Will The US Bring Back The $1 Coin?

The US Congressional watchdog, the Government Accountability Office (GAO) says bringing back the $1 coin in replacement of the $1 note seems viable.

The GAO writes, (HT Mark Perry) [bold emphasis mine]

According to GAO’s analysis, replacing the $1 note with a $1 coin could save the government approximately $5.5 billion over 30 years. This would amount to an average yearly discounted net benefit—that is, the present value of future net benefits—of about $184 million. However, GAO’s analysis, which assumes a 4-year transition period beginning in 2011, indicates that the benefit would vary over the 30 years. As shown in the figure below, the government would incur a net loss in the first 4 years and then realize a net benefit in the remaining years. The early net loss is due in part to the up-front costs to the U.S. Mint of increasing its coin production during the transition. GAO’s current estimate is lower than its 2000 estimate, which indicated an annual net benefit to the government of $522 million. This is because some information has changed over time and GAO incorporated some different assumptions in its economic model. For example, the lifespan of the note has increased over the past decade, and GAO assumed a lower ratio of coins to notes needed for replacement. GAO has noted in past reports that efforts to increase the circulation and public acceptance of the $1 coin have not succeeded, in part, because the $1 note has remained in circulation. Other countries that have replaced a low-denomination note with a coin, such as Canada and the United Kingdom, stopped producing the note. Officials from both countries told GAO that this step was essential to the success of their transition and that, with no alternative to the note, public resistance dissipated within a few years.

My added comments:

-The previous unsuccessful efforts to replace notes because of simultaneous circulation of both notes and coins is a vivid example of Gresham’s Law at work.

Gresham's law, according to wikipedia.org, is an economic principle "which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation." It is commonly stated as: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."

In short, undervalued coins are hoarded and overvalued notes remain in circulation.

-We seem to be seeing more signs from the political authority to float trial balloons or ‘conditioning’ of the public of the possible return of the precious metals as part of the monetary system.

Add to the above a milestone, Utah recently passed in the House a bill recognizing gold and silver as a legal tender. (hat tip Mises Blog)