U.S. GOVERNMENT PUBLISHING OFFICE

31–573 PDF WASHINGTON : 2018

THE FUTURE OF MONEY: 

COINS AND BANKNOTES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 5, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–113 

( 

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HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MACARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, 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 

WM. LACY CLAY, Missouri 

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 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

SHANNON MCGAHN, Staff Director 

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SUBCOMMITTEE ON MONETARY POLICY AND TRADE

ANDY BARR, Kentucky, Chairman 

ROGER WILLIAMS, Texas, Vice Chairman 

FRANK D. LUCAS, Oklahoma 

BILL HUIZENGA, Michigan 

ROBERT PITTENGER, North Carolina 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

GWEN MOORE, Wisconsin, Ranking Member 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

BRAD SHERMAN, California 

AL GREEN, Texas 

DENNY HECK, Washington 

DANIEL T. KILDEE, Michigan 

JUAN VARGAS, California 

CHARLIE CRIST, Florida 

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C O N T E N T S 

Page 

Hearing held on: 

September 5, 2018 ............................................................................................ 1 

Appendix: 

September 5, 2018 ............................................................................................ 33 

WITNESSES 

WEDNESDAY, SEPTEMBER 5, 2018 

Olijar, Leonard R., Director, Bureau of Engraving and Printing ........................ 5 

Ryder, David J., Director, United States Mint ...................................................... 7 

APPENDIX 

Prepared statements: 

Olijar, Leonard R. ............................................................................................. 34 

Ryder, David J. ................................................................................................. 84 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Barr, Hon. Andy: 

Written statement from Sonecon .................................................................... 92 

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THE FUTURE OF MONEY: 

COINS AND BANKNOTES 

Wednesday, September 5, 2018 

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 10:06 a.m., in room 

2128, Rayburn House Office Building, Hon. Andy Barr [chairman 

of the subcommittee] presiding. 

Present: Representatives Barr, Williams, Lucas, Huizenga, 

Pittenger, Love, Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth, Moore, Foster, Sherman, Green, Kildee, and Vargas. 

Chairman BARR. The subcommittee will come to order. Without 

objection the Chair is authorized to declare a recess of the Committee at any time. All members will have 5 legislative days within 

which to submit extraneous materials to the Chair for inclusion in 

the record. 

This hearing is entitled, ‘‘The Future of Money: Coins and Banknotes.’’ I now recognize myself for 4 minutes to give an opening 

statement. 

Despite all the focus on innovative ways to exchange value or 

settle transactions, Bitcoin, Apple Pay, Venmo, and dozens more 

and with the increasing use of credit and debit cards, coins and 

currency still are a major factor in our retail economy. 

Cash may not be king anymore but it is still royalty and many 

Americans have a little of it in their pocket or purse right now. 

Even so, there is a really large amount of United States coins and 

banknotes circulating, all $1.7 trillion or so of it produced by one 

of two bureaus of the Treasury Department: The Bureau of Engraving and Printing, which prints Federal Reserve notes and the 

United States Mint, which makes our circulating coins as well as 

some investor and collector coins. 

The nearly 4,000 people who work at those bureaus do a terrific 

job. That being said, it is up to Congress to ensure that the Mint 

and the Bureau of Engraving and Printing remain effective and efficient and have adequate plans for the future, a future where innovative payment options are likely to multiply and usage likely to 

grow. 

To that end, today the Monetary Policy Subcommittee welcomes 

the directors of the two bureaus to continue that discussion. There 

are real issues, real issues that have real impacts on both the econmcarroll on FSR431 with DISTILLER

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omy and the Treasury’s General Fund in the near-term and, particularly, in the long-term. 

One of those issues, that Congress has been prodding the Mint 

on for a decade, is the cost to produce circulating coins. The penny 

and the nickel both cost considerably more than their face value to 

produce. 

Thirty years ago, Canada and the United Kingdom changed to 

steel coins plated to look and function like their previous coins 

which in turn saved a lot of money and now these countries contract manufacture coins for a number of other countries. 

Why hasn’t the United States been the leader? Why didn’t we 

emulate them when their move turned out to be successful? Have 

we just wasted tens or hundreds of millions of dollars for no good 

reason? 

There are other coin-related issues, Congressman Mooney has 

been a leader in pointing out that there is an increasing problem 

of counterfeit copies of the Mint’s American Eagle investment 

coins, a problem that defrauds both investors and dealers. Again, 

other Mints around the world have inserted anti-counterfeiting 

technology into their bullion but the U.S. Mint hasn’t, why not? To 

be sure in our discussions with the Secret Service, there are anticounterfeiting measures that have been put into place but we want 

to explore improvements in that area. 

Additionally, the Bureau of Engraving and Printing would like a 

new printing plant to replace its well-known one just down the 

street. That is potentially a reasonable request but more work 

probably needs to be done on cost controls and on pinpointing future banknote demand. Right now, spending close to $1.5 billion 

dollars to save $40 million a year makes sense if demand for banknotes stays the same until maybe 2050 but not everyone imagines 

that demand will hold up. 

Finally, I hope that we will hear that the bureaus have contingency plans for the possibility that the demand for all cash and 

coins could dry up fairly quickly. It is unknown whether we are 

moving that rapidly to a cashless society but it is worthy of exploration. 

If that were to happen over just a few years, we would have 

about 4,000 employees and four major factories to think about 

repurposing. Additionally, the ability of the U.S. Mint to collect seigniorage from coins could be greatly reduced, ultimately increasing 

the Federal Government’s deficit by hundreds of millions of dollars 

annually and there may be logistical difficulties with converting 

paper and coin money into another currency medium. 

I don’t see that happening anytime soon, if at all, but someone 

needs to be thinking about it and I hope the directors can give us 

a hint about such plans. 

