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THE PRODUCTION AND CIRCULATION 

OF COINS AND CURRENCY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JUNE 11, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–83 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

STEVEN HORSFORD, Nevada 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE

JOHN CAMPBELL, California, Chairman 

BILL HUIZENGA, Michigan, Vice Chairman 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

ROBERT PITTENGER, North Carolina 

TOM COTTON, Arkansas 

LUKE MESSER, Indiana 

WM. LACY CLAY, Missouri, Ranking 

Member 

GARY C. PETERS, Michigan 

BILL FOSTER, Illinois 

JOHN C. CARNEY, JR., Delaware 

JAMES A. HIMES, Connecticut 

TERRI A. SEWELL, Alabama 

PATRICK MURPHY, Florida 

KYRSTEN SINEMA, Arizona 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 11, 2014 .................................................................................................... 1 

Appendix: 

June 11, 2014 .................................................................................................... 25 

WITNESSES 

WEDNESDAY, JUNE 11, 2014 

Felix, Larry R., Director, Bureau of Engraving and Printing, U.S. Department 

of the Treasury ..................................................................................................... 4 

Mills, Andrew, Director, Circulating Coin, The Royal Mint, United Kingdom .. 9 

Peterson, Richard A., Deputy Director, United States Mint, U.S. Department 

of the Treasury ..................................................................................................... 6 

St. James, Lorelei, Director, Physical Infrastructure Issues, U.S. Government 

Accountability Office ............................................................................................ 7 

APPENDIX 

Prepared statements: 

Fitzpatrick, Hon. Michael ................................................................................ 26 

Felix, Larry R. .................................................................................................. 27 

Mills, Andrew .................................................................................................... 35 

Peterson, Richard A. ......................................................................................... 193 

St. James, Lorelei ............................................................................................. 201 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Campbell, Hon. John: 

Written statement of former U.S. Representatives Jim Kolbe and Tim 

Penny, Honorary Co-Chairmen of the Dollar Coin Alliance ..................... 215 

Written statement of Louise L. Roseman, Director, Division of Reserve 

Bank Operations and Payment Systems, Board of Governors of the 

Federal Reserve System ............................................................................... 217 

Peterson, Richard A.: 

Written responses to questions submitted by Representative Fitzpatrick .. 226 

St. James, Lorelei: 

Written responses to questions submitted by Representative Fitzpatrick .. 227 

Written response to a question posed during the hearing by Representative Clay ......................................................................................................... 231 

(1) 

THE PRODUCTION AND CIRCULATION 

OF COINS AND CURRENCY 

Wednesday, June 11, 2014 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MONETARY

POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 11:31 a.m., in room 

2128, Rayburn House Office Building, Hon. John Campbell [chairman of the subcommittee] presiding. 

Members present: Representatives Campbell, Lucas, Pearce, 

Stutzman, Mulvaney, Pittenger, Cotton; Clay and Heck. 

Also present: Representative Stivers. 

Chairman CAMPBELL. The subcommittee will come to order. Good 

morning, everyone. Welcome to the Monetary Policy and Trade 

Subcommittee Hearing entitled, ‘‘The Production and Circulation of 

Coins and Currency.’’ I will now recognize myself for 5 minutes for 

an opening statement. 

We would all like to have more coins and currency. And we probably generally take it for granted. But it doesn’t happen by itself. 

The purpose of this hearing—which is something I think this 

subcommittee should be doing periodically—is just to examine our 

physical coins and physical currency that we have. And whether 

there is anything we should be looking at to change or do differently relative to said currency because confidence in the security 

of our money is one of the strengths of this country. 

We have had the benefit of a fairly stable exchange rate and in- terest-free loans on more than $1 trillion in money in circulation. 

But a good half of the physical currency in the form of $100 bills 

stays overseas. 

But it is good to think about this. There is a lot of discussion. 

I am sure this will be a topic that a penny—I am trying to think 

if I have one in my pocket right now. I actually don’t. 

Oh, the ranking member has a penny. There we are. Oh look at 

that, he has a bunch of pennies. 

One of the things we will be discussing is that this penny actually costs more than a penny to make. And some of our friends in 

Canada and in the United Kingdom have changed the makeup of 

their coins so that they don’t cost more than the nominal value of 

the coin to make. So that is one of the things we will be discussing 

today. 

But we will be looking at paper currency as well, as to the security of said paper currency, the volume of it that has been made. 

2 

And we need to also realize that in today’s world, a lot of currency 

is digital. And I don’t mean bit coins. 

At this time, we will leave bitcoins and dogecoins and litecoins 

and all the rest of them for another hearing. But I simply mean 

using the kind of currency that instead of looking like this, looks 

something like this, and shows up on your phone or in your credit 

card rather than with physical currency. 

So this hearing will be to analyze these things, look at these 

things, and hear from our distinguished panel of witnesses. Let me 

just briefly say who they are. 

We have Larry Felix, Director of the Bureau of Engraving and 

Printing with the U.S. Department of the Treasury. We have Mr. 

Richard Peterson, who is the Deputy Director of the United States 

Mint in the U.S. Department of the Treasury. We have Lorelei St. 

James, who is Director of Physical Infrastructure Issues at the U.S. 

Government Accountability Office or GAO. And we have Andrew 

Mills, who is the Director of Circulating Coin at the Royal Mint in 

the United Kingdom. 

So we have a panel of experts that we will be hearing from relative to coins and currency. And we look forward to their testimony. 

And with that, I will recognize the gentleman from Missouri, the 

ranking member of the subcommittee, Mr. Clay, for 5 minutes. 

Mr. CLAY. Thank you, Chairman Campbell, for holding this hearing regarding the production and circulation of coins and currency. 

The Federal Reserve Cash Product Office (CPO) is charged with 

supplying adequate amounts of coin and currency. The CPO acts 

through the district Federal Reserve Bank to distribute and store 

coins and currency. 

Last fall, the GAO found that the Fed manages coin and currency inventory that is aimed to ensure adequacy of supply. GAO 

suggested a number of methods that the Fed could take to improve 

its management. And I look forward to hearing from GAO regarding this issue. 

Also, with the growth, as you mentioned, Mr. Chairman, in increasing diversity of payment methods such as debit cards and online payments, I would like to know, what is the future for coins 

and paper money? And are we moving to a totally plastic payment 

system? 

Since the mid-2000s, the per unit cost of production and distribution of the penny and the nickel has exceeded each of the coin’s per 

unit face value. In the U.S. Mint’s most recent annual report for 

Fiscal Year 2013, the cost of production and distribution of the 

penny was $1.08, and the cost of the nickel production was $0.094. 

The U.S. Mint lost $55 million on minting and issuing the penny 

and $40.5 million on the nickel. And I would like to know, what 

is the cost of production and distribution of the remaining coins 

such as the $0.50 coin? 

Currently, Representative Stivers has introduced legislation that 

would mandate a change in the metallic composition of U.S. coins 

to plated steel to ease the cost of production. And I would like to 

know what is the position of the panelists regarding this legislation? 

3 

So again, thank you, Mr. Chairman. And we will keep on display 

my pocket full of coins just to have as a reference. 

Chairman CAMPBELL. Thank you. And you had better count 

those coins because it might be pretty easy for me to take them. 

The gentleman from North Carolina is recognized for 3 minutes 

for an opening statement. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Thank you for calling this hearing. And I thank each of the witnesses for being here today. 

I do think it is of interest to each of us to know that you know 

what effects this will have in terms of any possible disruptive 

change in the process, the fears, are they overblown by the public, 

how it could be handled, and really how fast this change could be 

made in a seamless fashion. 

Could it be done so with the new and existing coins? And what 

would be the problems of co-circulation? 

And one other question I would have is, can you make a penny 

for less than a penny? 

But I really appreciate your being here, and your thoughts today 

would be most welcome. Thank you. 

I yield back. 

Chairman CAMPBELL. The gentleman yields back. The gentleman 

from Washington, Mr. Heck, is recognized for 2 minutes. 

