NCPA - National Center for Policy Analysis

Fed Comes Out against Replacing $1 Bills with Coins

December 18, 2013

A new Federal Reserve study comes down squarely against switching from paper notes to coins, concluding that the metal money would end up costing Americans more money. The findings run counter to other analyses that suggest billions of dollars in taxpayer savings if the United States were to replace dollar bills with dollar coins, says the Wall Street Journal.

How much more would coins cost taxpayers?

  • The Fed estimates that over 30 years, the U.S. government's costs to produce $1 coins exceed the costs to produce $1 notes by $6.9 billion.
  • That would be partly -- but not entirely -- covered by seigniorage, the difference between the face value of coins and their cost of production, which the government would pocket.
  • The Fed projects a 30-year cost of $1.2 billion after accounting for seigniorage, with a big downside risk to that estimate.

The Fed's analysis:

  • Less payment system efficiency. Using $1 coins instead of $1 notes for transactions is inherently inefficient, requiring a replacement of one $1 note with more than one $1 coin to make up for the difference in the way coins and notes are used by the public.
  • Less cost-effective. Replacing $1 notes with $1 coins is also not cost-effective for the U.S. government and public more broadly, primarily because the higher cost to produce coins compared with notes is not offset by the longer life of the coin.
  • Higher costs under all projected scenarios. Circulating only $1 coins costs more under every scenario we considered (in net present value terms) than would continuing to provide $1 notes to the public.
  • Increased costs to the private sector. Circulating only $1 coins could result in increased costs to the private sector, perhaps in the hundreds of millions of dollars per year, and would more than offset any "seigniorage revenue" to the government reported in earlier studies.

Banks and armored-car carriers surveyed by the Fed said switching to an all-$1-coin world could result in millions of dollars in additional costs -- for building new vaults, buying new equipment and paying for additional fuel (largely because the coins are heavier).

Dollar coin advocates say the Fed study is skewed.

Source: Jeffrey Sparshott, "Fed Comes Out against Replacing $1 Bills with Coins," Wall Street Journal, December 12, 2013. Michael Lambert, Shaun Ferrari and Brian Wajert, "Costs and Benefits of Replacing the $1 Federal Reserve Note with a $1 U.S. Coin," Federal Reserve Board, December 2013.


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