The Chair now recognizes the Ranking Member of the subcommittee, the gentlelady from Wisconsin, Gwen Moore for 5 minutes for an opening statement. 

Ms. MOORE. Let me join the Chairman in welcoming our esteemed witnesses for the day. 

As I was cleaning my bedroom and picking up all the pennies on 

the floor, this is a very appropriate time to talk about this matter, 

finding a little jar to put them in. 

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I would yield the balance of my time to Mr. Sherman from California. 

Mr. SHERMAN. Thank you. 

Most transactions are through an electronic payment system. We 

have to make sure that remains in U.S. control. If we push Europe 

too hard they will invent a system to close major oil and other 

major transactions without touching U.S. soil or perhaps U.S. currency. 

‘‘Future of Money’’ is not cyber and as the Chairman points out 

the seigniorage is very valuable to the United States, we should not 

lose it nor should we create a method of payment that, while it can 

be used and is often used for legitimate transactions, is particularly 

well designed for tax evasion and the evasion of sanctions legislation. 

As to the currency we can actually touch, as long as we have a 

paper dollar people will not use a dollar coin. We would save an 

awful lot of money at the Federal level if people would use a dollar 

coin because it costs so much to make a paper dollar, it doesn’t last 

that long or doesn’t last nearly as long as a coin, after all we have 

coins from the Roman Empire; coins last a long time. 

But the real savings of having a society in which people carry 

dollar coins will be its use by transit systems and vending machines, although gradually our technology is taking us beyond the 

need for a coin in either of those cases. 

We ought to abolish the penny. It is not inflationary. If a merchant is going to charge you 23 cents for an orange and round it 

up to 25, then buy two oranges for 46 cents and round it down to 

45 cents. 

Every transaction we engage in is actually a rounded transaction 

because when you apply State and local sales tax to a transaction, 

you never bought anything at a store that was exactly $6.92, there 

was tax, it was six dollars ninety-two point three cents and the 

merchant rounded it to the nearest penny. If we can round to a 

penny, we can round to a nickel. 

I know the Illinois delegation has historically favored retaining 

the penny because it has Abraham Lincoln on it. Back when a 

penny was worth something, as it was in Lincoln’s day, it was an 

honor to be on the penny. Today if you were to scatter pennies 

around the room you would not be enriching those who walk by, 

a penny on the ground is litter. 

So if we abolish the penny there is room in the cash register for 

a dollar coin, we save a lot of zinc, a little bit of copper, or a fair 

amount of money and we do not make transactions at the store 

more difficult nor do I think that any merchant will calculate the 

price of an orange on the theory that you will buy just one and that 

you will owe 23 cents and it will get rounded up to 25 cents which 

you can always buy two oranges, they are delicious and they come 

from California. 

I will yield back the balance of my time back to the Ranking 

Member. 

Ms. MOORE. I am excited to hear your testimony and I yield 

back. 

Chairman BARR. The Ranking Member yields back the balance 

of her time. 

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The Chair now recognizes the gentleman from West Virginia, Mr. 

Mooney for 1 minute for an opening statement. 

Mr. MOONEY. Thank you very much Mr. Chairman. 

Welcome Director Olijar and Director Ryder, I really appreciate 

you being here, look forward to working with you in the future, getting a better understanding of how the Bureau of Engraving and 

Printing and the U.S. Mint view the future of the U.S. currency. 

I thank the Chairman for his comments. 

I have taken a special interest in coins and fraudulent attempts 

from other countries. I have been concerned about what has been 

without question a lack of attention to address the growing problem of high-quality counterfeits coming from China and elsewhere 

but especially China. They seem to want to hack, steal our intellectual property, counterfeit, they seem to be very, extra, extra good 

at coming to this country and causing problems. 

It is important that we secure U.S. coins, minted of gold, silver, 

platinum, and palladium which happens to be the only sound 

money currency minted in the United States. 

I did recently meet with the Secret Service to discuss their role 

in combating counterfeit currency flooding our market. During our 

meeting they reported they have been working on at least 15 major 

cases over the past 2 years. 

The Secret Service did voice some frustration about obtaining 

support from the U.S. Mint when it comes to investigating and curtailing the growing counterfeiting problem. 

Since that meeting and sharing information with the U.S. Mint, 

I have really not seen evidence that the U.S. Mint intends to meet 

the standards set by several foreign mints who have adopted various anti-counterfeiting technologies that are in existence and in 

use very effectively. 

In addition to discussing the anti-counterfeiting measures, I hope 

to hear from both of you, both directors, regarding the stability of 

the U.S. currency, how we can ensure a strong and stable currency 

for the American public, through sound Monetary Policy which may 

also include a discussion of returning to the gold standard; I have 

a bill that does that, ‘‘and not relying solely on the full faith and 

credit of the U.S. Government,’’ quote/unquote. 

Again, I appreciate the opportunity to hear from Director Olijar 

and Director Ryder on this important issue. 

Chairman BARR. The gentleman’s time has expired. 

Today we welcome the testimony of Director Olijar, who became 

the Director of the Bureau of Engraving and Printing in May 2015, 

after serving as the BEP’s Deputy Director, from 2012 to 2014. 

Mr. Olijar began his career at the BEP 30 years ago in 1988 as 

a Systems Accountant and rapidly advanced. In 2006 Mr. Olijar 

was appointed the Chief Financial Officer of the Bureau of Engraving and Printing. Mr. Olijar graduated magna cum laude from the 

University of Colorado in 1987. He received the Gold Medal Award 

for the highest score in Virginia on the Certified Public Accountant 

Exam and scored in the top 1 percent in the Nation. Mr. Olijar resides in Northern Virginia with his wife and two daughters. 