Mr. HECK. Thank you, sir. I won’t take the 2 full minutes. 

Insofar as this is my first opportunity to attend the Subcommittee on Monetary Policy and Trade as its newest member, I 

did want to take this chance to just express how gratified and 

pleased I am after wanting to be on this committee for such a long 

period of time. 

And to acknowledge that no small part of the reason was because 

of the reputation that both the chairman and the ranking member 

have for the way in which they provide leadership of this subcommittee. I am very gratified to be here. Thank you very much, 

sirs. 

Chairman CAMPBELL. Thank you. That is very kind. We both appreciate it, and we don’t deserve it, so okay. 

We asked the Federal Reserve to come testify today. They said 

they couldn’t. But they have sent us a statement which, without 

objection, we will enter into the record. 

And then, we also have a statement from the Dollar Coin Alliance which, without objection, we will also enter into the record. 

Okay. Opening statements having been completed, we will now 

move to our witnesses. 

Just as a reminder, Mr. Felix is Director of the Bureau of Engraving and Printing. And you were named Director in January of 

2006, so, you have been there for a little while. And you are responsible for overall operations of the Bureau of Engraving and 

Printing, and production of U.S. currency and other government-secured documents. 

Mr. Felix, thank you so much for being with us this morning. 

You are recognized for 5 minutes. 

4 

STATEMENT OF LARRY R. FELIX, DIRECTOR, BUREAU OF ENGRAVING AND PRINTING, U.S. DEPARTMENT OF THE TREASURY 

Mr. FELIX. Good morning. Thank you, Chairman Campbell, 

Ranking Member Clay, and distinguished members of the subcommittee, for holding this hearing and for inviting me to testify 

today on behalf of the Bureau of Engraving and Printing, and to 

talk about some of the initiatives. 

The BEP is the security printer for the United States Government, and we provide technical assistance and advice to other Federal agencies in the design and production of security documents 

which, because of their inherent value or other characteristics, require counterfeit deterrence. 

The BEP also reviews cash destruction and unfit currency operations at all of the Federal Reserve Banks. And as a free service 

to the public, we process claims for redemptions of mutilated paper 

currency. The mission of the BEP is to develop and produce United 

States currency that is trusted worldwide. 

BEP has two facilities operating in Washington, D.C., and Fort 

Worth, Texas. And each facility is capable of producing all denominations. On average, the BEP produces approximately 7 billion 

notes per year. The BEP also produces security documents on behalf of other Federal agencies. 

We work collaboratively through the Advanced Counterfeit Deterrence Committee, the ACD, which consists of the Board of Governors at the Federal Reserve System, the U.S. Secret Service, and 

the U.S. Treasury to improve counterfeit-deterrent features in our 

banknotes. But the primary reason for redesigning our notes is to 

continue to deter counterfeiting. 

Since the mid-1990s—the U.S. Government has introduced its 

first major redesign of notes in over 60 years. And the redesign, 

those designs really occurred because of the emergence of a new 

category of counterfeiters who are using and leveraging digital 

technology in order to replicate notes. 

October 8th of last year marked the introduction of the new $100 

note. And that in effect marks the completion of our most recent 

design series. 

I want to talk a little bit about meaningful access. A complaint 

was filed in the U.S. District Court in Washington, D.C., against 

the Treasury Department, alleging that United States currency violates Section 504 of the Rehabilitation Act because blind and visually impaired individuals aren’t able to denominate the United 

States currency. 

And so, an October 2008 court order decision directed that steps 

be taken to provide meaningful access to United States currency in 

our next redesign of notes. And we are beginning to plan for our 

next redesign of notes. 

The BEP has been actively engaged in identifying meaningful access solutions to fully comply with the court’s order, and while at 

the same time giving appropriate considerations to the interest of 

domestic and international users of currency, looking at the interests of the business community, and the cash handling and the 

cash-intensive industries. 

5 

The BEP proposed recommendations to the Secretary of the 

Treasury, who by statute has the sole authority for approving 

United States currency designs. The recommendations that we provided were: first, to pursue the development of a raised tactical feature for every note that we are legally, lawfully allowed to alter; 

second, to continue the use of large high-contrast numerals; and 

third, to introduce a Currency Reader Program. In 2011, the Secretary approved that three-prong strategy. 

A key component of that three-prong strategy is to establish a 

nationwide currency redistribution program. The Currency Reader 

Program is designed as an effective method to enable people with 

visual impairments to denominate their currency. 

The Currency Reader Program is expected to be a useful option 

for many, many years to come because: first, when we do introduce 

a tactually enhanced note, we will be doing it one denomination at 

a time; second, per congressional directions, we can’t alter the $1 

Federal Reserve note; and third, because we will be introducing it 

at a time when we expect both notes to co-circulate. 

We plan to launch this currency redesign program, pilot it this 

summer. And we will roll it out in 2015. 

Since the court order has come about, we have also been 

leveraging existing technologies that are available, and the BEP 

has introduced a new reader, a mobile app for the blind and visually impaired using—it is free to anyone who wants to download 

it. 

The BEP anticipates that it will also start working on selecting 

a tactical feature by January of 2015. And that is a priority for this 

organization. 

The ACD has indicated that the next note to be redesigned will 

be the $10 note. And it should have the new tactical feature and 

the enhanced security features. The $10 note was selected because 

it is a transactional note and it is also a low-volume note in terms 

of production. So we will be able to test and determine how the tactical feature works in circulation. 

However, if there is a threat to another denomination, we will 

change that. But as it stands right now, the next note will be a $10 

redesign. 

Chairman CAMPBELL. If you could wrap up your testimony, Mr. 

Felix, your time has expired. 

Mr. FELIX. Mr. Chairman, that concludes my remarks about initiatives at the BEP. I will be happy to answer your questions. 

[The statement of Director Felix can be found on page 27 of the 

appendix.] 

Chairman CAMPBELL. Thanks. I am sure you will be getting some 

questions. 

Mr. Peterson was named Deputy Director of the United States 

Mint on January 25, 2011. And before becoming its top executive, 

he served as the Mint’s Associate Director of Manufacturing for 2 

years. 

Thank you so much for being here. Did you bring any samples? 

But please, you are recognized for 5 minutes for your testimony. 

6 

STATEMENT OF RICHARD A. PETERSON, DEPUTY DIRECTOR, 

UNITED STATES MINT, U.S. DEPARTMENT OF THE TREASURY 

Mr. PETERSON. Chairman Campbell, Ranking Member Clay, and 

members of the subcommittee, I appreciate the opportunity to appear before you again today to discuss the United States Mint and 

coin production. 

The United States Mint is a vibrant team of 1,700 dedicated men 

and women. We operate two fiscally separate programs: a circulating coin program; and a numismatic program that includes collectable coins and our precious metal bullion coins. 

I last testified before you in November 2012. And I committed 

then that the Mint would continue to drive costs out of our manufacturing operations. I am pleased to report our results for fiscal 

2013. 

We shipped 10.7 billion coins to the Federal Reserve, an increase 

of nearly 18 percent from the 9.1 billion shipped in 2012. The general and administrative costs (G&A) of our circulating coin operations decreased another $4.7 million—7.6 percent—to $56.9 million. 

Since 2009, we have reduced the G&A costs of our circulating program by over 42 percent. Now that is real money. That is $41 

million of annual G&A expenses that have been eliminated. 

In short, our costs are down, and our production is up. These pro- ductivity improvements resulted in a $350 million transfer of seigniorage to the Treasury General Fund. 

In December of 2012, we provided our first report to Congress detailing the analysis and testing of possible alternative metals for 

our coinage. Since then, we have tested in much greater detail several promising alternatives. There are several key points to share 

at this time. 

First, the overarching mission of our circulating coin program is 

to facilitate commerce by minting and issuing circulating coins in 

quantities that the Secretary of the Treasury determines are necessary to meet the needs of the Nation. As our 2013 results show, 

the Mint is meeting that mission with a denomination portfolio 

that generates positive seigniorage. 

