GAO STUDIES BENEFITS OF REPLACING DOLLAR BILL

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V22 2019 INDEX E-SYLUM ARCHIVE

The E-Sylum: Volume 22, Number 14, April 7, 2019, Article 15

The U.S. Government Accountability Office (GAO) issued a report last month on the financial benefit of switching to a $1 coin. The results were not what one might expect. Thanks to Pabitra Saha for passing this along. -Editor

What GAO Found
GAO's analysis found that replacing the $1 note with a $1 coin would likely result in a net loss to the government over 30 years. GAO found the government would incur a loss of about $611 million if notes were actively replaced and about $2.6 billion if $1 notes were replaced gradually (see figure). These simulations represent the first time GAO has found that replacing the $1 note with a $1 coin would result in a net loss to the government rather than a net benefit. GAO's estimates are based on current data and economic projections, which have changed over time. For example, the lifespan of the $1 note has more than doubled since a 2011 GAO analysis, from 3.3 years to 7.9 years, largely due to changes in note processing technology. Stakeholders generally identified few benefits from replacing $1 notes with $1 coins. Seven of 10 stakeholders GAO met with said that replacing the $1 note with a $1 coin would result in additional costs. For example, armored carriers told GAO that their transportation costs would increase because coins weigh more than notes.

Why GAO Did This Study
The U.S. spent about $1.3 billion in 2017 to produce, process, and circulate coins and paper notes for use in the economy. Since 2006, both the penny and nickel have cost more to make than their face value. Other countries have replaced notes with coins of the same value to reduce costs. Since 1990, GAO had estimated replacing the $1 note with a $1 coin would provide a benefit to the federal government.

GAO was asked to examine the potential cost savings to the government from making changes to currency. This report (1) estimates the net benefit to the government, if any, of replacing the $1 note with a $1 coin and selected stakeholders' views on this change; and (2) examines what is known about potential cost savings from suspending penny production and changing the metal composition of the nickel, and selected stakeholders' views on these changes. GAO conducted economic simulations of continued use of $1 notes and replacing notes with $1 coins, examined cost data from the U.S. Mint, and interviewed officials from the Federal Reserve, U.S. Mint and Bureau of Engraving and Printing as well as 10 selected stakeholders representing industries that could potentially be affected by currency changes.

What GAO Recommends
Congress should consider taking steps to authorize the Secretary of the Treasury to adjust the metal content of circulating coins.

It's a lengthy report, but interesting reading nonetheless. There is a response from U.S. Mint Director David Ryder included as an appendix. -Editor

Rich Bottles Jr. forwarded an article about the report, noting: "It seems that dollar bills are lasting longer as US consumers move more toward cashless purchases, thus eliminating any cost savings by switching solely to dollar coins." -Editor

These simulations represent the first time GAO has found that replacing the $1 note with a $1 coin would result in a net loss to the government rather than a net benefit.

GAO said that while it has found in the past that use of a coin would save money, times have changed. The difference today is largely due to the longer life span of dollar bills that didn't used to exist:

Due to this substantially longer note lifespan, fewer $1 notes need to be produced over a 30-year period, which reduces the cost of producing them and diminishes the relative advantage of the long coin life. In our 2011 simulations, a $1 coin was assumed to last about 10 times as long as a $1 note (34 years to 3.3 years); in our current simulations, the lifespan of the coin remains the same but is now only about 4.3 times as long as that of the note (34 years to 7.9 years). Meanwhile, the relative cost of producing coins and notes has remained about the same.

The Federal Reserve has improved its process of producing dollar bills which makes them last longer and also results in having to produce fewer of them which ultimately lowers costs.