Why the GAO Still Wants a Dollar Coin
NEW YORK (TheStreet) -- In a new bid to supplant the dollar bill with the dollar coin, Lorelai St. James, a director at the U.S. General Accounting Office, was scheduled to testify before Congress today that the switch would save "billions" for U.S. taxpayers, The Wall Street Journal reports.
"We continue to believe that the government would receive a financial benefit from making the replacement," says St. James, a director at the nonpartisan office, in prepared remarks ahead of a scheduled Congressional hearing.
Will the GAO gain any traction on the dollar coin front?
It's an uphill battle, for sure. The public seems dead set against any switch, while retailers, mass transit agencies and mining companies all have a vested interest in moving to a coin and are lobbying for its arrival on the national stage.
The U.S. Treasury made an effort last year to inject more dollar coins into the economy, but saw 40% of its total coin inventory returned, apparently unneeded and unwanted by consumers and businesses. And according to the Federal Reserve, the U.S. government is holding about $1.2 billion in U.S. dollar coin reserves, a number expected to rise to $2 billion by 2016.
St. James is likely to point to a February study from the GAO saying replacing the $1 note with the $1 coin would provide net savings of $4.4 billion over 30 years - or about $146 million annually.
But that differs from a similar study from the GAO last year that pegged the savings at $5.5 billion over 30 years, or about $184 million every year.
How does the GAO explain the roughly $1 billion difference? Here's how:
This benefit, which GAO estimated using an economic model based on a set of assumptions, was entirely attributable to "seigniorage," a term defined as the difference between the cost of producing coins or notes and their face value. Seigniorage reduces government borrowing and interest costs, resulting in a financial benefit to the government. As GAO noted, the estimated net benefit could increase or decrease with changes in the assumptions.
Up north, the Canadian government recently switched from the dollar bill to the dollar coin and found it saved 10 times more than it had originally estimated.