State quarters impact on inflation

February 15, 2005 8:05 PM

A couple of years ago I told some friends that I thought that the major reasoning behind the State Quarters was to design a project that would cause money to be intentionally taken out of circulation by collectors.

I am terrible at math, but I figured that if only a million people collected all fifty of them, it's still a lot of money, and should have some impact on inflation. Does it?

My friends all told me I was nuts.

I also am sure that a lot *more* than a million people are likely to be collecting these things.

What's the likely impact of issuing these quarters, and having them intentionally hoarded by many people? Is there any?

posted by interrobang to work & money (20 comments total)

Not to mention a cardboard packed set of 25 cent pieces are selling for many times their actual value in the post office.
posted by Napierzaza at 8:13 PM on February 15, 2005

Well you are correct in that there is some motivation by the mint/government to make such currency in order to "make money", its the same reason $2.00 bills are still printed. the math is not too hard,
.25x50x1,000,000 = 12.5 million. A fair bit, but I would think hardly enough to affect inflation much, when we talk trillions and upwards when discussing such issues (not inflation per se, but national economies).
Even if you raise the million by a factor of ten it is still small potatoes, sort of.
posted by edgeways at 8:25 PM on February 15, 2005

Hoarding of money does not creat negative macroeconomic effects. Capital investments are not touched by money hoarding, as the hoarding of fiat money actually increases the purchasing power of the money still in circulation.
posted by geoff. at 8:26 PM on February 15, 2005

As of January 27, 2003, there was $630 billion of currency in circulation.

1 million people * (50 quarters / 4 = $12.50 each) = 12.5 million

So that's around 0.002 percent of the total currency in circulation. Not a whole lot. In addition, much of the wealth in the US is not backed by currency -- it's tied up in investments, etc. So I think your friends were right.
posted by IshmaelGraves at 8:29 PM on February 15, 2005

Still, I'm not saying that one million people are collecting these things--I suspect that a lot more are. Does anyone know how many people are collecting them, and what impact it could have? The one million number was just a hypothetical starting point.

And, thanks for the answers so far, everyone.
posted by interrobang at 8:35 PM on February 15, 2005

interrobang, 0.002 percent means that 500 million people would have to be collecting sets of 50 to equal one percent. The US population is a tad shy of 300 million.
posted by IshmaelGraves at 8:48 PM on February 15, 2005

If the enitre US population, roughly 300 million collected all 50 quarters you have $0.25x50x300,000,000 = $3,750,000,000 I don't think $3.75 billion is going to make that big a dent.
posted by riffola at 8:48 PM on February 15, 2005

If the entire planet collected the 50 quarters you'd end up with $0.25 x 50 x 6,500,000,000 = $81,250,000,000

That's about 13% of the money in circulation in USA.
posted by riffola at 8:52 PM on February 15, 2005

Guess I'm nuts, huh?
posted by interrobang at 8:55 PM on February 15, 2005

You can compare this page, which shows quarter mintage numbers before 1998, with this page, which shows quarter mintage for the state quarter program.

It looks like they struck around 1.5 billion quarters a year pre-1998 (but with huge swings year-to-year). To pick a state quarter year at random, in 2002 they minted 3.3 billion quarters. Assuming the difference is roughly the number of coins that leave circulation due to collection, that's around $450 million in one year.
posted by smackfu at 8:56 PM on February 15, 2005

http://www.usmint.gov/mint_programs/50sq_program/index.cfm?action=schedule

There's been 23.7 billion of these minted over the past five years, so I don't think the collectors would impact inflation, unless everyone in the US started keeping a few copies of each state quarter.

I'm not sure how many people are collecting them. I'm guessing that serious collectors have more interesting coins to find and collect. There's lots of people who enjoy amateur collecting, so I'd bet 5-20 million people end up colecting all 50 quarters. That's statistical noise at the coinage rates the mint is doing...

Now, if all 300 million americans collected all 50 quarters, that would be a sizable chunk of the quarters minted since 1999, but would still relatively be a small amount compared to all the quarters in circulation. I don't have numbers on how many pre-1999 quarters are in circulation, though.