Second, cash is and will remain an important method for settling 

financial transactions. In a 2011 survey, the Federal Reserve Bank 

of Boston concluded that 65 percent of all transactions under $10, 

and 45 percent of all transactions under $25, were completed with 

cash. 

Third, our report in 2012 concluded that no alternative metal 

compositions would lower the cost of the penny. And it is highly 

unlikely that the cost of minting the penny will ever again fall 

below one-cent. 

Fourth, when other countries have made changes to their coinage 

and currency lineups, a key to the success of the effectiveness of 

the change was the communications plan that explained the 

change. 

Finally, change in the metallic composition of our coins will affect 

a variety of stakeholders in different ways. The Mint is actively 

seeking feedback from the vending, parking meter, coin-operated 

laundry, amusement, public transportation, banking, and supermarket industries. Our next report to Congress is due this DecemVerDate Nov 24 2008 18:40 Nov 19, 2014 Jkt 091147 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\91147.TXT TERRI
7 

ber, and we are committed to providing decision-makers with accurate and timely information. 

Our bullion program set a record for the number of ounces sold 

in 2013. Gold ounces were up 55 percent to 1.2 million ounces. And 

silver ounces were up 31 percent to 44.6 million ounces. 

Our American Eagle Bullion Coins remain the coin of choice for 

investors around the world. We are pleased that our suppliers have 

invested in capacity enhancements and that we are able to meet 

demand without restrictions or allocations. 

The United States Mint’s commemorative coin program honors 

people, places, events, and institutions of significance in American 

history and culture. We have two important and high-profile commemorative coin programs in 2014: the Civil Rights Act of 1964 

Commemorative Coin Program; and the Baseball Hall of Fame 

Commemorative Coin Program. The baseball program features 

curved coins, the first ever produced by the United States Mint. 

The Mint is actively engaged in regular outreach efforts and public awareness events for both programs that include Members of 

Congress, including John Lewis and full Financial Services Committee Ranking Member Maxine Waters, as well as several Baseball Hall of Fame members. 

Mr. Chairman, the United States Mint is a cost-effective, open, 

transparent organization that is meeting its core mission to 

produce circulating, precious metal bullion and numismatic coins. 

I thank you for your interest in our activities. And I am pleased 

to answer any questions that you may have. 

[The prepared statement of Deputy Director Peterson can be 

found on page 193 of the appendix.] 

Chairman CAMPBELL. Thank you, Mr. Peterson. 

Next, Lorelei St. James is a senior executive at the U.S. GAO, 

serving as Director of the GAO’s Physical Infrastructure Issue 

area. In this capacity, Ms. St. James has a wide-ranging portfolio 

covering issues such as the United States Postal Service, coin and 

currency—which is why you are here today—VA construction, and 

maritime infrastructure issues. 

There is a little controversy in a few of those areas, but we are 

not going to talk about those today. We are only going to talk about 

coins and currency. Thank you so much for being here. You are recognized for 5 minutes. 

STATEMENT OF LORELEI ST. JAMES, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. ST. JAMES. Thank you. Chairman Campbell, Ranking Member Clay, and members of the subcommittee, I am pleased to be 

here today to discuss the Federal Reserve’s management of the Nation’s coin inventory. 

At the end of Fiscal Year 2012, coins worth over $40 billion were 

in circulation. And in 2013, the U.S. Mint produced over 10 billion 

coins. 

My statement today is based on a report that we issued in October 2013. This report reviewed the Federal Reserve’s management 

of the coin inventory and includes recommendations to improve 

how the inventory is managed. 

8 

Within the Federal Reserve, the Cash Product Office, or CPO, 

manages the Nation’s coin inventory, distributes existing inventories of coins, and orders new coins from the U.S. Mint based on 

a forecasted demand. 

In 2009, CPO centralized coin management across the 12 Reserve Banks. Prior to this action, each Reserve Bank managed its 

own inventory, which sometimes resulted in either too many coins 

or not enough. This centralized system in part contributed to the 

43 percent decrease in coin inventory levels from 2008 through 

2012. 

Also in 2009, the CPO established national upper and lower inventory targets, which CPO uses to monitor inventory levels. For 

example, if inventory levels are above the upper target, CPO knows 

to order fewer coins. And if the levels are below the lower target, 

CPO may order more. From 2009 to 2012, we found that in most 

cases, inventory targets were met. 

CPO also manages the inventory on a daily basis, determining 

when to order new coins or move coins from one location to another 

or both. If there is an insufficient supply of coins to meet demand 

in a given location, and transferring coins from another location, 

known as an interbank transfer, would not be cost-effective, CPO 

orders new coins each month from the U.S. Mint based on a rolling 

forecast. 

In our review, we found that coin inventory costs totaled about $62 million in 2012, and that these costs had dramatically increased by 69 percent since 2008. We found CPO had not done a 

systematic review to determine why these costs had increased or 

if they can be reduced. And we recommended that the Federal Reserve direct the CPO to assess these costs. 

We also reviewed if CPO was following the key inventory practices we identified for coin management. We found it was substantially following collaboration and risk management, but only partially following key practices in three other areas. 

For example, in examining its forecasting model we found it was 

consistently under-ordering new coins when compared to actual demand, indicating that the forecast may be biased and that the 

model should be updated to reflect actual demand. 

In system optimization, we found that CPO has multiple sources 

of information, but didn’t use this information to optimize inventory management. We recommended that the Federal Reserve direct CPO to establish coin inventory goals and metrics and assess 

the accuracy of its forecast. 

We also discussed potential changes in the demand for currency 

with Federal Reserve officials. According to them, studies we reviewed, and government banking officials in Austria, Australia, 

and Canada, any change in the demand for currency will likely be 

a gradual decline as electronic means of payment increase. 

For example, in the United States, the use of debit cards has increased more than any other payment type, about 7.7 percent per 

year from 2009 to 2012. In 2010, CPO began to develop a long-term 

strategic framework to be done in phases to consider potential 

changes in currency demand over the next 5 to 10 years. At the 

time of our review, CPO had not established a date that the third 

phase of this effort would be completed. 

9 

In summary, we recommended that the Federal Reserve take additional actions to better manage the Nation’s coin inventory, and 

they agreed with our recommendations. 

Mr. Chairman, this concludes my statement. I would be happy 

to answer any questions you have. Thank you. 

[The prepared statement of Director St. James can be found on 

page 201 of the appendix.] 

Chairman CAMPBELL. Thank you very much. 

Finally, Mr. Andrew Mills is the Director of Circulating Coin at 

the Royal Mint, University of East Anglia and Cardiff in the 

United Kingdom. You have been in that position since 2009. And 

did you bring three shillings and twopence? Oh, you don’t do that 

anymore. All right. 

Mr. MILLS. Since 1971. 

Chairman CAMPBELL. Yes, I thank you so much for being here. 

You are recognized for 5 minutes. 

STATEMENT OF ANDREW MILLS, DIRECTOR, CIRCULATING 

COIN, THE ROYAL MINT, UNITED KINGDOM 

Mr. MILLS. Thank you. I would like to thank Chairman Campbell 

and the esteemed members of this subcommittee for inviting the 

Royal Mint to give testimony on our work to control the cost to 

produce circulating coins. 

Current business-as-usual demand for UK circulating coin is approximately one billion pieces a year. We have a total capacity to 

make four billion pieces. 

The remaining capacity is used to supply struck coin and blanks 

to overseas central banks and mints around the world. We also 

supply tooling, metal recovery services, and consultancy to these 

customers, which is why we describe ourselves as the world’s leading export mint. 

Over the years, the Royal Mint has developed a number of capabilities that enable us to control the cost of producing circulating 

coin for our customers. Our armor plating technology replaces expensive solid alloy coins with a mild steel core electroplated with 

either nickel, brass or copper. 

This single layer, or mono-plate, at typically 25 microns, allows 

for a lifetime in circulation in excess of 20 years. In contrast, multilayer plating has a thin outer layer of only 6 to 9 microns that can 

wear through in as little as 5 years in circulation, exposing the underlying copper layer. 

