How many $1 coins have you seen in circulation?

Since the Presidential $1 Coin Program launched in 2007, I have received just one during a commercial transaction. The cashier apologized profusely while passing me a tarnished coin bearing a likeness of John Quincy Adams. She told me she just wanted to get rid of it.

The Presidential $1 Coin Program is the federal government’s latest attempt to create a circulating $1 coin. To give the series the best possible chance of success, the authorizing legislation provided numerous measures to increase awareness and remove barriers to circulation.

By and large these measures have failed. Louise L. Roseman, director of the division of reserve bank operations and payment systems, told Congress last month that “transactional demand for $1 coins has not increased materially since the start of the Presidential $1 Coin Program and overall demand continues to come primarily from collectors.”

Despite the lack of demand, the U.S. Mint has produced nearly 2 billion of the golden-colored $1 coins, with production continuing at about 500 million coins per year. This includes the four different $1 coins released each year featuring former presidents, plus one more annual design for the separate Native American $1 Coin Program.

As of May 31, the Federal Reserve Banks had nearly 1 billion $1 coins stockpiled in their inventory. The amount continues to grow with each $1 coin released and is expected to reach 2 billion by the end of the program.

If there is little transactional demand for the coins and an enormous stockpile already exists, why does the Mint continue to produce the coins in such great quantities?

The answer has to do with a legislative requirement of the coin program that was intended to ensure an adequate supply for commerce. By law, the Board of Governors of the Federal Reserve System must ensure that each design of the presidential $1 coin series released is available to financial institutions during an introductory period. To meet this requirement, the reserve banks are compelled to order new $1 coins from the Mint four times per year. The Mint diligently produces these. Quantities of the new $1 coins ordered by the Federal Reserve and not requested by financial institutions, as well as quantities that are ordered and then redeposited, continually add to the reserve banks’ inventory of $1 coins.

The legislation behind the separate Native American $1 Coin Program requires that these coins be produced in a quantity equal to at least 20 percent of all dollar coins for each year. Thus, production of this additional $1 coin series is based on the inflated demand for the other series.

The required production of Native American $1 coins created a different problem. Since the Federal Reserve was not required to order the coins, the Mint was stuck with them. Conveniently, the Mint created the Circulating $1 Coin Direct Ship Program, which allows individuals and businesses to order the coins at face value with no charge for shipping and handling.

Last year, the Mint distributed $121 million of the $1 coins through the direct-ship program. Unfortunately, a potentially significant portion of this amount may have been related to artificial demand created by people taking advantage of the program. Many people purchased the coins at face value with their credit cards, earning valuable rewards points, and then deposited the coins at their local bank, recovering the full cost. (The Mint has since worked to curb such abuses.) Once deposited, many of these $1 coins were probably returned to the reserve banks, since financial institutions would have little need to keep them on hand.

Meanwhile, the Mint has been generating substantial “profits” from the production and stockpiling of unnecessary $1 coins. Each time a manganese brass disc of metal gets stamped into a legal-tender dollar, the Mint earns seigniorage based on the difference between the costs of production and the face value. In the most recent fiscal year, seigniorage earned through the production of $1 coins was $318.7 million, accounting for 63.5 percent of the Mint’s total seigniorage and net income. It’s a strange overlap of legislative requirements and unintended consequences that created this unnecessary but “profitable” product of the U.S. government.