Question for someone understanding Economics

What benefit would there be for the US Treasury when people hoard large amounts of currency ?
All these state quarters and the new presidential dollar series has got me wondering if there is an ulterior motive.
I am no where near educated in economics, so could someone explain to me what the effect might be from people collecting all these new coins ?
Would it not increase inflation ?
I really don't know.

Any thoughts ?

*looks for mrbrklyn*

 

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If people hoard the demand for coins increases, the more coins made, the more profit.

 

Does the continued production of the currency devalue said currency, causing inflation ?

 

'Ulterior motive? Yeah, about 3.1 billions of them. Thats how much the government estimated to profit from people pulling Statehood quarters out of circulation. $3,100,000,000.
It's called 'Seigniorage Revenue':
"Seigniorage is the net revenue derived from the issuing of coins or bank notes. It arises from the (often substantial) difference between the face value of a coin or bank note and the cost of producing and distributing it."
You can read some interesting stuff in the 1997 document:
http://www.usmint.gov/downloads/feasibility.pdf

 

Its funny that you say that but honestly because I ignored this thread on purpose until I got board this evening because I figured i didn't want to get into another running discussion on the Government and money. I'm not an expert in economics. I just have some interest and some undergraduate education in the matter. But for what it is worth, the US Treasury (and the mint) are strickly government agencies run by political appointees and career buearocrats. They couldn't care less what happens to coins or dollars as long as their check is cashable at the end of the month.

Neither makes any sort of a profit and I'm always amazed at how this is overlooked when discussing these institutions. Unless something is happening to threaten their jobs, the Treasury department views money like the sanitation department views garbage.

Ruben

 

Umm no...

BTW read this

http://wfhummel.cnchost.com/index.html

 

Essentially, yes.

 

Really. When does the Mint or the Treasury pay a dividend to its employees or executives??

We had this whole conversation and this is NOT how you paint it. Google the previous discussions between me and Doug. I just don't have the energy to repeat it.


See the above link for more inforamtion as well including:

"During the era of commodity money, the monetary base consisted mainly of precious metal coins minted by the State. Seigniorage was the difference between the face value of coins and the cost of producing them, effectively a tax on the public. In a modern fiat money system, seigniorage arises in a different way, but in fact is an illusion as will be explained."



Ruben

 

It can if it is extreme because the supply of money will go up putting upward preasure on prices. This is the Treasuries real interest in monetary policy, and NOT profits.

Every dollar is an interest free loan of the Government (or something like that).

 

I don't even think you read that 'feasibility.pdf' document. If you did, you'd have read that they give half the revenue from seigniorage to orphans, orphans with diseases. Now thats something I do support.

 

Try reading the links I posted and then we can discuss it in another forum because your fundementally misinformed . This is not coin subject.

Thanks

Ruben

 

Ruben, just messing around with you, you said you didn't want to get into "another running discussion on the Government and money", I thought maybe a joke was what you needed?
I would discuss this more, but I can see how quickly this would turn into a very long & boring thread, and also, I never said that I dont agree with you.

 

I hear yah, but, you know, I try to have at least some moniker of respect for the moderators who I'm sure I've managed to press to their limits sometimes. Aside which, If I really want to get into long winded and virulent discussions on government policy, I'd much rather discussion copyrights.

Now remember Boys and Girls, this post has been brought to you by the Letter "U" and the number "2"

 

besides with, I thought the quote "The mint views coins like the santitation man views garbage" was funny enough to be a joke and true enough to be the take away point that one would remember if nothing else...

Ruben

 

Yes, and people hoarding them has the opposite effect. Inflation is more than just the govt producing more currency. People saving takes money out of circulation.

 

I think this has already been touched on but the mint is in the business of making coins. The overall effect on the economy of everybody hoarding every coin would be negligable to the economy, except to coin collectors, it would help us in the short term but hurt in the long term. It would be the proverbial drop in a leaky bucket, no effect at all unless all of the coins were made of precious metals. There would most probably be a downturn to the vending machine industry.

 

Alright, let me see if I can help this a bit.

Firstly, seigniorage is the net revenue gained from some institution, often governments, issuing money. For our concerns, there are two primary parts to consider.

The government makes a profit when it issues a currency that has a face value of more that the cost for the government of producing that unit of currency. For example, if a quarter costs only $.05 each to produce and distribute, then the government is making $.20 on each quarter.

However, the government is also responsible for retiring the currency from circulation. So, if after years, a quarter is worn out and sent back to the mint, the banking authority essentially has to "pay" the bank returning the worn out quarter with a new quarter. By purchasing the coin back at face value, the central banker sees its earlier seignoirage profits negated. The issuing of currency almost acts as an interest free loan when retired in this manner.

With the Statehood Quarters, the government planned (and correctly) on many individuals collecting and hoarding these coins. Therefore, these coins are never retired, allowing the government to retain its profits from the production of these coins. If the coins do not circulate, then the government does not have to buy them back, and maintains very hefty profits from seignoirage. Estimates have the US Treasury earning over 5 billion so far from these revenues.

 

So easy a Cave Man can understand it !

 

Does anyone REALLY understand economics? Or do they all just have their own pet theories and whoever is in power gets to try theirs until things get bad enough that they let someone else try for awhile and we get to see how bad THEY can make it. Lather, Rinse, Repeat.

 

The US Federal Reserve attempts to control inflation through the setting of the federal funds rate and open market operations.

In an inflationary environment, the Fed raises the federal funds rate, borrowing becomes more expensive and in aggregate, any given dollar is circulated less, ceteris paribus. This has the impact of reducing inflation.

In a deflationary environment or when the economy is doing very poorly, the Fed would consider reducing the federal funds rate.

In open market operations, the Fed buys / sells US treasury bills, notes and bonds, thereby impacting the interest rate of these instruments.

As for the original poster's comment on whether or not minting many coins could increase inflation, my answer is that the amount of money we are talking about here is relatively small. Secondly, many of these coins are not re-circulated. Thirdly, just by the virtue of the availability of these coins, money has not becoming "cheaper" and so demand for money has not increased. Therefore, over all, the minting of the statehood quarters should not be inflationary.