We also welcome Director Ryder, who is the 39th United States 

Mint Director. Mr. Ryder also led the Mint as its 34th Director 

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from September 1992 to November 1993, during the Administrations of President George H. W. Bush and President Bill Clinton. 

Most recently Ryder was the Global Business Development Manager and Managing Director of Currency for Honeywell Authentication Technologies. Previously, Ryder served as the CEO of Secure 

Products Corporation which was acquired by Honeywell in 2007. 

In addition to the United States Mint, Ryder’s prior government 

service included Deputy Treasurer of the United States; Deputy 

Chief of Staff to Vice President Dan Quayle; and Assistant to Vice 

President George H. W. Bush. Mr. Ryder attended Boise State University and is married with two children. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection each of your written 

statements will be made part of the record. 

Director Olijar you are now recognized for 5 minutes. 

STATEMENT OF LEONARD OLIJAR 

Mr. OLIJAR. Thank you. Good morning Chairman Barr, Ranking 

Member Moore, and distinguished members of the Subcommittee. 

Thank you for inviting me here today to testify about the many improvements underway at the Bureau of Engraving and Printing. 

The BEP produces United States currency notes in Fort Worth, 

Texas, and downtown Washington, D.C. I am honored to lead BEP. 

I am proud to say we continue to be very successful at meeting the 

Nation’s and the world’s demand for currency. 

Demand for U.S. currency remains strong. There are now more 

than 42 billion notes in circulation with a value of more than $1.7 

trillion and cash in circulation continues to grow almost 5 percent 

per year. Approximately 7 billion notes have been ordered annually 

for the past decade. 

Up to two-thirds of the value of U.S. currency is held overseas 

where our currency is the world’s currency. It is the most trusted 

international store value and serves as a hedge against uncertainties, natural disasters, and political turmoil. 

In the U.S. the use of cash has been resilient. While several 

small countries set a goal of going cashless, they have recently recognized that a cashless society presents a significant economic risk 

and neglects to serve those who do not have access to smartphones, 

computers, banks, and credit. 

I believe the 21st century warfare has a significant cyber component and these countries are now recognizing the risks. If your 

enemy is able to take down your electronic infrastructure or a natural disaster hits, there will be no way to conduct commerce in a 

cashless environment, crippling the economy. 

The FDIC estimates that 7 percent of U.S. households are 

unbanked and almost 20 percent are under-banked, as a result 

over 45 million U.S. households do not have access to the payment 

systems that are most often used in lieu of cash. 

In my 30 years at BEP, the composition of our currency has 

changed significantly with the addition of complex, covert, and 

overt security features to address domestic and international counterfeiting threats. It is the development of these security features 

that drives the timeline for introduction of a new currency series. 

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I am happy to say that less than one one-hundredth of 1 percent 

of notes in circulation are counterfeit. 

BEP works collaboratively through the Advanced Counterfeit Deterrent Steering Committee, with the Board of Governors of the 

Federal Reserve System, the Secret Service, and the Treasury Department to develop counterfeit deterrent features for U.S. currency. 

Potential features are subject to adversarial analysis at our national labs. The ACD Committee recommends security features and 

designs to the Secretary of the Treasury, who has final authority. 

BEP continues to implement more efficient, cost-effective, manufacturing processes. We develop custom machines that combine 

four manufacturing steps into one and, now, transition printing $1 

notes from 32-subject sheets to 50-subject sheets and ultimately 

every denomination will be printed on a larger sheet size. 

Other strategic investments include robotic palletizers and new 

equipment that allows BEP to reclaim good notes from defective 

sheets. Together these efficiencies have saved us over $100 million. 

Currency production equipment has grown dramatically in complexity and size over the past 20 years. Moreover, the next family 

of currency will have new overt and covert security features which 

will require new production equipment to apply. 

We are expanding the Fort Worth facility to accommodate this 

equipment, it will not fit inside the current Washington, D.C. facilities, two obsolete, six-story, multi-wing buildings that have no security perimeters. 

We are seeking statutory authority to use the BEP revolving 

fund to construct a smaller, more efficient, and more secure production facility to replace our existing Washington facilities. Our legislative proposal has strong support from OMB. Director Mulvaney 

has listed it as a critical priority for the Administration and of 

course it is budget neutral. A new facility will cost almost $600 million less than renovating the existing space. It will shrink our Federal footprint by 27 percent and lower operating costs by at least 

$38 million annually. 

The GAO (Government Accountability Office) looked at the Bureau’s most recent facility study and, in a report released this year, 

GAO’s own review and analysis strongly supports the Bureau’s recommendation to construct a new facility, in lieu of renovating existing space. 

No action has been taken on facility studies over the past 25 

years and doing nothing is no longer an option without jeopardizing 

BEP’s mission and the U.S. currency program. Our currency program returns more than $50 billion a year to the Treasury and is 

a cornerstone of the global economy. 

It is our hope that this committee will support the need for a 

smaller, more efficient facility. 

Mr. Chairman, this concludes my remarks about some of the initiatives of BEP and I will be happy to take questions from you or 

the committee members. 

Thank you for your time this morning. 

[The prepared statement of Mr. Olijar can be found on page 34 

of the appendix.] 

Chairman BARR. Thank you, Mr. Olijar. 

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Mr. Ryder you are now recognized for 5 minutes for an opening 

statement. 

STATEMENT OF DAVID RYDER 

Mr. RYDER. Thank you, Chairman Barr, and Ranking Member 

Moore. It is a privilege for me to be here today address your concerns. 

The Mint performs three primary missions. We produce coins at 

sufficient levels to meet daily needs of Commerce. We also manufacture numismatic and bullion products as well as safeguard our 

national assets. 

