Might a Central Bank Digital Currency Threaten Numismatics?
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The U.S. government and Federal Reserve Bank are studying the possible introduction of a central bank digital currency. The premise for doing so would be to reduce the transaction costs of producing coins and currency, handling them in commerce, and counting them. In theory, it would be much more efficient to just make entries on a computer system.
The use of coins and currency in everyday life was partially displaced with the expanded use of writing checks, especially after the U.S. government stopped imposing a tax in the early 1900s on each check written (the tax originally began in 1862 at 2 cents for each check written for amounts of $20.01 or larger; the tax was expanded to all checks in 1864).
Later, charge cards, credit cards, and debit cards further displaced the use of coins and currency. Now, many payments are made by electronic transfers called ACH (Automated Clearing House payments). The Fed's payment system is spreading across the U.S. Thus, the use of coins and currency in everyday commerce has largely disappeared in the United States.
None of these developments has significantly disrupted interest in numismatics. However, the introduction of a central bank digital currency (CBDC) in America could negatively impact the hobby.
There are two possible public reactions to the imposition of a CBDC in which everyone was either encouraged or required to make payments only through such a system.
In China, the government monitors digital payments. Each citizen has a social credit rating with the government, and officials can prohibit attempted transactions by citizens who do not have a sufficiently high rating. People can also be prevented from purchasing transportation or selected goods. Thus far, Chinese citizens can purchase precious metals, bullion, and numismatic items with little restriction.
In contrast, Italy tried to effectively impose a central bank digital currency in 2020 called the Spunta project. It was introduced with the collaboration of more than 100 of that nation’s banks. Despite offering citizens favorable financial treatment and awarding cash prizes by lottery for using this CBDC, Italians almost overwhelmingly rejected the option.
In America, people who prefer greater financial privacy than they would have if they wrote checks or used a card to make payment appreciate the use of coins and currency. A higher percentage of numismatists pursue this hobby partly for privacy reasons than I suspect would apply to the general public. Depending on how a CBDC might be imposed in the U.S., this could have the impact of discouraging the interest in numismatics among people who highly value their financial privacy.
Answer to the Previous Trivia Question
Last week, I asked: Which U.S. coin denomination did not have legal tender status until seven years after its production by the U.S. Mint ceased?
Copper half-cent coin
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The answer is the half-cent, struck intermittently from 1793 through 1857. Only gold and silver coins were originally given legal tender status. So, the copper half-cent and 1-cent denominations were not initially legal tender but easily circulated in commerce on the basis of their intrinsic copper value. The half-cent denomination and the large cents were discontinued in 1857. Section 4 of the Coinage Act of April 22, 1864, states, “That the said coins [the small size 1-cent and the newly authorized 2-cents] shall be a legal tender in any payment, the one-cent to the amount of ten cents, and the two-cent to the amount of twenty cents; and it shall be lawful to pay out said coins in exchange for the lawful currency of the United States, (except cents or half cents issued under former acts of congress,).” Effectively, this granted retroactive legal tender status to the half cents and large cents. The legal tender status of all U.S. Mint-issued coins ever issued was confirmed by later legislation up into the 1960s.
This Week’s Trivia Question
Who was the first U.S. president to appear on a U.S. coin during his lifetime? Come back next week for the answer.
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman National Dealer of the Year Award, and 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the 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 www.libertycoinservice.com. Some of his radio commentaries titled “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 archives posted at www.1320wils.com).
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