at the checkout. An electronic system automatically emails you a receipt. Most of my bills are paid automatically with bank transfers. I’ve synced up credit cards to Apple Pay and PayPal for some transactions. My subscription services like Netflix are paid by automatic withdrawal. Less and less do I find myself getting cash from ATMs, and
I rarely carry coins. 

On the drive to Philly, my E-ZPass allows me to breeze through tollbooths quickly, avoiding the need to chuck a fistful of coins into the basket (which one occasionally misses). And when I park my car in cities, I rarely need change to feed into meters or parking garages. They take plastic, too. 

A newspaper used to cost 25 cents, but inflation has sent prices as high as $4 a copy. It seems that quarters buy less. Smaller coins like nickels and pennies buy almost nothing. I start to wonder if coins are becoming somewhat of a nuisance, more about nostalgia than necessity.

A short jog from Independence Hall in downtown Philadelphia is the massive concrete structure known as the U.S. Mint, the largest coin factory in the world. The 1970s Brutalist architecture projects safety, security and resilience. 

Tim Grant, a spokesman for the Philadelphia Mint, meets my family at a side entrance, and Cate immediately begins asking questions. 

“Is this where they make money?”

“Yes,” says Grant, grinning. “It’s where we make the coin money that lasts. We don’t make that paper money that rips and gets destroyed.” 

The U.S. Mint operates under the Department of the Treasury, manufacturing our national coinage at six sites across the country. Denver makes circulating coins and ships them to branches of the Federal Reserve west of the Mississippi River, and Philly makes and ships coins to branches east of it. Mints in San Francisco and West Point, N.Y., make special collectible coins. The Mint also has a headquarters in Washington, D.C., and the U.S. Bullion Depository in Fort Knox, Ky. 

The United States has been making coins in Philadelphia since 1792, when Congress passed the Coinage Act so the young nation could make its own rather than using foreign coin. Today, about  450 people work at the Philly mint (down from about 1,000 in 1985) in three shifts, producing more than 30 million coins a day. 

We see how artists at the Mint painstakingly carve designs into coins. We also see 600,000 square feet of manufacturing space, where the mint converts 5-ton coils of copper and nickel into currency. Large computerized cutting machines etch coin designs into pieces of steel die. 

Inside a large coin-punching room, I spot a huge satchel full of metal coins. Feeling a bit like Scrooge McDuck, I scoop up fistfuls of unmade quarters, letting them slip through my fingers and drop back into the giant coin purse. Clink, clink, clink!

“These are coins from the United States, so we want them to be perfect,” Grant says. “Our coins are used around the world, so we want to be high-quality.” 

Coiled metal threads through the machines, getting stamped into blank coins and scrap metal. A sign says, “Beware of coins falling overhead.” 

The blank coins go into a furnace, the first phase of being converted into the money we recognize. A machine pummels the word “Liberty” onto dimes along with other symbols of our democracy: an eagle, shields, faces of presidents, a torch, leaves. Law requires that the words “Liberty,” “In God We Trust” and “E Pluribus Unum” (Out of Many, One) appear on all circulation coins. 

In essence, the Mint stamps value, currency and even meaning into the blank metal. That’s because our coins are not “representative currency” that can be exchanged for a fixed amount of gold or other commodity. Rather, after President Richard Nixon unhooked America’s gold supply from our currency in 1971, our money is “fiat currency.” That means it holds value simply because people have faith that other parties will accept it. 

As I watch this veritable money factory in action, I wonder what happens if coins disappear. Without physical money, will future generations have fewer reminders about our nation’s mottos, symbols, presidents and history?

A 2019 silver dollar design features an astronaut helmet on the front of the coin and an astronaut boot on the back. Grant also tells me about the upcoming American Legion centennial coin set, authorized by Congress in 2017. It includes a gold piece, silver dollar and clad half dollar, and is scheduled to go on sale in March around the time of the Legion’s birthday. Surcharges from the sales benefit the organization’s programs and services.

In its most recent annual report, the Mint reported $2.6 billion in revenue overall in 2017, down 65 percent from $4.3 billion in 2013. Just over half of that revenue – $1.3 billion in 2017 – comes from producing gold and silver bullion coins that people buy for their intrinsic metal value. Numismatic, or collectible, coins brought in 15 percent of revenue in 2017, or $388 million. Plenty of people desire coins for their bullion or collectible designs, rather than just symbolic minting.

In other words, coin collectors help pay for the salaries, upkeep and other expenses of the Mint, helping it transfer $269 million back into the Treasury’s general fund in fiscal 2017. This profit made by a government issuing currency is called “seigniorage.” It is the difference between the face value of coins and their production costs.

KEEP THE LINCOLNS? Regular circulating coins bought in 33 percent of revenue, or $872 million, in 2017. The Mint shipped 13.7 percent fewer coins in fiscal 2017 compared to 2016, which is not a positive sign. If costs of metal rise or other adverse factors emerge, the seigniorage of the government could be threatened. For now, seigniorage per $1 issued is holding steady, with the Mint making nearly 45 cents per every $1 of coinage issued. Pennies and nickels caused $89 million in losses for the Mint in 2017; dimes and quarters brought in $484 million. 

Some argue that pennies and nickels are a waste of valuable metals such as zinc, nickel and copper. Pennies cost more to make than they are actually worth, which means the federal government could trim deficits by eliminating low-value coins. Some nations have already retired their pennies; Canada stopped making them in 2012, and New Zealand no longer mints 1-, 2- and 5-cent coins. 

