DURING THE 1 970s AND 1 980s interest in the concept of privatization increased among both economists and policymakers. Numerous studies have suggested that production in the private sector is significantly more efficient than production in the government sector.l Following the publication of Hayek's (1976) seminal work on the denationalization of money, a number of proposals for allowing private currency issue have been advanced.2 The "free banking" literature, however, has generally focused on the implications of free banking for the financial system or its impact on the conduct of monetary policy. This paper will examine a system in which the production and issue of currency (both coins and notes) is transferred to the private sector, while monetary policy is conducted solely by the monetary authority.3 It will be shown that the potential benefits from privatization would exceed the gain in productive efficiency that might be expected from the production cost savings private firms could achieve. The General Accounting Office (GAO 1990) has estimated that replacing the dollar bill with a dollar coin would save the federal government an average of $318 million per year over thirty years. Surprisingly, savings in production costs accounted for only $41.4 million of this total. Most of the estimated savings would result from fact that demand for a dollar coin would exceed the demand for the dollar bill by an amount sufficient to increase seigniorage by $284 million per year.