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<p>[QUOTE=&quot;Numbers, post: 1512166, member: 11668&quot;]Your assumptions are wrong.&nbsp; <img src="styles/default/xenforo/clear.png" class="mceSmilieSprite mceSmilie6" alt=":cool:" unselectable="on" unselectable="on" /></p><p><br /></p><p>The government doesn&#039;t &quot;borrow&quot; Federal Reserve Notes.&nbsp; Rather, the Federal Reserve buys up government bonds to use as backing for its issues of Federal Reserve Notes; the bonds would exist regardless of whether the FRNs existed.&nbsp; As long as the Fed owns those bonds, the interest that the government pays on them becomes part of the Fed&#039;s operating profit, which is deposited in the U.S. Treasury.</p><p><br /></p><p>So if we issue $1 FRNs, then the Fed has to hold on to about $10 billion in Treasury bonds to back those FRNs, and the Treasury winds up paying interest on those bonds to *itself*, rather than to China or somebody.</p><p><br /></p><p>If we got rid of the $1 FRNs and replaced them with $1 coins, then the Fed would sell off that $10 billion in Treasury bonds, and so the interest on those bonds would start leaving the Treasury for good, rather than being paid back into the Treasury in a circle.&nbsp; Compensating for this added expense would be the seigniorage produced by the issue of the $1 coins.</p><p><br /></p><p>It&#039;d basically be a wash, except for one thing.&nbsp; Coins circulate more slowly than bills--people tend to accumulate their coins in a change jar for a long time before cashing them in, and coins also spend longer periods of time sitting in vending machine hoppers and the like.&nbsp; So if we used $1 coins instead of $1 bills, we&#039;d need *more* $1 coins than we currently need $1 bills.&nbsp; To replace the existing 10 billion $1 bills, we&#039;d need somewhere between 15 and 25 billion $1 coins, depending on whose estimates you believe.</p><p><br /></p><p>Therefore, the seigniorage produced by using $1 coins would be larger than the interest savings produced by using $1 FRNs.&nbsp; That&#039;s the source of the $5.5 billion savings that keeps getting quoted.&nbsp; (Note that the cheaper production cost of the $1 coin is *not* the source of that savings--the $1 coin *is* slightly cheaper to produce in the long run, due to its longer lifespan, but the difference is so small that it doesn&#039;t even pay for the up-front cost of minting the initial supply of 15+ billion $1 coins.)</p><p><br /></p><p>Basically, the only reason the $1 coin looks like a money-saver for the government is that extra seigniorage that results from the increase in the number of $1-denomination-objects in circulation.&nbsp; And that seigniorage is, if you think about it, simply an interest-free loan to the government by the people who hold government-issued coins.</p><p><br /></p><p>So a switch from the $1 bill to the $1 coin wouldn&#039;t actually *save* the government any money.&nbsp; It&#039;d make the government better off by a few billion dollars, but only because the government would receive a few billion more dollars from the people.&nbsp; It&#039;s like raising taxes to reduce the deficit: raising taxes *does* reduce the deficit, but it doesn&#039;t address the reasons we&#039;ve got a deficit in the first place.&nbsp; Switching to $1 coins does the same thing: it reduces the deficit but doesn&#039;t actually reduce the amount that the government spends to keep an adequate supply of currency in circulation.</p><p><br /></p><p>For that reason, by the way, neither the Treasury nor the Fed nor the Congressional Budget Office considers the $1 coin to be a cost-saver.&nbsp; They don&#039;t include seigniorage in their budget calculations, for the reasons I&#039;ve just explained.&nbsp; So when the CBO scores this $1 coin proposal, they&#039;ll say that it *increases* projected government spending.&nbsp; Which isn&#039;t going to look good in the present political climate.</p><p><br /></p><p>So, yeah, this one&#039;s a non-starter, pretty much.</p><p><br /></p><p>(Before somebody asks: What about that huge pile of unwanted $1 coins that we&#039;ve already got in storage?&nbsp; The trouble is, the pile isn&#039;t huge enough: about 2 billion coins.&nbsp; We&#039;d need to mint another 13+ billion to replace all the $1 bills.&nbsp; The Mint would be working overtime for several years.)[/QUOTE]</p><p><br /></p>

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