I visited and held town hall meetings in all four production facilities since being appointed Director about 5 months ago. 

This workforce is well-equipped, enthusiastic, engaged, and committed. At any one of these facilities you will find safety statistics 

and a level of morale that rivals the very best in private industry. 

Our employees make use of cutting-edge technology in three key 

production phases: Design, manufacturing, and packaging. Robotic 

technology has improved production in die manufacturing. While a 

series of robotic arms boosted proof-coin packaging from 600 to 

1,800 units per hour. 

By the end of this year we should expect to produce 13.9 billion 

circulating coins and more than 2.8 million numismatic items. The 

Federal Reserve demand for currency coins will continue to fluctuate due to economic cycles. 

To manage market uncertainty, the Mint has identified and executed state-of-the-art manufacturing processes. Although the unit 

cost for pennies and nickels is above face value, lean practices have 

put the Mint on track to return $250 million to the Treasury General Fund in Fiscal Year 2018. 

The Mint is collaborating with the Federal Reserve to explore 

cost-reduction strategies for the penny. We are also evaluating potential savings from alternative metals with the 5-, 10-, and 25- 

cent denominations. 

Since 1982, Congress has authorized 71 commemorative programs that have generated more than $522 million in surcharges. 

In order to continue the success of these programs, I feel that it 

is necessary for the Mint to work closely with Congress during the 

legislative development process to identify Commemorative Coin 

programs that actually work better for our customers. 

We are also eager to start a dialog for a successor of the circulating Commemorative Quarter program before the current America the Beautiful Quarters program ends in 2021. Over the past 10 

years, the Mint’s numismatic customer base has declined from 1.2 

million customers to approximately 500,000 today. 

The Mint is developing and marketing a sales strategy aimed at 

increasing awareness and promoting our products much more 

broadly to our depleting customer base that we need to take care 

of. 

The United States Mint is the world’s largest manufacturer of 

gold and silver bullion coins. Beginning in 2017, demand for both 

gold and silver bullion coins worldwide slumped dramatically as investors apparently focused on other investments. In the last couple 

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of months, demand has shown signs of stabilizing. We have adjusted our production levels to be in line with market demand. 

I believe that for the foreseeable future, coins will remain important instruments for settling financial transactions. However, with 

expanded cryptocurrency options on the horizon the importance of 

their seriousness, studies cannot be underestimated. 

The Mint is developing anti-counterfeiting measures for our bullion products. I have assembled a team within the Mint who will 

develop a multilevel approach including customer awareness, new 

secure product-packaging features, as well as product integration 

protections. 

As part of the alternative metals research and development, the 

Mint is actively seeking feedback from industry stakeholders who 

may be impacted in areas such as vending, parking meters, coinoperated laundry, amusement, public transportation, banking, and 

supermarkets. 

Helping our youth understand the role of coins can be a gateway 

for financial awareness. The Mint has developed a first-class 

website at www.usmint.gov. The site contains lesson plans and 

interactive activities that help kids understand the importance of 

saving their hard-earned money and enable them to take control of 

their own economics. 

The Mint is privileged to connect America through coins and 

medals which reflect the remarkable history, values, culture, and 

natural beauty of our Nation. 

Mr. Chairman, I thank you for your interest in the mission of the 

United States Mint. I will be happy to answer any questions you 

have. Thank you. 

[The prepared statement of Mr. Ryder can be found on page 84 

of the appendix.] 

Chairman BARR. Thank you, Mr. Ryder for your testimony. 

The Chair now recognizes himself for 5 minutes for questioning. 

Let me start with you Mr. Ryder. 

Congress has been prodding the Mint for a decade or more to 

find a less expensive way to produce circulating coins that could 

and would co-circulate with existing ones. 

Many other countries notably Canada, and the United Kingdom, 

as I pointed out in my opening statement, figured out how to do 

this seamlessly and effectively as much as 30 years ago. What is 

the current status of this effort at the Mint and how much taxpayer money could be saved if the Mint were to move to steel or 

some other less expensive formulation? 

Mr. RYDER. Yes, sir. Thank you for the question. 

The Mint is actively and has actively been researching alternate 

metals. We have identified one particular metal that we call our 

80-20 composition, that it is 77 percent copper, 20 percent nickel, 

and 3 percent zinc. The cost savings of that program would be 

about $4.1 million if we introduced that program with the nickel, 

dime, and the quarter. 

Another alternative metal that we are looking at is more of a 50- 

50 blend. We are in the initial stages of trying to run that product 

through its courses with the vending machine industry and other 

stakeholders. 

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That particular program we believe would save over $16 million 

a year in cost savings. It is probably 1–1/2 to 2 years away from 

being realized but we are endeavoring to undertake those two 

issues and try to move them out to the general public. 

Chairman BARR. Can you take those actions administratively on 

your own initiative without Congressional action? 

Mr. RYDER. It has to be Congressional action. We have submitted 

through our budget process legislative language that will allow the 

Secretary to make that decision. I have briefed the Secretary on 

both of these alternatives and I believe he is supportive. 

Chairman BARR. OK. Thank you very much. 

Mr. Olijar, the Bureau of Engraving and Printing is on record as 

seeing constant and improving demand for banknotes at least the 

next decade, and your testimony talked about the risks associated 

with electronic transactions. 

But others, including the Chicago Fed, believe that externalities 

including the improving economy and new technologies may work 

against that particularly in out-years. What is your projection for 

banknote demand in the near and longer-term, 2-years, 10-years, 

20-years, will people still be using as much cash say in 2040? 

Mr. OLIJAR. Our projection is that cash is going to continue to 

remain a viable mechanism for payment and store value. 

The challenges that come with payment mechanisms are if there 

are a significant amount of them, but it really hasn’t impacted currency demand to date. 