Our new award winning Integrated Secure Identification Systems (iSIS) technology for the first time brings a machine-readable 

high-security feature to our cost-effective armor plated coins that 

up until now was only available in bank notes. iSIS coins can be 

read at over 4,000 coins a minute, and provides a definitive binary 

authentication. It is either a genuine coin or it is a counterfeit. 

Unlike today’s electromagnetic sensing that has a wide acceptance window and varies over time, the high security iSIS additive 

is co-dispositive in the armor placing layer, and is therefore constantly exposed to be read as the coins wear in circulation. 

I will now summarize the cost controls that we have implemented on behalf of Her Majesty’s Treasury since decimalization in 

1971. To give a perspective of the scale of the cost savings, I have 

10 

calculated the metal saving of each of these changes since they 

were made using London Metal Exchange prices on the 31st of 

March 2014. 

The current exchange rate is on the order of $1.65 to 1 pound 

sterling. There have been four types of programs that have controlled the cost of U.K. circulation coins. The first, demonetization, 

the decimal half penny, ceased production in 1984, and in the last 

year of full issuance, 191 million were manufactured, at a metal 

cost of 1.4 million pounds. This cost then became nonrecurring. 

Secondly, the conversion of solid alloy coins to armor plated 

coins. In 1992, the 1p and 2p coins were converted from bronze to 

armor copper plated steel. The metal cost savings since this change 

has been 281 million pounds. 

To provide a sense of the scale difference between U.S. demands and that of the United Kingdom, and comparing the U.S. $0.01 to 

the U.K. 1p, since 1992 we have made 13 billion 1p coins and the 

U.S. Mint has made 190 billion one-cent coins. 

In 2009, Her Majesty’s Treasury announced that the 5p and 10p 

would be converted from copper nickel to armor nickel plated steel. 

And this change has saved 21 million pounds in metal costs. 

Reduction in coin sizes has also occurred. In 1992, the copper 

nickel 5p and 10p were reduced in size. These changes saved 135 

million pounds in metal costs. And in 1997, a smaller 50p was introduced, saving 29 million pounds. 

Finally, the proactive replacement program. The 2012 Autumn 

Statement announced the active withdrawal of the copper nickel 5p 

and 10p coins for circulation. In the first year of operation, it delivered 15 million pounds of benefit to Her Majesty’s Treasury, and 

indeed the U.K. taxpayer. 

The U.K. coinage model ensures that new coins are not struck 

when surface coins are held by the cash industry members. Surface 

and deficit cash industry members trade coins between one another 

on a weekly basis. 

Overall costs are also optimized by using an annual forecasting 

process agreed in the market between UK Payments, an industry 

body that represents retail banks and cash handling companies, 

the Royal Mint, and Her Majesty’s Treasury. 

For these changes to take place, I cannot emphasize enough how 

important stakeholder engagement is from early on in the process. 

We have regular dialogue with stakeholders that represent different facets of the coin acceptance industry, including vending, 

parking, amusements and retail. 

We also have close working relationships with major coin mechanism and sorting companies that provide equipment in the United 

Kingdom. And this is in addition to concert with institutions such 

as the Royal National Institute for the Blind. 

In closing, the Royal Mint has significant expertise and experience in this field. And iSIS provides a novel, high-security feature 

in lower-cost plated coins. We will be delighted to work with stakeholders here in the United States. 

Thank you once again for inviting me to give this testimony, and 

I welcome any questions that you may have. 

[The prepared statement of Director Mills can be found on page 

35 of the appendix.] 

11 

Chairman CAMPBELL. Thank you. Thank you all very much for 

your testimony. I will now recognize myself for 5 minutes for the 

first series of questions. And my first questions will be to you, Mr. 

Mills. 

You just described a lot of changes over a period of time from 

eliminating a coin, the halfpenny, to changing the composition and 

even the size of various coins. And you mentioned stakeholders, 

vending, parking, et cetera. And all the savings to the Treasury, 

and up here, we are certainly interested in saving money to our 

Treasury. 

But there is the question—what kind of disruption did this 

cause? How difficult was it for the private sector to accommodate 

all of those various changes in coin type, composition, and size? 

Mr. MILLS. Yes. Thank you very much, Mr. Chairman. 

Our aim in any of these changes is to provide as little disruption 

as possible, be that for people within the industry or the general 

public. And I think a good measure is our most recent change, 

which was the introduction of the nickel plated steel 5p and 10p 

coins. 

We engaged with stakeholders very thoroughly. A major stakeholder is the Automatic Vending Association in the United Kingdom, which represents much of the vending industry. And it was 

on their advice that indeed we took 2 years to introduce these new 

coins from the point of the announcement in September 2009 to 

their final introduction in January 2012. 

Chairman CAMPBELL. Was that to give them time to— 

Mr. MILLS. Absolutely. It was absolutely to minimize the impact 

on their members in terms of making sure that the software 

changes that were necessary could be carried out with incurring 

very little or no additional cost. 

Chairman CAMPBELL. How do you and how does everyone deal 

with it if you have two different coins in circulation at the same 

time that are of completely different size or composition but they 

have the same nominal value? 

Mr. MILLS. Yes, thank you. The change to the 5p and 10p, in fact 

as far as the general public is concerned, they would really tell 

very little difference. They are the same diameter and look, for all 

intents and purposes, identical to one another, apart from the fact 

that one is magnetic because it is based on 94 percent, 96 percent 

steel, and the other one is non-ferrous so it is non-magnetic. 

One of the big learnings from engaging with the vending industry is that they prefer co-circulation to occur for the shortest possible time. So the fewer coins their machines accept and have to 

recognize, the better that is for them and their members. That is 

why we introduced the proactive replacement program to actively 

withdraw the copper nickel 5p and 10ps to the benefit of the vending industry. 

Chairman CAMPBELL. All right. Thank you. 

Mr. Peterson, Mr. Mills described a whole bunch of composition 

which is way over my very limited chemical and metallurgy knowledge. Is there stuff they are doing in the U.K. that we are not but 

we ought to be or should be thinking about doing? 

Mr. PETERSON. Sir, could you repeat the last part of that question? 

12 

Chairman CAMPBELL. As far as some of the composition things 

that Mr. Mills talked about in the U.K., are we doing those things 

here? Or should we? Or have we decided not to? 

Mr. PETERSON. Absolutely. In 2011, the United States Mint 

began an active research and development program to explore alternative metals for our coinage. 

And really, on the metallurgy piece, there are four metals on the 

periodic table of the elements that are in play. These are zinc and 

iron in the form of steel, lead, and aluminum. 

We are not going to make our coins out of lead, and aluminum 

is a very difficult metal to work with. So really, we are down to 

zinc and steel that are in play. 

Chairman CAMPBELL. Okay. Thank you. 

Ms. St. James, when you look at the millennial generation, they 

use physical currency less than Mr. Clay and I do. And particularly 

coins. Is the Federal Reserve—are they anticipating, are they looking at all this sort of thing in terms of what impact that has on 

physical currency? 

Ms. ST. JAMES. In their strategic plan that they have, that they 

started in 2010, they are looking at and trying to better monitor 

trends. 

And as I discussed in my written statement, with the countries 

that we talk to, Australia to Austria and Canada, they believe that 

there will be a gradual decline in currency, but there will still be 

what is called the unbanked. There will still be a portion of society 

who will always use coins. 

So one of the reasons why we made the recommendations to the 

Fed was for them to have more data to better monitor what was 

happening and so they could see those changes in demand with 

more fidelity than they do right now. 

Chairman CAMPBELL. Thank you. 

I had questions for Mr. Felix, but I will have to get to them in 

the second round. 

I do have with me a $20 billion Zimbabwe note, which I always 

carry around to prove that it is really not about the paper. It is 

what stands behind the paper that is the most important. 

But with that, my time has expired, and I will yield 5 minutes 

to the ranking member, the gentleman from Missouri, Mr. Clay. 

