GAO Reports on $1 Coin vs $1 Note

I just read both the 2011 GAO Report on the dollar coin (“US Coins: Replacing the $1 Note With a $1 Coin Would Provide a Financial Benefit to the Government”) and its 2012 followup, “US Coins: Alternative Scenarios Suggest Different Benefits and Losses from Replacing the $1 Note with a $1 Coin.” I’m not going to provide a point-for-point analysis, because it gets awfully obscure (although I’ll put highlighted PDFs of the reports in our dropbox).

I’m just going to cover the main argument. Frankly, the priorities of both reports, and the findings they come up with based on those priorities, are tough to grapple with. Here’s a good illustration of the weirdness of the whole thing:

As such, these analyses are highly affected by changing conditions as well as by conceptual views on certain key issues, such as seigniorage and replacement ratios.

It’s a pretty highly subjective scenario. And in this case, differing “conceptual views on certain issues” mean that replacing the dollar bill with the dollar coin either results in billions of dollars saved or billions of dollars lost.

The basic point: the GAO says (emphatically — it’s done 5 of these reports in the last 22 years, and has always come to the same conclusion) that phasing out the $1 note in favor of the $1 coin would lead to a “net benefit” for the US government. $4.4 billion over 30 years, or an average of $146 million per year.

It gets this number from the increased seigniorage that would come as a result of the switch. The government would have to produce more dollar coins to make up for the loss of the dollar notes, and it wouldn’t be able to do this at a one-to-one ratio because people tend to need more coins in circulation than notes. When Canada and the UK switched to a one-dollar/pound coin, they used a (conservative, it turned out) 1.6:1 ratio.

This is where seigniorage comes in. To borrow a joke from this helpful Planet Money post, it’s “as hard to explain as it is to spell.” Traditionally, it has to do with the difference between the face value of coins and their actual cost of production. A coin is worth more than it costs to produce it. Because of this, a government stands to gain financially from issuing notes or coins. It can raise funds for itself by printing/minting more money.

For our purposes, though, seigniorage is a little different. Today,

Under the rules governing monetary operations of major central banks (including the central bank of the USA), seigniorage on bank notes is simply defined as the interest payments received by central banks on the total amount of currency issued.

This usually takes the form of interest payments on treasury bonds purchased by central banks, putting more dollars into circulation.

Planet Money says:

 If the Fed wants to increase the money supply, it buys some treasury bills (government bonds) from banks. So a treasury bill is taken out of circulation and replaced, basically, with dollars. Presto. More dollars in the world.

Here’s the key part: more dollars in circulation means more treasury bills at the Fed. And unlike dollars, the treasury bills earn interest. So the Fed profits. It’s holding onto those treasury bills, which pay off with interest. Basically, when you hold onto U.S. cash, you’re giving the Federal Reserve an interest-free loan.

So! If the dollar coin replaces the dollar bill, more dollars in total would have to come into the world — because of that plus-one to one ratio we talked about earlier, requiring more dollar coins in circulation to meet public demand. And this is the “net benefit” that the GAO has found — over the 30 years that they modeled, the seigniorage resulted in a $4.4 billion dollar benefit.

In their comments on the report, both the Federal Reserve and the Department of the Treasury disagreed with these findings. Their conceptual view does not count seigniorage revenue, and, as the Fed points out, “setting seigniorage aside and considering only the real costs to the government, the report concludes that replacing the $1 note with a $1 coin results in a net cost to the government over a 30-year period.”

They also pointed out that, in this report, the GAO neglects to account for the effect this switch would have on the private sector or the environment. GAO insists that “we found no quantitative estimates that could be evaluated or modeled.”

And that’s just the 2011 report. Its follow-up in 2012 was in response to requests for modeling that set the issue of seigniorage aside, and concluded that, yes, without counting seigniorage a switch to a dollar coin would result in a net loss to the government, due to increased manufacturing costs and no significant savings. The report maintained that due to the revenue gains from increased seigniorage, the GAO still recommends replacing the dollar note with the dollar coin.


Kestenbaum, David. “What is Seigniorage?” Planet Money. 9 January 2009.

Wikipedia, “Seigniorage

5 Responses to “GAO Reports on $1 Coin vs $1 Note”
  1. dem says:

    My head just exploded.

    Ok, so the Fed buys more T-bills (i.e. buys U.S. debt, i.e. pulls money from the future into the present) to put more money in circulation, and then the Fed makes money on the interest paid when the bonds mature. But the Fed is basically a non-profit organization, so after it has paid all of its expenses, any excess money is turned over to the Treasury, right? So is the U.S. Treasury basically paying interest to itself via the intermediary of The Fed?!!

    Also, isn’t a part of seigniorage on dollar CPUs versus bills (or maybe it’s really part of the 1.6:1 ratio) the fact that dollar coins are more likely to end up out of circulation, sitting in coin jars at home etc, and the government benefits from that as you explained above? (The no interest loan idea). Again, I think it’s amazing how innocuous human behavior like that can get calculated as worth $4.4B over 30 years! Talk about finding a value for everything, including the act of blindly emptying ones pockets at the end of the day! 😀

Check out what others are saying...
  1. […] cost the nation money, although long-term savings would ultimately be realized.” See here for a longer discussion of GAO reports on this […]

  2. […] Demand also remains high for the $100 bill, which is used globally as a stable currency. The Treasury now prints more $100s than $1s. There’s more than 7 billion Benjamins in circulation, and the Fed says approximately 2/3rds of them are held outside of the US. This is profitable for the US because of (you guessed it!) seigniorage. […]

  3. […] Also, check out the explanation from Planet Money as transcribed and paraphrased in this post. […]

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