People have a preference for using cash. As I mentioned there is 

a large, under-banked population in this country, that has a significant preference and has no access to alternative payment mechanisms. 

Chairman BARR. Let me move on to the proposal for a new plant. 

I have looked at the GAO report and they do compliment you in 

some regards for following good practices and then they have some 

constructive suggestions for you all as you pursue this idea. 

When the plant in Fort Worth was opened, the land, the infrastructure, and the building were donated with the understanding 

that a large number of good jobs would arrive with the new facility. 

My question on this most recent proposal on a new facility is 

whether or not the Bureau has pursued a similar model for its 

plans to replace the D.C. facility, specifically whether or not you 

are looking at States that may be willing to save the Bureau money 

by donating the lands with the expectation that jobs would be located there and what is the status of that and if you are not pursuing that, a donation concept, why not? 

Mr. OLIJAR. To date we have not pursued a donation concept. We 

are open to pursuing that. The initial look we did with respect to 

the facility location was existing Federal facilities in the Washington, D.C. area, when we were going to use GSA’s (General Services Administration) Exchange Authority. 

When GSA put a stop to using the Exchange Authority because 

they didn’t feel that they were receiving value, we decided to pursue a different option. 

We are open to looking at pursuing an option like we did with 

Washington or Fort Worth facility and getting a donated land and 

facility. Key requirements for us is that we do want to remain on 

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the East Coast. Primary shipments for us go to the East Rutherford, Federal Reserve Center. We need to be near an airport. But 

we can put our requirements out and work with GSA to identify 

anybody that would be interested in donating land and facility. 

Chairman BARR. Thank you. I look forward to working with you 

on ways in which we can make this work for everyone in a costeffective manner. 

My time has expired and so I now yield 5 minutes to the Ranking Member, the gentlelady from Wisconsin, Ms. Moore. 

Ms. MOORE. Thank you so much Mr. Chairman. 

Thank you, and I appreciate your comments about just the impracticality of going to a totally cashless society because people are 

unbanked, under-banked, children, and certainly merchants that 

maybe have pop-up vending products that really would not be able 

to handle a cashless enterprise. 

That being said, I want to just ask a little bit. I noticed from 

your testimony that you have costed out the price of pennies and 

nickels and it is one eighty-second of a cent to produce the penny 

and 6.6 cents for the nickel. 

I just want to know with what economists or marketing people, 

do you consult, with regard to the practicality of getting rid of either the penny and particularly the nickel? 

It is one thing to round up or down with a penny but you start 

rounding out nickels and it will add costs, so to whom do you interface in order to evaluate whether or not it is possible to get rid of 

a nickel in particular or a penny? 

Mr. RYDER. Sure. My primary interface is the Federal Reserve 

Bank so we have been meeting regularly on this issue, the penny 

and the nickel. We have had quite a number of meetings. It is my 

goal, I should say, our goal, to reach a conclusion on what to do 

with the penny before the end of the year. 

It might take quite a bit longer than that to implement whatever 

plan we do, but in regards to the penny I believe there are quite 

a number of pennies out in circulation that are not circulating. 

One of our goals is to try to get the general public to circulate 

more of those pennies. The banks that hold them along with the 

armored carriers that hold them, need to start circulating some of 

those pennies and not depend on brand new pennies that are coming out of our facilities. 

If we can really improve the circulation and get them back into 

circulation, the cost to produce pennies is going to go down because 

I would hope to see it go from 7 billion currently to somewhere in 

a manageable number of the 2 to 3 billion pennies a year to satisfy 

the Federal Reserve requirements. 

Ms. MOORE. The nickel? 

Mr. RYDER. The nickel as you said, is correct. It costs more than 

a nickel to make a nickel. I don’t have the authority to disregard 

the nickel. But again, we will work with the Federal Reserve on 

measures to reduce cost. Circulation is not as much of an issue 

with the nickel. 

With our alternative metals, I believe we can introduce new metals in the coming years that will reduce that cost significantly and 

bring it down in line with the cost to produce. 

mcarroll on FSR431 with DISTILLER

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Ms. MOORE. The topic of the need for a new facility, obviously 

this has been costed out and the current or projected use of coins 

is factored into that so we can afford a new facility in your estimation? 

Mr. OLIJAR. Yes. I believe that we can afford. 

One of the criteria driving the need for a new facility is the constraints that exist in the existing facility aren’t going to enable us 

to add the new security features that are going to be coming with 

the redesigned currency and maintaining the confidence of the currency is the essence of— 

Ms. MOORE. But this is with program revenue, not any appropriation from Congress, you can build the facility? 

Mr. OLIJAR. That is correct. There would be no appropriation 

from Congress. We would include it in the billing rates for the Federal Reserve for our currency. 

Ms. MOORE. OK. Thank you. 

Mr. Chairman, I will yield back my time. 

Chairman BARR. The gentlelady yields back. 

The Chair now recognizes the Vice Chairman of the subcommittee, the gentleman from Texas, Mr. Williams for 5 minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman for holding this important hearing on the Future of Money in the United States. 

Our economy is booming and thankfully Americans are consuming, spending, and saving more than ever before. While we encourage and work to foster this historic growth we must also scrutinize our current systems, keep what is working, reform what is 

not. 

This subcommittee has focused on issues that are important to 

the American people and most importantly paid close attention to 

how the Federal Government spends the taxpayer’s money. It is my 

hope that this morning we can have a discussion on the U.S. Mint 

and Bureau of Engraving and Printing, how they are doing, what 

are the good things they are doing, and how we can improve upon 

what they are doing and how we can establish and support best 

practices for the foreseeable future. 

