At MoneyNews: The Easy Way for the Govt to Make $13.8 Billion

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The Easy Way for the Govt to Make $13.8 Billion
By Ed Moy at

Our federal government’s budget is a big mess, and the president and Congress aren’t making much progress to balance the books. One piece of low-hanging fruit that could benefit taxpayers to the tune of almost $14 billion is modernizing the U.S. currency from the dollar note to the dollar coin.

This change would be relatively painless. No government programs would be cut, no entitlement recipients would be hurt and no taxes would be raised. The company making the paper used for the dollar note would lose jobs, but the companies providing the metal for the dollar coin would gain jobs, netting out even from a macroeconomic perspective.

Here’s how the math works:

A dollar note costs roughly 5 cents to make and they last anywhere from 21 to 56 months. The cause for the difference is the velocity (how many times each note is handled, which increases in a good economy and wears out the notes faster) and technical improvements on how notes are made. A dollar coin costs 18 cents to make and is engineered to last 30 to 40 years.

In addition, the Federal Reserve pays the Bureau of Engraving and Printing the costs for making each note, while the United States Mint is paid the face value. The 82-cent difference between the face value and the cost of making the coin is a profit called seigniorage, which gets transferred to the Treasury to offset the federal government’s budget expenses.

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