Mr. CLAY. Thank you, Mr. Chairman. Perhaps I can borrow $10 

billion from the $20 billion. 

Chairman CAMPBELL. I actually have—this is $20 billion. I have 

a $10 trillion note as well. 

Mr. CLAY. Mr. Felix, a White Paper was issued by the BEP in 

2013 which reported that reinjured notes with tactile features designed to provide meaningful access to the blind and visually impaired won’t be available for circulation for another 6 years. Can 

you talk about the process associated with designing and issuing 

the new notes? And help us understand why it will take 6 years? 

Mr. FELIX. Thank you, sir. 

The reality is that we design currency to deter counterfeiting. 

And so, the longer lead time for our currency design is to get the 

overt and covert features in the currency as we introduce the new 

currency design. And as we introduce the new currency design, we 

13 

also intend to apply the tactile feature, as the court had given us 

the opportunity to introduce it at the new design. 

So the longest lead time in that is not so much tactile features, 

but acquiring classified central bank features and being able to deploy them into the bank notes, as well as the security features that 

people can just look at and determine whether or not it is authentic 

or not. 

Mr. CLAY. And now, there is an app that the blind can use that 

will tell you the denomination of the note? 

Mr. FELIX. Yes. There are several options. We have introduced 

a downloadable app on the Apple iPhone that you can use. 

Right now, in conjunction with the Department of Education, 

they have introduced one Apple/Android. And of course, we will 

also be distributing a portable currency reader for anyone who is 

eligible. And they can also get that through a collaboration with 

the Library of Congress. 

Mr. CLAY. Thank you for your response. 

Mr. Peterson, how viable is plated steel as an option for replacing the current composition of U.S. coinage? 

Mr. PETERSON. Mr. Clay, as I mentioned, zinc and steel are currently in play and we are analyzing several different compounds of 

steel. And we are doing a very detailed test regimen on this. 

We have made millions of plated steel trial coins. We understand 

the striking pressure, the tonnage that we need to use on our 

presses, and how long the dyes will last. 

We take these coins and tumble them in a tumbling chamber to 

simulate a lifetime of corrosion and wear. We add a little saline solution to simulate perspiration so that we have a good feel as to 

how long these coins will be viable for in the long term. 

And we know that our friends in Britain use plated steel. Our 

friends in Canada use plated steel. Steel is a viable option. 

Mr. CLAY. Are you concerned that Canadian ownership of the 

plated steel patent would add additional cost to the production of 

plated steel coins? 

Mr. PETERSON. I wish we had gotten the patent, but we didn’t. 

But our price quotes with the Royal Canadian Mint are fair, and 

I am not concerned that we are going to have an issue with that 

patent. 

Mr. CLAY. Thank you for that response. 

Ms. St. James, what are the next steps the Federal Reserve 

should be taking to better manage coin inventory? 

Ms. ST. JAMES. We were quite surprised when we looked at cost, 

that between 2008 and 2012, the cost of the management of the 

coin inventory had increased by 69 percent. So we naturally asked 

them, why has it increased so much? And they said direct costs and 

support costs have gone up. 

But beyond knowing that is what made up the 69 percent, they 

didn’t really have specific answers for why those costs had increased. And they had not looked at them. So we recommended 

that they really do a good analysis of where they could reduce 

those costs. 

Mr. CLAY. Thank you for that response. 

14 

Mr. Mills, what steps has the Royal Mint taken to reduce coin 

production costs? Can you talk about that 20-year lifespan of the 

coin? 

Mr. MILLS. Yes, certainly. 

There are several types of plating technology available for Circulating Coin. And the only one that has a license fee is the Canadian technology. So our armor technology is not only license-free, 

but we would say also has better duration in circulation. 

We apply a single layer of 25 microns in nickel-plated coins. Our 

independent testing in fact carried out here at the Fraunhofer Institute in the United States shows that on average, coins wear at 

a micron a year. So with 25 microns, you should get at least 25 

years life. 

With the outer layer of multiple plating technology, you only get 

6 microns to 9 microns. That means you are going to be paying a 

license fee, and potentially replacing your coins every 6 to 9 years. 

Mr. CLAY. Thank you. And I yield back. 

Chairman CAMPBELL. The gentleman’s time has expired. Thank 

you. 

And now, we will recognize the chairman of the House Committee on Agriculture, the gentleman from Oklahoma, Mr. Lucas, 

for 5 minutes. 

Mr. LUCAS. Thank you, Mr. Chairman. And I would note to all 

my colleagues that the things you work with not only just represent a medium exchange, a store of value, but as we discussed 

before in this subcommittee, a very important statement about our 

society. 

In the case of paper money, the artistic nature, the scientific nature in the United States for 150 years—coinage, of course, 2,500 

years of recorded history is documented in those things. 

So it is not just a subject matter of immediately what is in your 

pocket change. But it is a statement that will be left for millenniums to come. That said, for a moment I would like to visit with 

the panel about just a variety of small issues. 

Ms. St. James, in the examination of the circulating cash situation and the way the Federal Reserve handles that, I have read 

somewhere, and maybe you can confirm or deny this, but the 50- 

cent piece literally—do we have more coming back into the banks 

than we have going out? 

And Mr. Peterson, could you touch on this for a moment about 

the nature of the 50-cent piece? Is it an example of a coin that in 

effect doesn’t circulate at all anymore once you get past the numismatic community? 

Mr. PETERSON. The 50-cent piece is not ordered by the Federal 

Reserve. So, the United States Mint hasn’t made them since 2006. 

Mr. LUCAS. For general circulation. So that answers the question. 

Mr. Felix, what percentage of your printed currency that you deliver to the Federal Reserve is $100 bills, approximately? 

Mr. FELIX. So the order change— 

Mr. LUCAS. And I know it varies from— 

Mr. FELIX. Right. 

Mr. LUCAS. —cycle to cycle. Just round numbers. 

Mr. FELIX. The vast majority of notes in terms of value is circulated outside our borders. Over 50 percent are in $100 bills. So 

15 

it is about—of the $1.2 trillion in circulation, more than half in 

value are hundreds. But we typically we produce about 1.5 billion 

a year in hundreds. 

Mr. LUCAS. And of your overall production you mentioned— 

Mr. FELIX. —around seven. 

Mr. LUCAS. Exactly. And of your overall production, you mentioned the fact that by law you were not authorized to change the 

design on the $1 bill. What percentage of your average annual run, 

round numbers, are ones? 

Mr. FELIX. We do about a billion as well. 

Mr. LUCAS. Okay. 

Mr. Peterson, since we have not for a number of years had orders 

from the Fed for circulating 50-cent pieces, for a moment what percentage of, in round numbers, of your overall coin production are 

1-cent pieces and 5-cent pieces, those two lower denominations on 

the— 

Mr. PETERSON. In 2013, we manufactured 10.7 billion coins, with 

6.6 billion of those, about 60 to 65 percent, pennies, and 1.1 billion 

nickels. So it’s very concentrated toward the pennies and nickels. 

Mr. LUCAS. So in both cases, at Engraving and Printing and at 

the Mint, a substantial portion of your production is the lower denomination, whether it is $1 bills in paper or currency or the 1-cent 

and 5-cent pieces in coin. 

Mr. PETERSON. Correct. 

Mr. LUCAS. By the way, on a slightly different note, Mr. Peterson, one of your predecessors began the process of an inventory of 

the various things within the Mint’s possessions. 

And while your institution is not quite as old as Mr. Mills’ institution, which predates you by hundreds of years, nonetheless you 

are one of the oldest institutions of the Federal Government. 

And not only the good work you do on the day-to-day basis in the 

numismatic programs, but the historic property and the historic 

record, is a voice of great interest to the numismatic community. 

I don’t know whether you can answer this question today or not, 

but I would ask if you are aware of that effort to create that master 

inventory of all your assets, some of us would define as treasures. 

And if you are not up to where at a particular moment I would appreciate a response in writing later about just what the status of 

that treasure catalogue is, as some people would describe. 

