In a 44-page report released March 21 by the Government Accountability Office, the agency recommends Congress grant the Treasury secretary the authority to alter the metal composition of circulating coins if the new metal compositions reduce the cost of coin production. 

The same report also determined that replacing the $1 note with a $1 coin would result in net loss to the government.

The report was delivered to Sen. Mike Enzi, R-Wyo., chairman of the Senate Committee on the Budget.

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The GAO recommends providing the Treasury secretary “with the authority to alter the metal composition of circulating coins if the new metal compositions reduce the cost of coin production and do not affect the size, weight, appearance, or electromagnetic signature of the coins.”

Copies of the report were also sent to the Treasury Department, the U.S. Mint, Bureau of Engraving and Printing and Federal Reserve.

The GAO undertook a study to examine any financial benefit of switching to a $1 coin from the $1 note, which the agency deemed “unlikely,” while finding that “changing [the $1] coin metal content could result in cost savings.”

The GAO report explains that the United States spent $1.3 billion in 2017 to produce, process and circulate U.S. coins and paper money for use in the economy.

Since 2006, the production costs for the cent and 5-cent coin have exceeded their face value, according to the report.

The Mint has conducted research and development since 2010 into compositional alternatives to the current metals and alloys, pursuant to the Coin Modernization, Oversight and Continuity Act of 2010.

The Mint’s research has concluded that, while alternatives are possible for the 5-cent coin composition, none is identified that would bring the cost of cent production below one cent.

Dollar: note vs coin

The GAO found that, depending on the scenario, replacing the $1 Federal Reserve note with a $1 coin could result in a net loss to the government of up to $2.6 billion over 30 years.

The U.S. Mint continues to strike $1 coins, but only for numismatic sales in rolls and sets.

According to the GAO’s analysis, “the government would likely incur a net loss over 30 years if it replaced the $1 note with a $1 coin.”

“We conducted a number of simulations that used different sets of assumptions to estimate the net benefit to the government of replacing the $1 note with a $1 coin,” according to the GAO’s findings. “In almost every simulation, the net benefit to the government from switching to a $1 coin was negative, or an overall net loss.”

The GAO explains that for each set of assumptions, the agency “simulated the status quo scenario in which notes are not replaced by coins, as well as two replacement scenarios.

??Under “gradual replacement,” the Federal Reserve would replace $1 notes with $1 coins as the notes became unfit for circulation.

??Under “active replacement,” notes would be replaced by coins more quickly because the Federal Reserve would destroy unfit notes as well as some fit notes each year and replace them with $1 coins.

“In both replacement scenarios, we assumed that the public would increase its holdings of cash when coins are used instead of notes and that the replacement ratio would be 1.5 coins for each note,” according to the GAO report. “We found that the present value of the net loss incurred by the government over 30 years would be about $2.6 billion with gradual replacement and about $611 million with active replacement.”

The Mint currently produces $1 coins for the Native American and American Innovation series.

No $1 coins have been struck for circulation since former Treasury Secretary Timothy F. Geithner suspended such production on Dec. 13, 2011. The James A. Garfield Presidential dollar is the last $1 coin struck and released into circulation.

Cent, 5-cent costs

The Mint estimated during Fiscal Year 2017 the bureau stood to save approximately $27 million annually if production of the Lincoln cent was suspended. For FY 2017, the Mint lost $27.3 million from the combined production at the Denver and Philadelphia Mints of 8.4 billion cents.

Projected savings in future years would fluctuate with the price of metals, in the case of the cent, zinc and copper. Suspending cent output would be implemented over a two-and-a-half-year period. The first year, according to the GAO, would be reserved for planning and preparation for the suspension, with the remaining one and a half years dedicated to ending contracts with suppliers.

The U.S. Mint currently secures ready-to-strike cent planchets from Jarden Zinc Products in Greenville, Tennessee.

The U.S. Mint estimates savings of between $2.2 million and $9.1 million annually over a 10-year period if the bureau changed the alloy of the Jefferson 5-cent coin from 75 percent copper, 25 percent nickel, to 80 percent copper and 20 percent nickel.

Mint estimates are based on Fiscal Year 2017 production of 1.3 billion 5-cent coins at a cost of $86 million.

Savings would fluctuate based on metal costs and the number of coins needed for commerce.

In FY 2017, the cost to strike a 5-cent coin was 6.6 cents, which would have dropped to 6.4 cents had the alloy been 80/20 copper-nickel, and 5.9 cents if the Mint opted for an alloy of copper, nickel, manganese and zinc.

The blanks from which finished planchets are made for the 5-cent coin are executed at the Denver and Philadelphia Mints from coil strip supplied by Olin Brass Corp. and PMX Industries. 

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