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Government report may offer hope to Wincor Nixdorf

In a paper titled, "U.S. Coins: Replacing the $1 Note with a $1 Coin would Provide a Financial Benefit to the Government," the GAO said the government could save $5.5 billion over 30 years by replacing the $1 banknote with a $1 coin.

March 13, 2011

The United States Government Accountability Office (GAO) may have delivered some good news to Wincor Nixdorf Inc., which wants to sell its cash recycling ATMs in the U.S. but faces a challenge from $1 banknotes that would too quickly fill up the machines.

In a paper titled, "U.S. Coins: Replacing the $1 Note with a $1 Coin would Provide a Financial Benefit to the Government," the GAO said the government could save $5.5 billion over 30 years by replacing the $1 banknote with a $1 coin.

The government would achieve the saving through seigniorage, which is the financial gain the government achieves when it issues banknotes or coins because both forms of the currency usually cost less to produce than their face values.

According to the paper, which was released in March, the government would save funds with the $1 coin because it would not have to replace it as often as the $1 banknote. The median lifespan of coins is approximately 34 years compared with the median lifespan of banknotes which is 3.3 years.

The GAO’s analysis assumes a transition period to the $1 coin beginning in 2011. During the first four years, however, the government would lose money.

“The early net loss is due in part to the up-front costs to the U.S. Mint of increasing coin production during the transition,” the GAO said. The GAO indicated the U.S. Mint would have to spend $8 million to convert its production lines to produce large numbers of $1 coins.

It is not clear if the government would replace completely the $1 banknote with a $1 coin. The GAO has issued similar reports in the past, but Congress has not taken any action to replace the $1 banknote with a $1 coin because of public resistance. There are, however, 3 billion $1 coins in circulation that are held by private citizens.

The report noted that other countries, including Canada and the United Kingdom, have replaced the low-denomination bank notes with coins.The United Kingdom and Canada were successful because they stopped producing the banknotes.

“Officials from both countries told the GAO that this step is essential to the success of their transition and that with no alternative to the note, public resistance dissipated within a few years,” the GAO said.

The $1 banknote has challenged Wincor Nixdorf, which has introduced its CINEO line of cash-recycling equipment that is designed to reduce cash-handling costs, said Jens Bohlen, CEO of Wincor Nixdorf Inc., which is based in Austin, Texas. In addition, the machines eliminate the need for bank tellers to count and recount cash, Bohlen said.

CINEO, an acronym for Cash Intelligence NEO or New, does this through a system of interchangeable banknote-holding cassettes. The Automated Teller Safe, which is located behind the teller window, houses a maximum of seven cassettes. Each cassette holds a maximum of 2,200 banknotes of any denomination, including $10s and $20s.

If one of the ATM's cassettes runs out of cash, bank employees remove any one of the cassettes filled with banknotes from the Automatic Teller Safe or teller cash recycler. The employees then remove the empty cassette from the ATM, replacing it with a cassette filled with banknotes. The empty cassette is then installed inside the Automated Teller Safe, ready to accept more deposits.

The problem is that the U.S. economy circulates a tremendous number of $1 banknotes. The $1 bills quickly will fill up the cassettes, Bohlen said. To make matters worse, cardholders who withdraw funds from a cash-recycling ATM could receive large numbers of $1 bills, which they would not want, he said.

The $1 banknoteis unique to the United States. In European countries, where the euro is the currency, the smallest banknote is 5 euros (U.S. $6.78). Currency smaller than 5 euros are coins, such as 2 euros (U.S. $2.71) and 1 euro (U.S. $1.35). Coins are not recycled.

Wincor Nixdorf has installed additional capacity in its ATMs to accept $1 banknotes, said Alan Walsh, executive vice president of Wincor Nixdorf Inc.’s U.S. Banking Division. “We have handled the issue with technology,” Walsh said. The machines also can accept coins, he added.