If No physical money will be printed or minted in the US for 2013, what happens?
**“Money” as such can still be created as long as it is cashless. **
All existing US money is still accepted and used, just no new money is made.
What are the direct and indirect consequences? Will the US “Save” money in the sense that pennies cost nearly 2 cents to create…or will the economy suffer due to the loss of US Mint employment?
Can the switch to 100% cashless make up this difference, if there is one?
How much money will we lose in terms of money that becomes too old / worn for use?
I believe that newly printed money has two purposes. One of them is new money that has just been created (poof). The other is to replace existing cash that has worn out and that has been returned by banks, or in theory pretty much anyone with a lot of ratty old money. Anyway, with new money unavailable to replace the old, you’d eventually notice that the money in circulation was getting shabbier and shabbier, but I’m not sure a year would be enough to make it really stand out to the point where the shabbiness couldn’t be easily attributed to random fluctuations and sampling error. The important thing would be that the same amount of money would still be there, so there wouldn’t be a big economic impact. The economic impact would be from the first destination, which would be the poof new money here category.
Does anyone know what the proportions and/or raw dollar amounts are?
If they stop minting for one year, the next year they will have to mint twice as much to compensate for the lost bills due to degradation. This means they will need to double the minting facilities, as well hire back all the employees they just laid off.
The BEP gives a figure of 48 months for the average lifetime of a dollar bill. Other sources claim something like 22 months, which sounds nearer the mark:
Interestingly, that second one also claims that $5 and $10 bills have a shorter lifespan than a dollar bill. The $20 is longer.
At any rate, I think a year of non-replacement would stand out - we’d be starting to circulate some really ratty looking bills.
There’s about $1.07 trillion in U.S. currency, according to the Federal Reserve. The bill with the shortest life is the dollar, which typically lasts less than two years.
The entire budget for the Department of the Treasury is $17.4 billion. So if you shut down not just the Bureau of Printing and Engraving and the U.S. Mint, but also eveything that has to do with the Treasury, that would represent about .16% of the value of all the coins and currency in circulation. That is one-sixth of one percent.
Of course, since the treasury department also runs the Internal Revenue Service, the government wouldn’t be able to collect $2.3 trillion in taxes.
I think you start to see people care about the condition of bills, and a small markup for physical currency. This already happens in many poorer countries that have an unstable money supply (or use US Dollars as a more stable one). It’s harder to replace bills, so it matters more if they’re about to wear out. Once the current stores of minted/printed money is in circulation, physical currency becomes a valued commodity in its own right.
In a way they already do this by proxy, from the fact that the FRBs account for coins and notes on the debit and credit side of their balance sheets, respectively. The 1.3B dollar coins may just sit in the vault, but $1.3B of the paper currency in circulation could be said to represent all that brass, or whatever it is they were made of.
In the OP’s scenario, some of those would have to come out and play for real, though.