I look forward to this hearing and I appreciate our witnesses 

being here and in full disclosure, I am from Fort Worth, Texas. 

First question, Director Olijar, I am sure many people followed 

the proposal, removing Andrew Jackson or Alexander Hamilton 

from Federal Reserve notes. Where does this issue stand? 

Mr. OLIJAR. The Secretary of the Treasury has final design authority with respect to United States currency. 

At this time, we are focused on the next denominations to be redesigned, which are the 10 and the 50. 

Mr. WILLIAMS. OK. It seems though any decision on this subject 

would be controversial but a decision probably has to be made as 

part of the banknote redesign schedule so what is the decision or 

what is the timeline, that you think we will have? 

Mr. OLIJAR. Our estimate is that we need a decision with respect 

to the $20 note in 2021 to enable us to be in production and introduce a redesigned currency by 2026. 

Mr. WILLIAMS. OK. Another question, the United States dollar is 

particularly strong right now and two-thirds of U.S. $100 notes are 

mcarroll on FSR431 with DISTILLER

12 

thought to be circulating overseas, so what is the state of counterfeiting of Federal Reserve notes these days? 

Mr. OLIJAR. As I mentioned, counterfeiting today is less than one 

one-hundredth of a percent of the notes that are in circulation. 

That said, the significant threat that we face in counterfeiting is 

the casual counterfeiter has emerged as the primary focus. Those 

are the folks that are using their personal computer and inkjet 

printer to scan and print a note. 

That is why we are redesigning the currency and coming up with 

state-of-the-art security features to thwart that. 

Mr. WILLIAMS. Will you say is that problem increasing, decreasing, stable? 

Mr. OLIJAR. Overall counterfeiting remains relatively stable. But 

it used to be, that it was large printing shops, it has now become 

the small individual and a lot more of them are doing it. 

Mr. WILLIAMS. You just touched on what I was going to ask you, 

so is counterfeit produced in specific places or passed more in specific places? 

Mr. OLIJAR. Counterfeiters typically target the larger retailers 

that don’t have automated equipment; individual cashiers; small 

businesses where people aren’t as knowledgeable about the currency and don’t know the security features to look for in what is 

there today. 

Mr. WILLIAMS. OK. Finally, is the Secret Service still emphasizing an anti-counterfeiting mission the way it once did? 

Mr. OLIJAR. The Secret Service, BEP, the Department of Treasury, all work very collaboratively to keep the Nation’s currency secure. 

Yes, they are aggressively helping us fight counterfeiting, especially in the international markets where you do see the larger 

counterfeiters. 

Mr. WILLIAMS. And also, I will just make a statement because we 

have touched on the Fort Worth model, if that is what you want 

to call it, for future expansion, is certainly the way to go. It works 

does it not? 

Mr. OLIJAR. Yes, it works very well. I would love to follow that 

model and we could actually make some improvements on that 

model. That was a facility opened— 

Mr. WILLIAMS. Maybe bringing more business to Fort Worth? 

Mr. OLIJAR. Yes. 

Mr. WILLIAMS. Might be an improvement. 

Mr. OLIJAR. We are doing a significant expansion in Fort Worth 

already to accommodate the new equipment. 

Mr. WILLIAMS. OK. 

And just in closing, Director Ryder, I want to thank you for the 

experience you bring with the Mint and your views and so forth. 

Tell me one more time, before my time is up, what does it cost 

to make a penny? 

Mr. RYDER. Right now, it is about two pennies. 

Mr. WILLIAMS. But the nickel? 

Mr. RYDER. About 6.3. 

Mr. WILLIAMS. Yes. Sounds like you are in the car business. 

I want to thank you all for being here, appreciate your involvement. 

mcarroll on FSR431 with DISTILLER

13 

I yield my time back, Mr. Chairman. 

Chairman BARR. The gentleman yields back. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Mr. Olijar, impressive results on the Virginia CPA 

exam. 

Mr. OLIJAR. Thank you. 

Mr. SHERMAN. We have other countries in the same business, 

countries like ours, like Japan, the E.U., Canada, Great Britain, 

what is their smallest unit of paper money in those countries? 

Mr. OLIJAR. I am not sure but it is generally above a dollar. 

Mr. SHERMAN. I am used to $2 to $5 because they have discovered that if you don’t have a dollar bill, people will use the dollar 

coin and they will save a lot of the money that we are talking 

about here. 

Mr. Ryder, I know you are going to be coming up with a report 

on the penny by the end of the year, my guess is that you won’t 

do it but I am going to suggest that you simply abolish the penny. 

It is not currency, it is litter. Literally if a police officer saw me 

throw pennies on the ground, I would get a ticket for littering and 

if I tried to pay that ticket in pennies, the judge would be very 

upset. 

There will be the issue that somehow when transactions are 

rounded, that that would be inflationary or somehow the merchant 

would benefit. 

If you buy something for $1.98 in a State with a 7 percent sales 

tax, you are already rounding to the nearest penny, you actually 

owe the merchant $2.1186 and it gets rounded to $2.12 so you are 

rounding up. If you buy four of those items instead then with sales 

tax you round down. 

The penny has been our lowest unit of currency since 1857, since 

Lincoln, now he would not throw pennies on the ground and call 

it litter because back then a penny was worth more than a dollar 

is today, I believe, certainly well more than 50 cents. 

Are you considering abolishing the penny? 

Mr. RYDER. No. sir. 

Mr. SHERMAN. Would you? Even after that impassioned rhetoric 

from the gentleman from California? 

Mr. RYDER. I actually just this morning off the Metro, picked up 

a penny. I always seem to pick pennies up wherever I go but it is 

not my decision to abolish the penny. 

I will comply with regulations if and when, but right now it 

doesn’t seem that the American population wants to get rid of the 

penny. If we had to round, the inclination will be to round up. 