Mr. PETERSON. Absolutely. The Mint is one of the oldest institutions in the United States, 222 years old, a venerable institution. 

And we do have many heritage assets at each one of our facilities. 

After the prior testimony we hired a curator and we have 

catalogued our heritage assets, and we are ready to share that information. 

Mr. LUCAS. That is a very important thing because that is of 

great interest to a good many good people around the country and 

around the world. And as you describe them, heritage assets, some 

of them literally go back to the very beginning. 

That said, I would just note to my friends at Engraving and 

Printing and at the Mint, if we continue on the monetary policies 

we have with a regimented inflation factor built in, at some point 

we have to assess the viability of those lower denominations. We 

16 

don’t make half-cent coins anymore, as the Mint did for 60-some 

years. 

I believe the original statute actually allowed for a denomination 

referred to as mills/1,000 for the dollar. We have never used that. 

At some point, we may have to assess in a practical way what we 

make and why we make it and how that impacts commerce. 

And with that, Mr. Chairman, I yield back. 

Chairman CAMPBELL. And I thank the gentleman for yielding. 

And now, we will go to the gentleman from South Carolina, Mr. 

Mulvaney, who is recognized for 5 minutes. 

Mr. MULVANEY. Thanks very much, Mr. Chairman. 

I want to continue there on what Mr. Lucas was talking about 

because we hear a lot of discussion about getting rid of the lower 

denomination coins. We have done that in the past. 

And I just wonder if commerce isn’t changing to where smaller 

denominations are actually going to become more and more relevant as we go through. I think immediately of online transactions. 

I am not willing to pay $0.99 to buy a song, but I might pay 1/20th 

of a penny to listen to it one time. 

Is there a way for currency to do that? Is there a way for hard 

currency to deal in smaller and smaller denominations? 

Let’s ignore—for instance, the larger and larger denominations, 

but start talking about smaller and smaller. Is there a way to do 

that with hard currency? Mr. Peterson? 

Mr. PETERSON. As I mentioned in my opening statement, many, 

many transactions still occur in cash around the country. Cash enjoys the advantage. It is one of the lowest cost ways to conduct a 

transaction and it is confidential, and so the American public will 

probably want to continue to use cash for some percentage of their 

transactions. 

Our job at the Bureau of Engraving and Printing and the Mint 

is to facilitate commerce with the trusted coins and currency. And 

we know that millions of transactions happen every single day 

using cash. And it will continue to be like that. 

Mr. MULVANEY. Okay. I am not sure if that answers the question 

about smaller and smaller denominations. 

Let me ask then—let me talk about what the reason I asked the 

question is: I would be curious to know your thoughts on the 

crypto-currencies, on bitcoins specifically so the other currencies 

that are out there. 

I am sitting here reading a blog, I guess, Mr. Peterson, from your 

former boss, Edmund Moy, who just recently wrote something on 

bitcoin. And he closed the article by saying that bitcoin and the 

ideas behind it will be a disrupter to the traditional notions of currency. But in the end, currency will be better for it. 

Have you all given any thought—and I will throw this open to 

the group, as to where your various organizations and institutions 

are on the role that online currencies, that crypto-currencies play 

in this particular role, in the functioning of commerce? 

Mr. Mills, I would be curious to know what the Europeans think 

about it as well. But, Mr. Felix, you look like you— 

Mr. FELIX. I was going to say that is really a province for the 

Federal Reserve, the central bank— 

Mr. MULVANEY. Okay. 

17 

Mr. FELIX. —and they do tend to look at some of those things 

more than the operational organizations of the United States Government. 

Mr. MULVANEY. All right. But it would impact you directly 

though, right? Is it competition? Is it a complement? How do you— 

has the BEP taken a look at it? Do they have an official position 

on it? Or they just haven’t done that yet? 

I am just curious. I am not trying to bait anybody. I know it is 

such a new topic that a lot of folks might not have a position on 

it yet. 

Printing and Engraving does not. Does the Mint? No? 

Mr. PETERSON. At the Mint, our focus is on producing United 

States coins. And the other alternative vehicles— 

Mr. MULVANEY. Doesn’t factor in? 

Mr. PETERSON. No. 

Mr. MULVANEY. Mr. Mills, has the British government taken a 

position on it? 

Mr. MILLS. Again, we at the Royal Mint act as agents for Her 

Majesty’s Treasury. We don’t set policy. 

Mr. PETERSON. Okay. 

Mr. MILLS. So pretty much as Mr. Felix said then, that is not 

within my knowledge or my ability to answer, I am afraid. 

Mr. MULVANEY. All right. 

Ms. St. James, I have asked everybody else. Maybe this is the 

wrong—apparently the wrong group to ask this question. 

Ms. ST. JAMES. They are correct in that it is the Federal Reserve 

here in the States— 

Mr. MULVANEY. Okay. 

Ms. ST. JAMES. —the Federal Reserve policy to make that decision. And they are looking at electronic payments and the increase 

in those electronic payments. Interestingly, the electronic payments 

have seemingly impacted checking more than the demand for currency. 

Mr. MULVANEY. Let me ask—Mr. Peterson, let me close with 

this, see if I can keep it germane to why you all are here today. 

Is there a way—is it possible for traditional hard currencies to 

deal with transactions at a small fraction of a penny? 

Mr. PETERSON. I am sure in an electronic world, there might be. 

But practically, for the United States Mint to make coins that are 

less than a penny, I don’t see that as part of our future. 

Mr. MULVANEY. And that would be the same for the British government, Mr. Mills, do you think? 

Mr. MILLS. Again, not wishing to sound boring, I would have to 

defer to my colleagues in Her Majesty’s Treasury or the Bank of 

England. 

Mr. MULVANEY. Listen, I have been to a lot of meetings. This is 

by far not the most boring I have been to. I can assure you of that. 

So thank you, Mr. Chairman. And thank you to the panel. 

Chairman CAMPBELL. Thank you. 

And just arriving—you are—okay. The gentleman from Ohio, Mr. 

Stivers? 

Mr. STIVERS. Perfect timing. 

Chairman CAMPBELL. Perfect timing is recognized for 5 minutes. 

18 

Mr. STIVERS. Thank you, Mr. Chairman. I really appreciate you 

holding this hearing on important issues. And I have a few questions related to coins. 

The first question is for Director Peterson. Can you assure us 

that the Treasury has not and will not make changes to our circulating coins that would increase the cost to produce them? 

Mr. PETERSON. Congressman, Congress controls what the composition of our coins is, what the diameter is, and what the weight 

is. And so we will continue to make the coins that are authorized 

for us to make today, the penny, nickel, dime, quarter, and halfdollar coins. 

Mr. STIVERS. Great. And can you update us so you can maybe refresh my memory? As I recall, 21⁄2, 3 years ago, Congress mandated 

the U.S. Mint to do a study on what was in coins, how coins were 

produced. You produced an initial report on or about the deadline 

of 2013, the end of 2013, as I recall. 

Mr. PETERSON. In December of 2012, yes. 

Mr. STIVERS. December 2012, I’m sorry. And then you said you 

needed more time. And then I saw another report and I met with 

you subsequently and you said you needed a little more time. Can 

you update us on the status of those efforts? 

Mr. PETERSON. Absolutely. I mentioned before that we are analyzing multiple formulations of zinc and steel. Both appear to yield 

some cost savings. And we are putting the finishing touches on 

what those cost savings would be so that we can provide the right 

information in our next report to Congress, which will be in December of this year. 

Mr. STIVERS. So we will be a full 2 years after the initial required timeframe for Congress. And will we have any final results 

by then, when we are 2 years late? 

Mr. PETERSON. Yes. Our next report is in December. And we will 

fully flesh out all the various costs to produce both the zinc and 

the steel coins. We are also beginning to look at a stainless steel 

alternative and other alternatives that are various ratios of copper, 

zinc, and nickel. 