“Why not save the U.S. taxpayer the millions of dollars wasted on producing pocket ballast of no practical use?” wrote Henry Aaron, a senior fellow in economics at the Brookings Institution, in a recent Wall Street Journal op-ed. 

The late Sen. John McCain, R-Ariz., and Sen. Mike Enzi, R-Wyo., introduced a bill in 2017 to eliminate the penny, move to a $1 coin and generate, they argued, $16 billion for taxpayers. President Barack Obama threatened to get rid of the penny during his 2008 campaign. The lobby for metals like zinc and nickel, along with the vending machine industry, defeated such proposals.

Ohio State University economist Jay Zagorsky believes keeping the penny bolsters confidence. “When people lose faith in a country’s currency, it becomes valueless,” he wrote in The Wall Street Journal. “Eliminating the penny and nickel might suggest to the world that the U.S. currency is no longer strong and secure.”  

HOT OFF THE PRESSThe next day, I drive from Philadelphia to Washington, D.C., arriving just in time for a tour at the Bureau of Engraving and Printing (BEP), a huge Neoclassical building where paper money is printed.

President Abraham Lincoln signed a bill to establish the BEP in 1862. Today BEP cranks out 38 million notes per day for its main customer: you guessed it, the Federal Reserve. All that currency is produced in D.C. and Fort Worth, Texas.

The Treasury Department oversees the BEP, and the latter boasts similar rhetoric as the Mint about creating top-quality currency that reflects the position and pride of the United States of America. 

The United States uses three colors to beat counterfeiting. With 10 tons of weight, presses stamp the Treasury and Federal Reserve seals onto sheets of notes, which are cut and stacked into bricks of 4,000. They’re then shrink-wrapped into plastic packs of 16,000 notes and shipped to the Fed, where they become, in effect, real money. 

As you stroll with other tourists on catwalks overlooking the printing presses, you learn that roughly $300 million in bills are spreading, drying and stacking in this facility at any one time.

Engravers at the facility apprentice for 10 years to become experts in numbers or letters. Staff work at offset presses feeding in sheets to make $10 and $50 bills. The sheets dry for three days, and quality control departments use people and machines to inspect watermarks and other anti-counterfeit measures. If the currency doesn’t pass inspection, it goes to a shredder. 

Workers then fold, flap and inspect the bundles a final time before they are packed, shrink-wrapped and shipped to the Fed, which monetizes the currency (turning each bill from 5 to 10 cents in value to the actual printed value), and then on to local banks. Monetizing the currency means writing down every serial number, activating the money. 

“As a country, we are constantly replenishing our worn-out money,” our guide says. This is a concession that cash becomes physically frail over time. However, he doesn’t address the bigger elephant in the room: technology. 

More payments are migrating from cash and checks to prepaid gift cards, PayPal, mobile methods and digital currencies. World Bank Global Findex data shows 92 percent of Americans used non-cash payment in 2014, with even high rates of non-cash payments in other developed nations such as Sweden, Canada, Britain and Australia. This is because people have been using more debit and credit card payments in recent years, and because smartphone apps such as Apple Pay and Google Pay are faster and easier to use – and, in many cases, have lower transaction costs. Experts say mobile banking apps are more secure than other apps because they incorporate biometric security, geolocation technology and other tools that minimize fraud. 

“Fingerprint or retina technology might ultimately become the ‘chip’ used by many consumers,” writes Tom Miller Jr., a Mississippi State University professor, in a Wall Street Journal essay. He notes that Visa is testing a payment ring that users wear on their finger. “These technologies might end up being superior to what we have now in terms of security and convenience.”  

CASH AS CONTROL Economist John Maynard Keynes criticized the gold standard and the idea of hard currency. And in 2017, Harvard University economist Kenneth Rogoff wrote a book titled “The Curse of Cash,” making a case for phasing out paper money completely. Former Federal Reserve chairman Ben Bernanke praised the book. 

Some critics argue that cash is too often an accessory to crime. The European Central Bank plans to stop making Euro 500 notes, nicknamed “bin Ladens,” because lawmakers think they are primarily used by criminals. Similarly, some advocate eliminating the $100 bill in America, the 50-pound note in Britain and the 1,000-franc bill in Switzerland. A cashless society also makes tax evasion more difficult. 

 “The critics are right that cash’s availability as an alternative to formal bank accounts is a challenge to policymakers,” writes Joseph Sternberg in The Wall Street Journal. But banning cash or eliminating large bills is not the answer, he says. “That would amount to bludgeoning voters with yet another consequence of the political class’ policy failures.” 

Cash is voters’ primary means of asserting some control. Others note that the poor and disenfranchised have a harder time accessing bank accounts and the Internet. Going cashless creates more central control and threatens to further disenfranchise the poor. It’s worth noting that 2 billion adults in the world were still using cash with no bank accounts in 2014. (That same year, roughly 30 percent of Americans didn’t have  credit cards.) 

For these reasons, I believe cash will become more rare in the United States and other developed nations, replaced by digital payment methods, but we won’t lose it completely. Cash will be with us – even in limited capacity – as tangible
reminders of the actual value of currency upon which our economy and transactions are based.

To be sure, after our journey, I asked Cate about the longevity of physical money. “We will always use it,” she says.

Paul Glader is a professor and director of the John McCandlish Phillips Journalism Institute at The King’s College in New York City.