Mr. SHERMAN. No. The rules—we round every transaction, in 

every State with a sales tax, and the computers and before that, 

little paper charts that the agency I used to run distributed. 

We round up or we round down based upon whether it is over 

0.5 or under 0.5. 

We can certainly mandate by law that if it was exactly half a 

penny you round down. 

Mr. RYDER. My personal opinion I think rounding affects the people that least can afford it and— 

mcarroll on FSR431 with DISTILLER

14 

Mr. SHERMAN. But every person who can least afford it has their 

transactions rounded, every time they buy anything, in any State 

with a sales tax. 

Mr. RYDER. True. 

Mr. SHERMAN. OK. 

Let us see. I will ask your colleague there, what steps you are taking in designing the currency particularly the $5 bill, the $1 bill 

but all currency to make sure that the changes you make are consistent with vending machines that read currency? 

Mr. OLIJAR. We are prohibited by statute from redesigning the $1 note so at this point in time we have no plans for a redesign 

on that. 

With respect to the $5 note, we have a very active interaction 

with the BEM, the Banknote Equipment Manufacturing community. We share proposed designs with them. We give them at least 

18 months to modify their equipment. We seek their feedback on 

security features that we add specifically for the Banknote Equipment Manufacturers to use because— 

Mr. SHERMAN. This is the same equipment that is used in the 

vending machines as well? 

Mr. OLIJAR. Correct. 

Mr. SHERMAN. OK. I would point out that in your testimony you folks are talking about saving $4 million, saving $16 million and 

a million dollars is a lot of money, it sounds like a lot of money 

but compared to the cost in this economy of having people carry 

money and coins, of having machines count money, of having vending machines either work or not work, just the psychological cost 

of having to hire a psychiatrist to talk to you about the incredible 

anger that you have when the machines won’t give you your potato 

chips. Those costs dwarf the $4 million and the $16 million, I 

would hope. 

Is it your mandate to come up with the best decisions for society 

or just whatever cost your agency the least money? 

Mr. OLIJAR. We focus on society. The cost of the electronic transaction and electronic fraud is much more significant than the cost 

of counterfeiting or the cost borne by businesses of today. 

Mr. SHERMAN. Well, yes. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the Chairman of the Capital Markets 

Subcommittee, Mr. Huizenga. 

Mr. HUIZENGA. Thank you, Mr. Chairman. I appreciate the opportunity to welcome you here. 

Just while we are on this subject that Mr. Sherman was just 

talking about, how much of a consideration is really given to the 

equipment manufacturers, vendors, and the folks that utilize these, 

whether it is coins or paper money, on a daily basis? How much 

weight is given to their opinions on content as they need to go in 

and maybe change how a machine would read a coin or read a dollar? 

Talk a little bit about that process if you would? 

Mr. OLIJAR. With respect to currency, there are a significant 

number of conferences where we have an opportunity to sit down 

with the equipment vendors. One of the things that they share 

with us is the particular version of counterfeit notes that they see 

mcarroll on FSR431 with DISTILLER

15 

and how their machines are being reverse-engineered so that we 

can work collaboratively with them to enhance the security of our 

designs. 

We have a very significant outreach to them. They are one of the 

front line of defenses in fighting counterfeit so we want to work collaboratively. 

Mr. HUIZENGA. Mr. Ryder? 

Mr. RYDER. With regard to the Mint, we rely heavily on our vendors and machine manufacturers. Behind me there are two gentlemen from Coinstar that have about 17,000 machines in the industry today that count coins and whatnot, in supermarkets. 

We also work with many of our other vendors when we are doing 

metal evaluation of our different products to ensure that the machines work well with our products, they cohabitate well. We depend heavily on those vendors. 

Mr. HUIZENGA. That is a pretty dynamic relationship? 

Mr. RYDER. Yes. 

Mr. HUIZENGA. I know that has been cited, however, in the past, 

reluctance to move from a paper dollar or $5 banknote to those 

coins, changing those systems, but it sounds like those systems are 

continually reviewed and in demand from the manufacturing side. 

I am going to move on to a letter, this is a theme, it is not particularly new, but this is a letter that I had sent in September 2016 

to a Comptroller generally, a U.S. GAO and when I had the privilege of chairing this particular subcommittee, talking about the 

building and the desire at the time to move the Mint. 

One of the things I was really quite curious about though was 

the BEP had foregone at least $200 million in maintenance on its 

current D.C. facility and it seems quite a big number and I believe 

it begs the question of how well all BEP facilities or any new one 

would be cared for. If you could address that issue? 

Then I am curious how did it occur? How did we get $200 million 

behind? Was BEP underpricing their services, their printing fee, 

charges to the Federal Reserve or was the Federal Reserve refusing 

some of those charges? How did we get $200 million behind in 

maintenance? 

Mr. OLIJAR. A significant amount of that maintenance actually 

goes back to being deferred into the late 1990’s when I was the 

CFO of the Bureau of Engraving and Printing. 

As I have mentioned we have done three facility studies and 

prior to making, I will say, significant infrastructure investments 

we had the hope that we would be able to move forward on a replacement facility rather than continuing to put money into a facility that would not provide us with the operational efficiencies that 

a new one would give us so we deferred maintenance. 

We have done three facility studies in the past 25 years. Our 

hope is that we can get a smaller more efficient manufacturing facility. The deferred maintenance that we are talking about exists 

primarily in Washington, D.C. We have not deferred maintenance 

in the Fort Worth modern facility that we have today. 

Mr. HUIZENGA. Yes. Real quickly, my time is running out. 

