End of the Dollar Coin Bonanza

Using dollar coins instead of paper coins saves money. Though coins are more expensive to produce (costing 8¢, versus 3.8¢ per dollar bill), since they last much longer and need to be replaced much less frequently the government could save money by producing only dollar coins. This has long been recognized and in 1997, congress passed a bill to start minting dollar coins again, creating the Sacagawea dollar, which was finally released and distributed beginning in 2000. Dollar coins, though, have never really caught on with the public, probably because they're much bulkier than paper money and additionally because the US Bureau of Engraving and Printing continues to produce the dollar bills. The government already tried dollar coins in 1979 with the Susan B Anthony coin, but it died quickly. And they continue to try, passing a 2005 law which created a new set of presidential dollar coins, which are being minted, but have largely gone uncirculated.

In an attempt to get the dollar coins more widely distributed, the US Mint instituted a program where individuals could buy rolls of the dollar coins at face value. In fact, the US Mint would even ship the coins to you for free and accepted many forms of payment.

People with credit cards that had rewards programs at some point realized that there was an opportunity in this. If you purchase, say, 1000 dollar coins for $1000 with your credit card, you could then take this $1000 in coins, deposit it in your bank account and then use the balance to pay off credit card bill. On net, you've neither lost nor gained any money, but, by using your credit card, you've added reward points, which you can accumulate. These rewards points you could use for free flights or free gifts or gift certificates or whatever.

The loser in all this was the US Mint, which had to pay the credit card fees and the shipping. Even worse, the coins weren't getting distributed, as was the point of this whole thing, since the banks would usually just end up shipping them back to the Federal Reserve after customers deposited them, contributing to an ever increasing cache of dollar coins in the Fed's vaults.

It couldn't last forever, though. The US Mint started to realize what was going on when the same people came back again and again to make large purchases of dollar coins. The Mint first started restricting the number of purchases that people could make, and then started getting in contact with customers to make sure the coins were for legitimate business purposes.

Such measures mitigated the problem, but it still continued. In fact, word was getting out (first on NPR's Planet Money on July 13, then on MSN Money on July 15), with the likely prospect of the problem only getting worse. Thus, beginning yesterday, the US Mint stopped accepting credit cards for buying dollar coins. You can still buy the dollar coins, but only with wire transfer, check or money order.

The lesson to be learned from this: if you find a really cool way of making money like this, don't tell anyone.

Using dollar coins instead of paper coins saves money. Though coins are more expensive to produce (costing 8¢, versus 3.8¢ per dollar bill), since they last much longer and need to be replaced much less frequently the government could save money by producing only dollar coins. This has long been recognized and in 1997, congress passed a bill to start minting dollar coins again, creating the Sacagawea dollar, which was finally released and distributed beginning in 2000. Dollar coins, though, have never really caught on with the public, probably because they're much bulkier than paper money and additionally because the US Bureau of Engraving and Printing continues to produce the dollar bills. The government already tried dollar coins in 1979 with the Susan B Anthony coin, but it died quickly. And they continue to try, passing a 2005 law which created a new set of presidential dollar coins, which are being minted, but have largely gone uncirculated.

In an attempt to get the dollar coins more widely distributed, the US Mint instituted a program where individuals could buy rolls of the dollar coins at face value. In fact, the US Mint would even ship the coins to you for free and accepted many forms of payment.

People with credit cards that had rewards programs at some point realized that there was an opportunity in this. If you purchase, say, 1000 dollar coins for $1000 with your credit card, you could then take this $1000 in coins, deposit it in your bank account and then use the balance to pay off credit card bill. On net, you've neither lost nor gained any money, but, by using your credit card, you've added reward points, which you can accumulate. These rewards points you could use for free flights or free gifts or gift certificates or whatever.

The loser in all this was the US Mint, which had to pay the credit card fees and the shipping. Even worse, the coins weren't getting distributed, as was the point of this whole thing, since the banks would usually just end up shipping them back to the Federal Reserve after customers deposited them, contributing to an ever increasing cache of dollar coins in the Fed's vaults.

It couldn't last forever, though. The US Mint started to realize what was going on when the same people came back again and again to make large purchases of dollar coins. The Mint first started restricting the number of purchases that people could make, and then started getting in contact with customers to make sure the coins were for legitimate business purposes.

Such measures mitigated the problem, but it still continued. In fact, word was getting out (first on NPR's Planet Money on July 13, then on MSN Money on July 15), with the likely prospect of the problem only getting worse. Thus, beginning yesterday, the US Mint stopped accepting credit cards for buying dollar coins. You can still buy the dollar coins, but only with wire transfer, check or money order.

The lesson to be learned from this: if you find a really cool way of making money like this, don't tell anyone.

End of the Dollar Coin Bonanza