A Dumb Idea

by: Dr. Lynn Reaser

bill_vs_coinAs Congress and the President struggle to find ways to reduce the deficit, the General Accounting Office (GAO) has proposed that replacing paper dollar bills with coins would save the government $4.4 billion over thirty years.  While an average savings of $147 million is tiny relative to budget deficits that have been running $1.0 trillion or more annually, perhaps any savings should be investigated.

Unfortunately, this idea should be rejected quickly.  Consumers and businesses have shunned the dollar coin in the past.  Currently, 1.4 billion of them are stored in Federal Reserve Bank vaults, which is enough to satisfy commercial demands for the next 40 years.

Dollar coins are more expensive to produce than dollar bills, with each costing less than $1.00.  The alleged “savings” accrue because the government would book as a “profit” the difference between the face value of the current dollar bill and the coin’s production cost.  This is a curious way to book budget savings.  A better way to reduce costs would be to encourage the growth of electronic exchange.

Bill vs. Coin. 2012. Picking PodcastsWeb. 29 Jan 2013.


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