This topic reminds me of a favorite interview question, BTW. I would ask the candidate to describe sampling methods to empirically determine the average age of quarters that are in circulation. It's one of those Microsoft-like questions where the reasoning process they use to solve the problem is more important than the final answer.
posted by beaverd at 8:58 PM on February 15, 2005

Something to note. The $12.50 value of a set of these quarters pales in comparison to the retirement savings of the average person. Even America's horrible short-sightedness in retirement savings still dwarfs $12.50. If that much changed the economy whatsoever, I'd say we're epically screwed in the next 25 years anyway.
posted by Saydur at 9:18 PM on February 15, 2005

When I was a kid I heard that the production cost of a penny is more than the value of the coin. My get rich slow scheme was to collect all the pennies for face value, and then sell them back a shade shy of production cost. Let me know where you get locked up interrobang, maybe we'll be the Keynes and Greenspan of the asylum economy.
posted by Jack Karaoke at 9:41 PM on February 15, 2005

doesn't almost everyone have at least 12.50 in change lying around somewhere anyways?
posted by fishfucker at 10:35 PM on February 15, 2005

Coins are not such an advantage for the government. To get grandpa to lay out $12.50 for 50 little pieces of metal for his grandchildren's coin collection, the government has to put a lot into materials and shipping, and of course the grandchildren will only wait until grandpa's back is turned (grandpa says, "The little bastards!") and then go spend the 50 quarters on candy or comics.

The real money, if there is any real money in such schemes, is in stamps. If the US Postal Service prints just 34 little stickers and sells them for 37 cents each, grandpa will spend $12.58 to add to the grandchildren's stamp collection, and the grandchildren probably aren't going to send 34 letters in their entire lives (grandpa says, "Kids these days!"), so the stamps are almost free money for the government.

Other governments use stamps to collect foreign money this way -- a country like Poland will print more than it needs of a series of nice "collectible" (what's not?) stamps and sell the extras to foreigners who cannot use them.
posted by pracowity at 2:20 AM on February 16, 2005

The people I know who are into it are collecting both the Philly and Denver mint versions of each state (indicated by a tiny "P" or "D" on the coin), so that could potentially double the number of currency taken out of circulation.
posted by patgas at 6:27 AM on February 16, 2005

Seignorage. When a government coins money, it is borrowing interest-free, because it can use the money now, but won't have to honor the money until some time in the future when a bank attempts to deposit the currency in its central bank account. Thus, the government can manufacture a quarter for, say, 8 cents, and then spend it to get $0.25 of goods, thereby getting a short-term loan of 17 cents.

If there is some sort of currency that the public will value at more than its face value and hence not spend--such as a state quarter, or a Sacagewa gold coin--so much the better! All those people who are proudly collecting the state quarters are owed $0.25 per coin, but they'll never collect that loan. Thus, not only are those $0.25 loans interest-free, they are almost not loans at all.
posted by profwhat at 7:35 AM on February 16, 2005

"What will the 50 State Quarters® Program cost U.S. taxpayers?

Nothing. In fact, the U.S. Government will make money on the 50 State Quarters® Program. The cost to manufacture a quarter is about 5 cents, providing a profit of approximately 20 cents per coin. Mint profits go to the general fund of the U.S. Treasury to help fund U.S. Government operations, reduce the need for new or higher taxes, and reduce the Federal Government's debt. No tax revenues will be used in either the manufacture or the promotion of the state quarters. All costs are funded from the Mint's earned revenue."
posted by m@ at 7:48 AM on February 16, 2005

Seignorage. When a government coins money, it is borrowing interest-free, because it can use the money now, but won't have to honor the money until some time in the future when a bank attempts to deposit the currency in its central bank account. Thus, the government can manufacture a quarter for, say, 8 cents, and then spend it to get $0.25 of goods, thereby getting a short-term loan of 17 cents.

I don't think the US government is even allowed to spend money that it prints. It gets its money from taxes and savings bonds.

Just out of curiosity, what does the government do with the money it prints? How does it decide where to send it?
posted by delmoi at 7:32 AM on February 17, 2005

delmoi - the Federal Reserve Board issues currency. [Technically, the U.S. Mint prints currency at the order of the Fed.] The Fed sends the currency to financial institutions that request it (for their vaults, and eventually for their customers), or in exchange for worn bills that are being turned in.

The Federal Reserve Board (and its well-known head, Alan Greenspan) make monetary policy by, among other things, buying or selling treasury bonds that the Fed owns. Buying bonds is a way of putting more currency into circulation. Selling (previously-purchased) bonds is a way to reduce the currency. The goal is to control inflation while keeping the economy running reasonably well (as in, not a recession).

So, you're right that the US government is not allowed to spend money that it prints, because the Federal Reserve assets (bonds) aren't counted as revenues. [The entire arrangement is designed so that the U.S. Government can't simply print money to pay its debts, as many other countries have done - inflating the currency. So when the federal government runs a deficit, it borrows.)

But the profits from coins does count as revenue for the federal government.
posted by WestCoaster at 4:10 PM on February 17, 2005