From the U.S. Government Accountability Office, www.gao.gov Transcript for: Costs and Benefits to the US of Replacing the $1 Bill with a $1 Coin Audio interview by GAO staff with Lorelei St. James, Director, Physical Infrastructure Related GAO Work: GAO-12-307R: US Coins: Benefits and Costs of Replacing the $1 Note with a $1 Coin Under Three Scenarios Released: February 2012 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's February 2012. Last March, GAO reported that replacing the $1 bill with a $1 coin could save the U.S. government $5.5 billion over 30 years. A group led by Lorelei St. James, a director in GAO's Physical Infrastructure team, recently revisited the potential costs and benefits of such a transition under different scenarios. GAO's Jeremy Cluchey sat down with Lorelei to learn more. [ Jeremy Cluchey: ] This report follows up on a previous report about the costs and benefits to the U.S. government of replacing $1 bills with $1 coins. Can you give us some background about what prompted that previous report and what you found there? [Lorelei St. James: ] Sure. Over the last 20 years, GAO has provided Congress with several estimates of how much the government could save if it replaced the dollar note with the dollar coin. Our last estimate was 10 years old and Congress asked us for an update. And we found that such a replacement would result in a net benefit to the government of about $5.5 billion over the next 30 years, and that averages out to be about 180 million per year. And the benefits that were not achieved evenly in the first 4 years—there would be a net cost to the government due to the up-front cost of producing a large number of coins. And the 5th year and subsequent years we would see a net benefit. [ Jeremy Cluchey: ] In this current report, one of the things you did was to update that estimated cost savings. What did you find? [Lorelei St. James: ] Well, we felt it was first important to update our 2011 number as a point of comparison for the three scenarios, and we made this update to account for several factors that had changed since our analysis. Most notably, we saw that in December the Treasury announced that it would stop producing $1 coins until it had used up the over 1 billion dollar coins that were being stored, and we adjusted our analysis accordingly. And with this and several other updates in our analysis, we found that the net benefit, or seigniorage in this case, to the government is about $4.4 billion over the next 30 years. [ Jeremy Cluchey: ] You mentioned the term seigniorage and that's pretty critical to understanding these estimates. What do we mean by this term? [Lorelei St. James: ] Well in simple terms, seigniorage is the difference between the face value of currency and the cost to produce it. For example, a dollar coin only cost about 15 cents to produce, and the federal government realizes a financial gain when it issues notes and currency because seigniorage reduces the government's need to raise revenues through borrowing. So with less borrowing, the government pays less interest over time resulting in a financial benefit. [ Jeremy Cluchey: ] Your team also looked at a scenario that excluded the seigniorage factor. Can you talk about this estimate? [Lorelei St. James: ] We found that all of the net benefit from our 2011 analysis was due to seigniorage, and our three scenarios looked at a 10-year time frame rather than the 30-year time frame. When we excluded seigniorage from our analysis, the net loss was about 1.8 billion over 10 years, or about 180 million per year, and the net cost continue to be incurred in this scenario because although the life of the dollar coin is considerably longer than the life of the dollar note, coins cost considerably more than notes to produce, and in this scenario there was no seigniorage to offset those cost. And we believe that not including interest savings related to seigniorage omits an important monetary benefit to the government. [ Jeremy Cluchey: ] Finally, for taxpayers interested in understanding more about the pros and cons of transitioning potentially to a dollar coin, what's the bottom line of this report? [Lorelei St. James: ] With the current budget situation that we're all aware of, we felt Congress needs to be aware of all the viable options for gaining financial benefits, and replacing the dollar note with a dollar coin provides such a benefit over the long term. [ Background Music ] [ Narrator: ] To learn more, visit gao.gov and be sure to tune in to the next episode of GAO's Watchdog Report for more from the congressional watchdog, the U.S. Government Accountability Office.