Financial Impact of Issuing the New $1 Coin

Pursuant to a congressional request, GAO reviewed the financial impact of issuing the new $1 coin, focusing on the benefits of: (1) issuing 1 billion of the new $1 coins to circulate with the $1 Federal Reserve notes now issued; and (2) replacing all $1 Federal Reserve notes now in circulation with $1 coins.

GAO noted that: (1) the net benefit to the government of issuing 1 billion $1 coins this year will be $49.9 million; (2) according to the Bureau of the Mint, each dollar coin will cost an estimated $0.12 to produce, leaving about $880 million in gross proceeds; (3) from gross proceeds, GAO subtracted $2.8 million of Mint start-up costs, $44.5 million of Mint advertising and promotion costs, and $0.4 million of Federal Reserve processing costs, for net proceeds of $832.2 million for 1 year; (4) although the accounting and budgeting presentations of the net proceeds differ, in substance the $832.2 million net proceeds represent the amount of debt held by the public that the government will avoid by issuing coins; (5) at the current government long-term borrowing rate of 6 percent, this represents an interest avoidance, or net government benefit, of $49.9 million this year; (6) GAO also estimates that the benefit to the government of replacing all $1 Federal Reserve notes with $1 coins would be $522.2 million per year; (7) GAO arrived at this calculation by first estimating the net government benefit of issuing $1 notes only, which is $225.3 million, and then estimating the net government benefit of issuing $1 coins only, which is $747.5 million; (8) the difference is $522.2 million; (9) because $1 notes last only about 18 months before having to be replaced, the government has to produce about 5 billion of them per year to maintain the pool of 7.5 billion $1 notes now in circulation; (10) at a per unit production cost of $0.035, this costs $175.0 million, and it also costs the Federal Reserve about $49.7 million to process the $1 notes each year--for a combined production and processing cost of $224.7 million; (11) from these costs, GAO subtracted the amount of interest the government would avoid by issuing the 7.5 billion $1 notes rather than Treasury debt, which at the current 6 percent government long-term borrowing rate amounts to $450 million, for a net benefit from issuing the $1 notes of $225.3 million per year; (12) coins typically last 30 years before needing replacement; (13) the annual net benefit of issuing $1 coins, $747.5 million, thus would be $522.2 million greater than the net benefit of issuing $1 notes; and (14) the $1 coin would be less costly to the government because: (a) production costs for coins are lower over time than for $1 notes; (b) the government would have lower processing costs with a $1 coin; and (c) the government would avoid more interest costs because of the higher number of coins than notes held by the public.