• A Proposal for U.S. Currency Reform

As Adam Smith taught in The Wealth of Nations, the optimal currency reduces the costs of its use.  For example, he favored token money (e.g, base metals) over specie (gold, silver) because the lower value of the former meant that less scarce resources were used to support the currency, so that more valuable resources were free to be used in higher valued products.

In the current context, several costs of circulating currency must be considered and minimized:

1. Cost of materials
   
2. Weight of the currency




• This is related to energy costs


3. Costs of using currency in transactions

To this end, I propose the following changes, some of which are not original:

1. Abolition of the penny.
   
2. Abolition of the one dollar bill and replacing it with the golden dollar.
   
3. Changing the composition of the nickle to aluminum or a similar, light material.
   
4. Introduction of a polygonal, golden half-dollar.
   
5. Introduction of a bimetallic, "bull's eye" two dollar coin.

The first two can be accomplished almost immediately.  All the U.S. government has to do is to announce that, after a certain date, pennies and dollar bills will cease to be produced and that cash transactions will be rounded to the nearest nickel.  Vending machine owners will happily change their machines to accept dollar coins and stop accepting dollar bills, as they have been clamoring to do.  Pennies are generally not accepted by vending machines and are otherwise nuisances.

In terms of the cost minimization criteria, we find for each proposal:

1. All criteria are met
   
2. Criterion 2 (cost of materials) is met, but cost 2 (weight of materials) rises.
   
3. Criteria 1 (cost of materials) and 2 (weight of materials) are met.
   
4. Criteria 1 and 2, and, possibly, 3 are met by enabling the replacement of quarters with higher-valued half-dollars.
   
5. Similar to proposal 4, dollar coins are replaced by higher-valued two dollar coins.

Proposals 1 and 2 can be accomplished alomst immediately, as minimal changes to software and machinery are required.

Proposal 3 would only require recalibration of equipment measuring the electrical properties of nickels.

Proposals 4 and 5 call for the creation of new coins, so equipment has to be manufactured to handle them.  This is hardly an insurmountable barrier, as the recent introductions of the Euro and the British 20p and 1 and 2 pound coins have shown.  Inaction would be worse.

More details about the golden half-dollar and "bull's eye" 2 dollar coins:

The golden half dollar should have the same composition as the golden dollar, for consistency and to convey the impression of value.  Its shape should be similar to the British 20p and 50p coins, which are rounded to ease rolling into machines.

The "bull's eye" design is now frequently used to convey the idea of high value.  Several countries use "bull's eye" compositions for their highest-valued coins.  A good example is the British 2 pound coin.  Thus, I propose using this design for the highest-valued American coin.