In February 2012, we reported that the increased seigniorage resulting from replacing $1 notes with $1 coins could potentially offer $4.4 billion in net benefits to the government over 30 years. We determined that seigniorage was the sole source of the net benefits and not lower production costs due to switching to the coin, which lasts much longer than a note. Seigniorage is the financial gain the federal government realizes when it issues notes or coins because both forms of currency usually cost less to produce than their face value. This gain equals the difference between the face value of currency and its costs of production, which reflects a financial transfer to the federal government because it reduces the government’s need to raise revenues through borrowing. With less borrowing, the government pays less interest over time, resulting in a financial benefit. The replacement scenario of our 2012 estimate assumed the production of $1 notes would stop immediately followed by a 4-year transition period during which worn and unfit $1 notes would gradually be removed from circulation. Based on information provided by the Mint, we also assumed that the Mint would convert existing equipment to increase its production capability for $1 coins during the first year and that it would take 4 years for the Mint to produce enough coins to replace the currently outstanding $1 notes. Our assumptions covered a range of factors, but key among these was a replacement ratio of 1.5 coins to 1 note to take into consideration the fact that coins circulate with less frequency than notes and therefore a larger number are required in circulation. Other key assumptions included the expected rate of growth in the demand for currency over 30 years, the costs of producing and processing both coins and notes, and the differential life spans of coins and notes. We projected our analyses over 30 years to be consistent with previous GAO analyses and because that period roughly coincides with the life expectancy of the $1 coin. As shown in figure 1, we found that the net benefit accruing each year varied considerably over the 30 years. More specifically, across the first 10 years of our 30-year analysis, replacing the $1 note with a $1 coin would result in a $531 million net loss or approximately $53 million per year in net loss to the government. The early net loss would be due in part to the up-front costs to the Mint of increasing its coin production during the transition, together with the limited interest expense the government would avoid in the first few years after replacement began. This estimate differs from our 2011 estimate, which found that replacement would result in a net benefit of about $5.5 billion over 30 years (an average of about $184 million per year) because the 2012 estimate takes into account two key actions that occurred since our 2011 report, specifically: In April 2011, the Federal Reserve began using new equipment to process notes, which has increased the expected life of the $1 note to an average of 56 months (or 4.7 years), according to the Federal Reserve, compared with the 40 months we used in our 2011 analysis.over 30 years and thus reduces the expected net benefits of replacing the $1 note with a $1 coin. The longer note life reduces the costs of circulating a note In December 2011, the Treasury Department announced that it would take steps to eliminate the overproduction of dollar coins by relying on the approximately 1.4 billion $1 coins stored with the Federal Reserve as of September 30, 2011, to meet the relatively small transactional demand for dollar coins. This new policy would reduce the cost associated with producing $1 coins that we estimated in the status quo scenario and, therefore, would reduce the net benefit, which is the difference in the estimated costs between the status quo scenario and the replacement scenario. However, like all estimates, there are uncertainties involved in developing these analyses. In particular, while the up-front costs to the Mint of increasing its coin production during the transition is reasonably certain–– in large part because it is closer in time––the longer-term benefits, particularly those occurring in the later years, involve greater uncertainty because of unforeseen circumstances that could occur farther into the future. Nonetheless, looking at a longer time period allows for trends to be seen. Moreover, changes to the inputs and assumptions used in our analysis could significantly change the estimated net benefit. For example, in 2011, we compared our status quo scenario to an alternative scenario in which the growing use of electronic payments—such as making payments with a cell phone—results in a lower demand for cash and lower net benefit. If Americans come to rely more heavily on electronic payments, the demand for cash could grow more slowly than we assumed or even decrease. By reducing the public’s demand for $1 currency by 20 percent in this alternative scenario, we found that the net benefit to the government would decrease to about $3.4 billion over 30 years. In another scenario, we reported in 2012 that if interest savings because of