The Susan B. Anthony Dollar and the Theory of Coin/Note Substitutions

This paper analyzes governments' attempts to replace circulating notes with coins. It argues that because of 'network' externalities in currency systems, a government cannot simply offer a new coin, such as the Susan B. Anthony dollar, to the public and expect it to circulate, even when the coin/note substitution would benefit the economy. For such a substitution to succeed, a government may need to provide an incentive for a large block of the economy to initiate the conversion or, alternatively, a government may need to force the adoption of the coin by withdrawing the competing bill from circulation. (Printed by permission of the publisher)