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Change for a Dollar?

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It looks like those pennies really do add up after all, as the Government Accountability Office (GAO) and the White House gear up to reintroduce several dust coated proposals to cut costs in printing dollar bills and minting small value coin. The idea, previously pitched to Congress at least once for the last 22 years, is to take the one dollar bill and convert the paper note back to a coin while improving the production process for pennies and nickels. Not a super ambitious plan, considering that the amount of money it saves over 30 years amounts to less than $150 million per year, but when Uncle Sam is looking for any way to cut corners $150 million is still, $150 million. While slightly more inconvenient to carry a few more coins in our pockets, recasting small dollar amounts as coin and improving production of nickels would be worth implementing in light of the rankling in Washington over federal spending despite fairly modest savings.

Making Change

For the U.S. Mint, production of both coin and paper dollars is fairly cheap with each $1 dollar bill costing about 5 cents and each $1 coin costing around 30 cents. However there’s a drastic difference in shelf life between the two as the metal coins can stay in circulation for up to 30 years while paper notes last about five. At these rates, for every one metal dollar coin, six paper dollars come and go, so metal coins are cheaper in the long term, and the government can save millions on production costs since the Mint wouldn’t need to recast new coins as often as it needs to print new bills.

Pennies and Nickels are problematic because they cost the government more to make them than they’re actually worth. With paper and coin dollars, the cost to actually produce the currency is less than the value of the note or coin itself so the government makes a profit once it sells the dollars to Americans. On the other hand pennies and nickels cost much more than their actual value, 2.4 cents per penny and 11.2 cents per nickel. Today’s pennies are mostly zinc coated in copper and nickels are about three quarters copper and one quarter nickel. All of these metals are fairly expensive, not to mention issues with corrosion in modern pennies and increased demand for the metal globally. To solve this problem, the Treasury Department is looking for a new composition for both coins that would be cheaper to acquire, produce, and last longer.

How Much Would Uncle Sam Save?

According to reporting from CNNMoney, the GAO estimates that converting paper dollars over to metal coins would save the federal government $4.4 billion dollars over 30 years, about $146.66 million per year. The numbers for pennies and nickel conversions are speculative at best since there’s not yet a solid proposal for what the new composition would be, but Treasury looks to find something that could cut down on the $20.556 billion per year price tag the coins carry.

Will America Go For It?

Interestingly enough, the Treasury Department actually halted the production of the one dollar coin because of the widespread resistance to the metal coin in place of the paper reserve note. In fact, it holds about $1.4 billion in dollar coins, and slowed production has saved the government some $50 million dollars since last December. According to Treasury, resistance from vending machine makers and a lack of demand for coin dollars warranted the stop, but with the economy still struggling to recover wear and tear on smaller bills like $1’s and $5’s has increased since they’re exchanged more often than $20’s or $100’s.

How Hard Would The Changes Be?

Converting small bills to coins would be a fairly simple task, particularly because the Treasury already has $1.4 billion in dollar coins ready to go into circulation. All it would need to do is replace paper dollars with coins as the paper notes leave circulation or are destroyed, and eventually the supply of paper dollars would be completely supplanted by the coins. The bigger problem is finding a new makeup for the penny and nickel, and there are few proposals on the table. During WWII these coins were minted from steel to conserve copper for the war effort, but now steel would prove a cheaper alternative since prices for steel are much cheaper than copper or zinc. The Mint could also stand to find a cheaper alternative to buying prefabricated (they come ready-to-stamp) coins ,a process that accounts for much of the added costs of these coins.

Last Words

Overall this is a pretty good idea, especially with the federal government looking for any way to save money. Personally I’d like to see coins for the $1 and the $5 bills since they’re exchanged enough to limit their lifespan to just under five years. Keep in mind that other countries such as Great Britain, Canada, and the EU countries use coins for amounts larger than one full unit of their currency and transactions work just as well. With the fiscal cliff looming, any idea that saves some money is a good idea and why not? Those pennies add up!

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About Alexander J Smith III

  • http://www.dougfun.com Doug

    Correction — the US Mint does not make paper currency. The US Mint only makes coins. The US Bureau of Engraving and Printing makes paper currency.

  • Michael

    If the bill costs 5 cents and lasts 5 years, and the coin costs 30 cents and lasts 30 years, isn’t the total cost over a 30-year period exactly the same (with a greater up-front cost now)? Maybe I’m missing something…

  • Greg

    Michael…I wondered the same thing, but after looking, it appears to be a misprint or a correctly quoted misstatement. Other sites said that dollar bills last 18 to 22 months.

  • Alexander J Smith III

    -Doug

    Good call there, I’ll have them correct that sentence.

    -Michael & Greg

    So the math does look funny, and part of that is my fault because I rounded their statistics. To clarify, according to the Federal Reserve Board Of Governors website, the estimated lifespan of a One Dollar Bill is 4.8 years.

    When I looked at the figures CNN gave I did a comparison of growth in cost of coins versus bills using an exponential growth formula to test how much 10 dollars of currency would cost if:

    Costs of production for both remained constant assessed over a 30 year period

    So for paper bills that looked like: 10(1+0.05)^6.25 versus 10(1+0.3)^1 for coins. When you calculate it this way, the paper does cost more. It’s not a lot, but it’s there.

  • Alexander J Smith III

    Though I think the idea the team at CNN who reported on it was trying to get at was that paying upfront made more economic sense than continually paying out to replace your supply over a shorter term. But if there are any better stats for the lifespan of dollar bills definitely post them up!

  • Dr Dreadful

    My native UK has had one and two-pound coins for many years. They were introduced precisely because the paper notes got worn out so quickly and cost more than they were worth to produce. However, they are very bulky and if you amass a lot of them (as is likely if you tend to prefer cash over cards) it can be quite a hassle, especially as there are six other coins in general circulation.

    I like the simplicity of the American monetary system, with only four coins in widespread circulation, and of course bills are much lighter and easy to carry around than coins (though why they can’t be printed in different sizes and colours to make it easier to distinguish what they are is beyond me).

    Australia got around the paper vs metal dilemma by printing plastic banknotes, which are as thin and light as paper but far more durable. When we were on vacation there a few years ago, my wife found a $20 note floating in the surf. A quick wipe dry and it was as good as the day it left the mint. Not sure how much the plastic notes cost to produce, though, but it’s probably significant.

    Coins do have that satisfying I’m-rich weight to them, but that’s hardly a practical advantage.

  • Clavos

    My native UK has had one and two-pound coins for many years…

    Wow, I bet they wear out your pockets fast!

  • Dr Dreadful

    Yes, they do, as a matter of fact! Perhaps the government should put some of the money they’ve saved from not printing one pound notes into a trouser allowance for every UK citizen. Or maybe we should bring back those money pouches that Robin Hood was always swiping from the rich merchants he rolled over. Those were the days.

  • Dr Dreadful

    Incidentally, why do Americans always insist on pronouncing “Robin Hood” with all the emphasis on the first syllable, as if it were a state of being rather than someone’s name: “Robinhood” – the condition of being Robin?

    By the same token, perhaps we should refer to “Alexandersmith” – a craftsman who fashions busts of Alexander the Great, perhaps?