Mr. STIVERS. Thank you. Are you familiar with the Navigant 

Study from 2 years ago? It said that the United States could save 

over $2 billion over a decade if just the nickel, dime, and quarter 

were made of plated steel. And you just referred to stainless steel. 

I would just remind the entire audience that stainless steel costs 

almost 3 times what plated steel costs. And Canada made the 

switch to plated steel over 10 years ago. 

Do you guys at the Mint think the Navigant Study was correct? 

And do you think there would be more savings if we included the 

penny in that since it is our largest circulating denomination? 

Mr. PETERSON. Our report 2 years ago showed that there were 

no alternative metals that would lower the cost of the penny. And 

so the penny is not part of that, and there would be no benefit to 

shift to steel. 

On the nickel, dime, and quarter, there are cost savings possible 

with steel coins. And I testified previously that obviously our 

friends in Great Britain use plated steel. Our friends in Canada 

use plated steel. Steel is a viable option for United States coinage. 

19 

Mr. STIVERS. Thank you. And I appreciate you commenting on 

plated steel because your report as of 2012 when I looked at the 

price and we did some work, and I have met with you since, it sure 

looked like you were not using plated steel, not using cold rolled 

steel. It looked like you were using a stainless steel price. And if 

you looked at the cold rolled steel price, you would see a substantial savings on the penny. 

I would ask you to just go back and look at that. I want to ask 

you in a formal setting, I know I have asked you in my office, but 

I would ask you again to go back and take a look at that again. 

So, Canada and the United Kingdom and several other countries 

have already made the switch to lower-cost coins over the last 20 

years, in fact the U.K. first and then Canada. Why has the United 

States been lagging in that, Mr. Peterson? 

Mr. PETERSON. We were just given authority to go conduct research and development in December of 2010. We ramped up that 

effort in 2011 when we established a secure research and development laboratory at our Mint facility in Philadelphia. We analyzed 

27 different alternative compositions in 2011 and 2012. 

We put out our first report in 2012, saying that there was a 

smaller number, four or five possible alternatives, that we needed 

to conduct further in-depth research on to confirm the actual cost 

of making the coins out of those materials. And that is what we 

are doing right now and what we will report out on in December. 

Mr. STIVERS. Thank you. I would just urge you, and I have just 

a few seconds left, to move as fast as you can on that, because what 

we will need to do if we are going to allow the vending coin industry time to put this in their capital replacement costs, is to make 

an announced change and then phase that in over time, because 

those folks deserve an opportunity to have it phased in. 

That is what Canada did. If we phase it in, it will work so much 

better, because their capital replacement cost is an average of 100 

percent replaced every 5 years. 

So the sooner we can announce the change and then continue to 

work toward it, the better it will be. And I think that industry 

would like to work with you. And they deserve the ability to have 

that phased in over a reasonable timeframe. 

Mr. PETERSON. Agreed. 

Mr. STIVERS. Thank you, Mr. Chairman. I yield back my nonexistent time. Thank you for your indulgence. 

Chairman CAMPBELL. Thank you. 

I think Mr. Clay and I have a couple more questions, so we will 

do sort of a second round. There are only two of us in the round. 

And then, we will let you all go back to what you actually do all 

day. 

Okay. I yield myself 5 minutes. 

Let me go now to Mr. Felix and understand, so we, Congress, 

said you can’t alter the dollar note? 

Mr. FELIX. That is correct. It was done—I think it was done 

when Mr. Colby chaired the Appropriations Committee. There was 

language in there that says we cannot make any changes at all to 

the $1 note. 

20 

And I think it is in part—this is when we were beginning our 

redesign of all notes. And it is in legislation that is continued on 

to this day. 

Chairman CAMPBELL. But you would want to? I would presume 

that counterfeiting is less of a problem with the dollar. If you are 

going to counterfeit, make big money. 

So left to your own devices, you would like to change the dollar 

note? 

Mr. FELIX. We are perfectly comfortable because the counterfeiter didn’t get that big return, if you will, on counterfeiting a one. 

Chairman CAMPBELL. Are there counterfeit dollar notes out 

there? Have there been? Or is it just kind of a— 

Mr. FELIX. You are talking about ones? 

Chairman CAMPBELL. Just yes, on a one, I’m sorry, yes. 

Mr. FELIX. Very few. 

Chairman CAMPBELL. Okay. 

Mr. FELIX. Very few. 

Chairman CAMPBELL. And fives, tens? Because you are changing 

the ten, you said. 

Mr. FELIX. Right. Typically the biggest issue with the fives is actually people would erase—they would take the five and bleach it 

out and print 100 on it. And the reason for that is they will go to 

places that use the marker. And it will give an indication of real 

currency because it is real currency paper. 

And that is one of the reasons why we made a preemptive 

change in the five. And so we have in the watermark of the five, 

the number five in it. 

Chairman CAMPBELL. Okay. So this is a $100 bill, which is your 

latest iteration. Is that correct? 

Mr. FELIX. Yes, sir. That is correct. 

Chairman CAMPBELL. Of bill of any denomination this is the latest iteration. So this is what you will be transitioning, 20s, 50s, 10s 

too? 

Mr. FELIX. That represents the last of our—what we call our 

next-gen series. We begin to embark—we will be starting with the 

ten, as I said in my testimony. And it will be completely different. 

It may in fact have a higher order of technology in the bank notes. 

So that actually represents the closing of the next-gen series. 

Chairman CAMPBELL. The next-gen? 

Mr. FELIX. The end of that series, yes. 

Chairman CAMPBELL. The end of that series? 

Mr. FELIX. The end— 

Chairman CAMPBELL. So the ten will be a new series— 

Mr. FELIX. That is correct. 

Chairman CAMPBELL. —from this one? Okay. 

So the dollar, single dollar, that you are not changing, does it 

cost less to make those than it cost to make these or the new ten 

because it doesn’t have all this anticounterfeit stuff? 

Mr. FELIX. It cost us typically about $0.04 to make a $1 note because it doesn’t have those security features. 

Chairman CAMPBELL. Right. 

Mr. FELIX. What we have just introduced, a new technology enhancement, the BEP, where it will yield even 15 percent more savings because we are producing—we currently produce them in 32 

21 

notes per sheet. And starting this year, we will be producing them 

at 50 notes per sheet for an incredible yield. And so, the price will 

go down below that even further. 

Chairman CAMPBELL. Okay. But— 

Mr. FELIX. But it does not have— 

Chairman CAMPBELL. So, it cost $0.04 to make that. What does 

it cost to make this? 

Mr. FELIX. About $0.12. 

Chairman CAMPBELL. Okay. A lot more. Okay. Got you. All right. 

Thank you. 

Ms. St. James, you talked about how the Federal Reserve—that 

it costs 67 percent more than it did a few years ago to do what? 

Ms. ST. JAMES. Their cost to manage the coin inventory went up 

by 69 percent between 2008 and 2012. 

Chairman CAMPBELL. So, not to make it. We are talking about 

to manage the coin inventory? 

Ms. ST. JAMES. To manage the coin inventory. 

Chairman CAMPBELL. Why? What did they spend—is there more 

or less physical money in circulation than there was then over that 

period? 

Ms. ST. JAMES. Part of the problem is that they were monitoring 

a cost figure that included currency management costs plus coin 

management costs. They never took a separate look at what it cost 

to manage coins. 

But overall, currency, both note and coins, that cost increased by 

23 percent, and when we took out the coin inventory costs, that is 

the 69 percent increase from 2008 to 2012. 

Chairman CAMPBELL. Okay. This is something we will have to 

look into some more. 

We did ask the Federal Reserve to be here. They declined, saying 

that there was an FMOC meeting within 2 weeks and that they 

couldn’t show up because of an FMOC meeting in 2 weeks. 

Although clearly what we are discussing has nothing to do with 

monetary policy in the broad sense of M1 and M2 monetary policy. 

But they declined to be here for this hearing. There are a lot of 

questions I would like to ask them on the basis of that. 

