Why don’t we use half dollar coins or $2 bills in everyday transactions? Convenience shapes our demand for money. Beyond the worlds of currency supply/demand or collectible coins, let’s investigate the literal choices for why people prefer one physical form of US currency over another.
First, why might people choose physical money over digital options? Some examples are obvious (cash-only stores, can’t use digital methods if there’s no power). Physical money can also be a nice gesture over credit: put down enough cash to cover the bill + tip and saying “it’s all taken care of” instead of putting in a credit card, waiting, and writing down a tip. And if you want to hide a purchase, whether that’s for special events (buying an engagement ring) or unsavory dealings (buying illegal products), physical currency won’t leave a paper trail like credit does. Regardless of a particular purchase’s ethics, the additional privacy that physical currency allows has become more salient in an age of reduced privacy.
Why do people like one currency denomination over another? Some denominations are useful if people want to hold onto significant value at home while minimizing space — $100 bills are the largest currently produced by the US Treasury, and 10 $100 bills can be tucked away more easily than 1,000 $1 bills. On the other hand, there’s a lot of demand for $1 bills as well: buying a drink from a vending machine, making exact change, adding a small tip to the tip jar.
The payment and storage methods we have built over the decades are an underrated path-dependent cause of our current habits. There’s no slot in a typical cash register for $2 bills, so they aren’t commonly stocked in registers, are rarely given out in change, and nowadays remain uncommon to use in everyday transactions. Some people don’t even realize that new $2 bills are still being printed (or are legal tender), leading to various stories of people getting security called on them for trying to pay with $2 bills (more understandable at a Taco Bell in 1995, less so when at a Best Buy in 2017 — you’d think an electronics store manager could use the Internet).
The same argument applies to half dollars and dollar coins; common coin-operated machines like vending machines, parking meters, and washer/dryers in your apartment basement weren’t designed to take these coins, so few people had a reason to keep them on hand, and fewer received them as change. These machines are hard to retrofit — most parking meter slots are designed to only accept something the size of a quarter or smaller — but not impossible. Recent US government attempts to make dollar coins popular involved retrofitting local and federal-owned kiosks to accept and dispense dollar coins as change (e.g. after buying a subway pass). This increased the supply of available dollar coins, but didn’t impact demand as much. Dollar coins still had to compete with $1 bills in Americans’ wallets (fewer and fewer of which even have a pouch to store coins). If the only machines that consistently take $1 coins also take (much lighter) $1 bills, and $1 bills are accepted for a wide array of payments, then there really isn’t a reason to switch.
Cold, hard cash has its place, and some denominations are more useful than others. Inertia from a massive patchwork of established infrastructure (legions of parking meters, vending machines, washers/dryers, and cash registers) dictate the relative demand of one denomination over another and make it very hard to change the status quo.
Andrew Jabara 