End of cash?

The U.S. Coinage Act of 1965 was enacted in reaction to the dual developments of a rising silver price and the devaluation of the U.S. dollar. It eliminated silver from circulating dimes and quarters and reduced the silver purity of half dollars from 90 percent to 40 percent.

The Act also authorized the Mint to continue production of 90 percent silver coins for up to five years, if in the judgment of the Secretary of the Treasury, there was not sufficient quantities of dimes, quarters and half dollars struck in the new alloys. Some 90 percent silver coins were struck into 1966, though they all were dated 1964.

Additional provisions prohibited the minting of silver dollars for five years, allowed the Treasury Secretary an exemption from procurement laws with respect to purchasing adequate supplies of copper and nickel and established a joint commission to make future recommendations for coins and currency.

Another major part of the law was that it made all coins and currency of the United States, including some bank issues, legal tender. Among other things, this reversed the 1876 demonetization of the Trade dollar. However, the largest impact of this provision is that it required Americans to accept the non-silver dimes and quarters, and later half dollars as payment for any financial obligations, public or private.

Along with other laws, the Coinage Act of 1965 was a major step at eliminating precious metals from payments made by Americans.

Now even the current non-precious metal coins and currency are becoming obsolete. The latest information I see is that Americans pay for 93 percent of transactions by check, credit and debit cards, automated clearinghouse (ACH) bank transactions and the like. People have arranged for direct deposit of their incoming payments such as Social Security and payroll and have arranged to make many automatic payments, all done through keystrokes on a computer.

Beyond that, the use of coins and currency is diminishing because of the means by which people purchase goods and services. Online transaction payments primarily mean the use of credit or debit cards or payment systems such as Paypal, where paying by cash is impractical.

Even banks are getting into the cashless mode. Already, JPMorgan Chase and other banks are prohibiting or limiting the number deposits and withdrawals of coins and currency. As an example, Chase will not accept any coins or currency as payment for mortgages and other debt. Many banks and credit unions will no longer accept rolled coinage in deposits or charge a fee for doing so.

Many landlords no longer accept cash for rental payments, as they want payments going through the financial system as proof of transactions. I have been in several cities where the parking meters and parking structures take credit cards for payment – some as the exclusive option.

In my youngest daughter’s high school, you cannot use cash to pay for lunch. Instead, you make a deposit to your account in the office, with the value loaded onto your student identification card to use for food and drink payments. The meal plan for the university my son will attend in the fall includes $250 per semester loaded onto student identification cards.

Back in the mid-1970s I did not have a checking account or any credit cards. I finally opened a store credit card to purchase a piece of furniture when I did not have enough cash to pay in full up front. I even purchased multiple vehicles in the 1970s and 1980s for cash.

Today, like many people, I rarely spend coins or currency. In my day-to-day transactions, I make extensive use of prepaid gift cards, which earn tuition credits, or pay by credit cards to take advantage of the reward programs. Now Apple and other companies are coming out with payment systems that would eliminate the need to pull out a physical credit or debit card.

On the regulatory side, the Federal Bureau of Investigation has issued alerts to businesses to consider customers paying in coin and currency as suspected terrorists (see http://shadesofthomaspaine.blogexec.com/index.php/easyblog/entry/complete-post-of-fbi-terrorist-watchlist-pamphlets).

The use of coins and currency to make payments provide a degree of privacy for people. Unfortunately, handling cash is becoming inconvenient for businesses and other entities. Further, the U.S. government is reducing financial privacy over time.

Will it ever happen that coins and currency will disappear?

Current trends point in that direction.

Note on U.S. 90 percent silver coin: In the past few weeks, premiums on U.S. 90 percent silver coins have increased about 20-25 cents per ounce relative to the spot price. This has been a gradual shift, occurring on days when the spot price increases and on days when it falls. The premium on 90 percent silver coin is high enough that refiners can no longer afford to melt it, restricting physical supplies. While this is not, by itself, a sign of a developing shortage of physical silver, please keep tabs on this trend in the coming months.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His Numismatic Literary Guild award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).