Thank you very much. My time has expired. I yield to the ranking member of the subcommittee, Mr. Clay, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

Ms. St. James, the Federal Reserve’s 2013 annual report found 

that Reserve Banks hold roughly 1.4 billion $1 coins, which accounts for more than 40 years of supply at current levels of demand. Given this, to what extent can the increase in coin management costs be attributed to managing dollar coin inventories associated with the dramatic increase in dollar coins as part of the Presidential $1 Coin Program? 

Ms. ST. JAMES. The cost increase that we referred to does not include the dollar coin. It only includes pennies, nickels, dimes, and 

quarters. 

Mr. CLAY. How much do you anticipate the Federal Reserve will 

have to spend just to manage the dollar coin inventories over the 

next 40 years? 

Ms. ST. JAMES. We don’t have that cost at the— 

22 

Mr. CLAY. Could you supply this committee with an estimate or 

the cost— 

Ms. ST. JAMES. Yes. 

Mr. CLAY. —of what you think it would be? 

Ms. ST. JAMES. Certainly. 

Mr. CLAY. Thank you. 

Mr. Peterson, can you discuss how you have been able to increase 

production efficiency to bring down per unit costs of producing the 

penny and the nickel in recent years? Do you anticipate achieving 

further such efficiencies in future years? 

Mr. PETERSON. Absolutely. I have testified before that our plant 

manager in Denver came to us from General Motors. Our plant 

manager in Philadelphia came to us from Ford Motor Company. I 

spent 11 years with General Electric. 

We know how to take costs out of our manufacturing operations. 

The short answer is, we don’t swing for the fences. We try and hit 

singles every day. And those little wins add up over time. 

We have renegotiated contracts to get costs out year-over-year on 

some of our recurring contracts. We have invested in capital equipment for the HVAC systems, the water treatment systems, the 

lighting systems, and they reduce our utility costs year-over-year. 

We have shifted our manufacturing operations in Denver and 

Philadelphia to two-shift operations, and they run Monday through 

Thursday. And we turn down the furnaces on Friday, Saturday and 

Sunday so that we can reduce our utility expenses. 

There is an inherent seasonality to coin demand. In the build-up 

to Memorial Day, coin demand goes up in March, April, and May, 

and then again in October and November before the holidays. And 

the coins flow back into the Federal Reserve in January and February and over the summer. 

And so, we have smoothed production. We look at what the 12- 

month forecast is and we staff up for those levels. And we make 

the same number every month. And if there is a peak, we add temporary workers to make that peak demand. 

Those kinds of cost reductions are what we are doing every single day. And we are going to continue those. 

And the 42 percent cost reductions I mentioned in my opening 

statement in G&A expenses over the last 31⁄2 years, are among our 

proudest accomplishments at the United States Mint. 

Mr. CLAY. Thank you so much for your response. 

Mr. Chairman, I have no other question. I yield back. 

Chairman CAMPBELL. Thank you. 

Our final set of questions will be a second round from the gentleman from Ohio, Mr. Stivers. You are recognized for 5 minutes. 

Mr. STIVERS. Thank you, Mr. Chairman. I really appreciate that. 

My first question is for Ms. St. James. 

The GAO—the ranking member was just talking about the costs 

with Director Peterson of how we produce coins. And I would like 

to note that they have very extensive real estate in downtown Denver and in Pennsylvania, the very old, aging plants and aging 

equipment. 

And the way I understand it, Mr. Peterson just basically said 

they fire their furnaces for 4 days and then turn them way down 

for 3 days, and then they start over and do a 4-day week again the 

23 

next week. Could we save money by modernizing our equipment, 

our plants, and our production techniques? 

Ms. ST. JAMES. I think that is probably a question better directed 

to the Mint. 

Mr. STIVERS. Director Peterson? 

Mr. PETERSON. So yes, our Denver Mint was built in 1904, our 

San Francisco Mint in 1937, and the West Point Mint in 1938. And 

our newest Mint was Philadelphia in 1968. 

I did serve in the Navy and I know we get to retire our aircraft 

carriers after 50 years. And so, what we want to do in those facilities is look at our capital expenditures, look at what the buildings 

need, look at what equipment needs to go inside the buildings. 

And again, in the manufacturing cost reduction mode, we want 

to preserve flexibility in the manufacturing operations so that we 

can move products from one site to another back and forth. We 

don’t know what the future will hold as to what materials we make 

our coins out of and what denominations we will be asked to make. 

And so preserving and expanding the manufacturing— 

Mr. STIVERS. And all three of those facilities are in downtowns, 

aren’t they, in pretty expensive real estate? 

Mr. PETERSON. West Point is on the outskirts of the campus of 

the military academy on the Hudson River. 

Mr. STIVERS. If you were able to sell the real estate and recoup 

the profits to build newer facilities in places that might be a little 

less expensive real estate, and buy more modern equipment—I 

guess my question is, have you done an analysis of that in any of 

your plants? 

Because if your newest plant is 50 years old and your oldest 

plant is 106 years old— 

Mr. PETERSON. One hundred ten. 

Mr. STIVERS. I’m sorry, 110 years old. I didn’t want to short 

them. Have you done that analysis? 

Mr. PETERSON. No, we have not done an analysis to go out and 

look at what the real estate markets are. I will say that these sites 

are heritage assets that Mr. Lucas asked about earlier in the hearing. They are on the register of historic places in the cities in which 

they exist. 

Mr. STIVERS. And I am sure they are very historic and beautiful. 

But in the end, we have an obligation to taxpayers to make our 

coins as efficiently as we can. 

My next question is for Mr. Mills. Having gone through the process of taking a lot of costs out of your coins and now being a mint 

that makes coins for how many nations? 

Mr. MILLS. In total, we say we supply around 60 other nations, 

depending on the year. 

Mr. STIVERS. So you have been able to make coins for 60 other 

nations and continue to do research and development, buy new 

equipment because you have the flow-through. Of course today, I 

think the United States only makes coins for one country. 

Tell me about your experience of how you have been able to take 

so much cost out of your coins. 

Mr. MILLS. Yes. Thank you, sir. 

As I said in my testimony, I guess it is in some fundamental 

areas. One has been changing the metal composition, and by and 

24 

large that has been changing from solid alloys, which are obviously 

relatively expensive if you look at the price of the nickel at the moment. It is trading, I checked this morning, at about $18,000 a ton 

versus steel in Europe is trading at about $900 a ton. 

So with a nickel plated coin, you are talking about taking over 

95 percent of cost— 

Mr. STIVERS. And do you buy your steel at $900 a ton? 

Mr. MILLS. That is the sort of price in Europe at the moment. 

Mr. STIVERS. So the study in 2012 that the U.S. Mint did claimed steel was $2,100 a ton. Clearly, that is not the same composition 

steel that you buy. 

Mr. MILLS. I don’t know the exact—I don’t know anything about 

the specification of steel— 

Mr. STIVERS. In the whole world, steel was trading at $900 a ton 

at that point too. So it has been pretty flat. And I don’t mean to 

cut you off, but I only have 27 seconds left. 

If the United States were to enter into an agreement with the 

Royal Mint and ask you to make the penny for us, would you have 

any idea what you could make it for? 

Mr. MILLS. Looking at the work we have done, I think it would 

be very difficult to have a U.S. penny that would be in positive seigniorage. 

Mr. STIVERS. But could you make it for less than $0.02? 

Mr. MILLS. I would have to look at it more closely. I think it is 

a tough job. 

Mr. STIVERS. Thank you. My time has expired again. That keeps 

happening to me. 

Chairman CAMPBELL. Thank you— 

Mr. STIVERS. Thank you, Mr. Chairman. 

Chairman CAMPBELL. —Mr. Stivers. 

I do have to say I miss the halfpenny and the shilling. Of course, 

my taxes aren’t paying for them. 

I would like to thank our witnesses for their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And with that, thank you all. This hearing is adjourned. 

[Whereupon, at 12:45 p.m., the hearing was adjourned.] 

(25) 

A P P E N D I X 

June 11, 2014 

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