WASHINGTON – A congressional committee heard testimony on Thursday afternoon about replacing $1 bills with $1 coins, a move some advocates say would potentially save taxpayers billions of dollars in the long run.
According to a report released by Government Accountability Office early this year, replacing $1 notes with $1 coins could provide $4.4 billion in net benefits to the federal government over the next 30 years. Lorelei St. James, director of the GAO’s Physical Infrastructure Team, said during the hearing that GAO continues to believe the government would receive a financial benefit from making the replacement.
The issue, however, is much more complicated than it may initially seem.
“The overall net benefit was due sole to increased seigniorage and not to reduced production costs,” St. James told a House subcommittee that is studying the issue.
Seigniorage is the difference between the face value of money and the cost to produce it. This revenue is often used to finance a portion of government’s expenditures.
GAO said this reduces the government’s need to raise revenues through borrowing so that the government pays less interest over time, resulting in a financial benefit.
James Miller, former director of Office of Management and Budget, pointed out that the benefit GAO labeled stems from the interest-free loans consumers would be forced to give to the government.
“What GAO calls benefits to government are really taxes – implicit taxes on consumers,” Miller said. “There is no net saving here. It is a wash.”
Moreover, given the fact that Americans using coins less frequently than notes, GAO suggests it takes 1.5 dollar coins to replace each dollar bill, which enables the government to start breaking even after the first 10 years.
Rep. Carolyn Maloney, D-N.Y., raised the concern about the necessity of the replacement since many electronic payment methods are coming into the picture.
“We are really moving to an electronic system in banking. We are moving to paying everything electronically: debit cards, charge cards, all kinds of different cards,” Maloney said during the hearing. “We are moving to a card situation particularly with younger people. My daughters don’t carry money, they don’t carry phones, everything is on a card.”
Meanwhile, a supporter of the act reveals another side of the story. Philip Diehl, former director of United States Mint, said that dollar coins do not circulate because the Federal Reserve refuses to remove the dollar note.
“The Federal Reserve buys coins from the Mint at full face value… The FRB buys notes from the Bureau of Engraving and Printing at cost,” Diehl said in his statement. “Eliminating the dollar note denies the FRB a significant source of its profits.”
Rep. David Schweikert, R-A.Z., who sits on the House Committee on Financial Services, introduced the Currency Optimization, Innovation, and National Savings Act, or COINS Act, in September 2011. The act was referred to the Subcommittee on Domestic Monetary Policy and Technology in October.
Sen. Tom Harkin and Sen. John McCain introduced a similar bill in January of this year. Both of them represent states that are home to businesses that profit from the production of dollar coins.