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Apr 03

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Changing from bills to coins to save money fails to address the real debt and deficit issue

Most politicians have avoided even attempting to deal with the nations’ arguably biggest current crisis (i.e., the nation’s debt and deficit).  For the most part, they have successfully done so by supporting initiatives that, while on point, don’t accomplish anywhere near the impact required  to address the overall problem.  One such proposal once again getting attention is changing from the $1 bill to a $1 coin.  Remarkably, over the last 22 years, the GAO (Government Accountability Office) has issued six reports related to replacing $1 bill with $1 coins.  Each has estimated a financial benefit to the government over the longer term.  February 2012 is its most recent report.

 

According to GAO’s updated analysis, replacing the $1 note with a $1 coin would provide a net benefit to the government of approximately $4.4 billion over 30 years, or an average of about $146 million per year. The overall net benefit was due solely to increased seigniorage and not to reduced production costs. This estimate differs from GAO’s 2011 estimate because it considers recent efficiency improvements in note processing that have extended the expected life of the $1 note and other updated information. GAO’s estimate covered 30 years to be consistent with previous GAO analyses and because that period roughly coincides with the life expectancy of the $1 coin. … [Note]Traditionally, seigniorage is defined as the difference between the face value of coins and their cost of production. As long as there is public demand, the government creates this net value when it puts coins into circulation. Similarly, when the government issues notes, it creates an analogous net value, equal to the face value of the notes less their production costs. In this report, we use the term “seigniorage” to refer to the value created from the issuance of both coins and notes.

“Discounted Net Benefit to the Government of Replacing $1 Notes with $1 Coins over 30 Years, by Year”

Saving an estimated $4.4 billion sounds like a worthwhile pursuit.  However, since we are facing a national debt of approximately $16 trillion, this does not come close to addressing our nations’ real debt crisis.  The nation’s debt is mostly comprised of entitlements (e.g., Medicare, Medicaid, etc.).   Without attention to these real debt drivers, the $1 trillion budget deficits are not going away  (President Obama’s proposed 2013 budget deficit totals approximately $1 trillion according to a March 16, 2012 CBO analyses).  A recent article here expands on our nation’s crisis.

 

About the author

Nicole Liska

I am a Principal at Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I hold an ABD and MA in economics from the University of California, San Diego. I perform damages analyses and serve as a damages expert witness. My resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/04/changing-from-bills-to-coins-to-save-money-fails-to-address-the-real-debt-and-deficit-issue/

1 comment

  1. John

    I agree. Aside from the fact that Americans don’t want dollar coins, Congress has much, much bigger fish to focus on. Even if the dollar coin’s argurments were accurate, 146 million a year isn’t even big enough to be a blip on the radar.

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