seigniorage were not considered, a net loss of approximately $1.8 billion would accrue during the first 10 years for an average cost of $179 million per year—or $2.8 billion net loss over 30 years. While this scenario suggests that there would be no net benefits from switching to a $1 coin, we believe that the interest savings related to seigniorage, which is a result of issuing currency, cannot be set aside because the interest savings reflects a monetary benefit to the government. Our estimates of the discounted net benefit to the government of replacing the $1 note with a $1 coin differ from the method that the Congressional Budget Office (CBO) would use to calculate the impact on the budget of the same replacement. In the mid-1990s, CBO made such an estimate and noted that its findings for government savings were lower than our estimates at that time because of key differences in the two analyses. Most important, budget scorekeeping conventions do not factor in gains in seigniorage in calculating budget deficits.expense avoided in future years by reducing borrowing needs, which accounts for our estimate of net benefit to the government, would not be part of a CBO budget-scoring analysis. Additionally, CBO’s time horizon for analyzing the budget impact is up to 10 years—a much shorter time horizon than we use in our recent analyses. Two factors merit consideration moving forward. The first factor is the effect of a currency change on the private sector. Our 2011 and 2012 reports considered only the fiscal effect on the government. Because we found no quantitative estimates that could be evaluated or modeled, our estimate did not consider factors such as the broader societal impact of replacing the $1 note with a $1 coin or attempt to quantify the costs to the private sector. Based on our interviews with stakeholders representing a variety of cash-intensive industries, we believe that the costs and benefits to the private sector should be carefully weighed since some costs could be substantial. In 2011 we reported that stakeholders identified potential shorter- and longer-term costs that would likely result from the replacement. Specifically, shorter-term costs would be those costs involved in adapting to the transition such as modifying vending machines, cash-register drawers, and night-depository equipment to accept $1 coins. Such costs would also include the need to purchase or adapt the processing equipment that businesses may need, such as coin- counting and coin-wrapping machines. Longer-term costs would be those costs that would permanently increase the cost of doing business, such as the increased transportation and storage costs for the heavier and more voluminous coins as compared to notes, and processing costs. These costs would likely be passed on to the customer and the public at large through, for example, higher prices or fees. Most stakeholders we interviewed said, however, that they could not easily quantify the magnitude of these costs, and the majority indicated that they would need 1 to 2 years to make the transition from $1 notes to $1 coins. In contrast to the stakeholders who said that a replacement would mean higher costs for their businesses, stakeholders from the vending machine industry and public transit said that the changeover might have only a minimal impact on them. For example, according to officials from the National Automatic Merchandising Association, an organization representing the food and refreshment vending industry, many of its members have already modified their vending machines to accept all forms of payment, including $1 coins. In addition, according to transit industry officials, the impact on the transit industry would be minimal since transit agencies that receive federal funds were required under the Presidential $1 Coin Act of 2005 to accept and distribute $1 coins. The second factor that merits consideration is public acceptance. Our 2012 estimate assumes that the $1 coin would be widely accepted and used by the public. In 2002, we conducted a nationwide public opinion survey, and we found that the public was not using the $1 coin because people were familiar with the $1 note, the $1 coin was not widely available, and people did not want to carry more coins. However, when respondents were told that such a replacement would save the government about half a billion dollars a year (our 2000 estimate), the proportion who said they opposed elimination of the note dropped from 64 percent to 37 percent. Yet, two more recent national-survey results suggest that opposition to eliminating the $1 note persists. For example, according to a Gallup poll conducted in 2006, 79 percent of respondents were opposed to replacing $1 notes with $1 coins, and their opposition decreased only slightly, to 64 percent, when they were asked to assume that a replacement would result in half a billion dollars in government savings each year. We have noted in past reports that efforts to increase the circulation and public acceptance of the $1 coins—such as changes to the color of the $1 coin and new coin designs—have not succeeded, in part, because the $1 note has remained in circulation.