Are we really going to need two factories for banknotes in 25 

years? 

mcarroll on FSR431 with DISTILLER

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Mr. OLIJAR. I believe it is in the Nation’s interest, as does the 

Federal Reserve and the Department of Treasury to have two manufacturing facilities for what is the world’s currency today. Putting 

all of our eggs in one basket, presents a significant security risk. 

Mr. HUIZENGA. Do you have some third-party studies or anything 

that could demonstrate that? 

Mr. OLIJAR. With respect to security? 

Mr. HUIZENGA. Has anybody looked at what that means outside 

of just internally, both the need for the sheets, the security situation, the entire package of why a second facility would be necessary? 

Mr. OLIJAR. GAO did a comprehensive review of our most recent 

study that was done and they support the need for a more efficient 

manufacturing facility, in lieu of— 

Mr. HUIZENGA. With real indulgence are people going to be able 

to go tour it? 

That is one of the things that we hear from constituents all the 

times. They want to go and see their money being made and I am 

curious if that is part of that plan? 

Mr. OLIJAR. We haven’t gotten that far. There is a great interest 

in our citizens to see the printing of the Nation’s currency and I 

would hope to entertain them there as well. 

Chairman BARR. The gentleman’s time has expired. 

The Chairman now recognizes the gentleman from Texas, Mr. 

Green. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the Ranking 

Member and the witnesses for appearing. 

I am curious about digital currency and I am curious about it not 

in the sense of Bitcoin but in the sense of dollars as we know them 

and coins as we know them. It seems to me that there is a future 

wherein hard currency and coins won’t find as much prevalence as 

we see today. 

Russia is currently looking at a bit currency of a sort, they are 

calling it the CryptoRuble, I believe. China is doing a similar thing. 

There seems to be some advantages in digital currency. You have 

better efficiency. You have immutability. You have transparency. 

You have portability. 

Where are we in terms of looking at the future of currency in the 

sense of whether there will be a need for the type of tangible currency that we currently have a lot of need for it seems? 

Mr. OLIJAR. People have a preference to a tangible currency. 

I do not believe that there is going to be a world in which we 

won’t have something that we can hold, touch, and transact. 

The challenge that faces a digital currency as I mentioned is that 

there is a lot of electronic-related fraud going on and that the loss 

that accumulates related to that type of fraud is much more significant than that encountered from counterfeiting. 

Mr. RYDER. My opinion is there is probably a place for it but 

there is a larger place in society for actual currency that you hold 

and transact with. 

Crypto-type currencies are much more speculative and risky but 

you are talking to somebody whose parents raised a pretty conservative investor so I am going to stick with currency. 

mcarroll on FSR431 with DISTILLER

17 

Mr. GREEN. You do understand that I am not talking about 

Bitcoin. I am talking about a crypto dollar. I am talking about persons who are going to metamorphose from going to the vending machine and utilizing a credit card to make a purchase as opposed to 

a coin. I am talking about people who want to traverse the country 

and they want to take $10,000 with them but they don’t want to 

take it in dollars for fear of many things that can happen along the 

way. 

Why would we not see a world where these people are going to at some point, not everybody will have $10,000 but everybody will 

have the opportunity to go to a vending machine and there are 

other types of machines now that have been converted such that 

they can use credit cards. 

I know that there will be fraud, in anything that we do we have 

fraud. It is just a fact of life, let us try to minimize it. 

Are you saying that there will be more fraud with the electronic 

currency than we have with tangible currency? 

Mr. OLIJAR. I believe that there already is more fraud with the 

electronic payment mechanisms than there is with currency today, 

so I would think that would be likely to continue in digital currency. 

In addition, there is a very large part of the population that likes 

the anonymity that comes from using currency in their transactions. There is a government fear. When you take Russia issuing 

a currency, do you really want to hold that as a stored value? 

Mr. GREEN. No. I don’t. 

As a matter of fact, nor do I want to hold China but what I do 

want to do is look to the future and sometimes others can get to 

the future ahead of us. We ought not to conclude that because we 

have other things that we find that we don’t like about Russia, that 

they may not be ahead of us on some other things. I can think of 

a few things that they have done ahead of us that we try to catch 

up with. 

But let me just leave you with this. I am just concerned about 

our not staking out at least a vision, at least start to look at where 

this may be going without us. I don’t care to have people know 

what I have in my bank account. There probably would be an easier way to find out but I do want to make sure that we don’t find 

ourselves at the tail end of a future that is going to envelop currency. 

Thank you. I yield back. 

Chairman BARR. The gentleman yields back. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. Thank each of you 

for being with us today. 

According to a report by the Federal Reserve of San Francisco, 

cash purchases amount to only 14 percent of the total value of consumer transactions with the average transaction being only $21. 

With this in mind I just want to ask you, is it necessary to continue 

to produce cash at the rates we have seen over the past decade or 

so? 

Mr. OLIJAR. We have seen no decrease in demand for cash. As 

I mentioned, it has two uses— 

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Mr. PITTENGER. Let us say and excuse me but maybe 50, 60 

years ago it was close to 100 percent and then we began utilizing 

more credit cards. Now it is only down to 14 percent. 

Mr. OLIJAR. At the same time the overall number of transactions 

has increased significantly and overall cash demand as I have mentioned, over the past 10 years, has remained relatively stable at 7 

billion notes. We don’t perceive that other payment mechanisms 

are going to drive that down at this point in time. 

The Apple Pay, the Bitcoin have taken share from checks. 

Checks have been the primary payment mechanisms that as has 

suffered a significant decrease in volume. 

Mr. PITTENGER. OK. 

Some scholars propose eliminating higher value notes because 

they are heavy-use in tax evasion, corruption, and even terror financing. With this in mind the Europeans had a $500 note they 

call the ‘‘bin Laden note’’ because of it’s ease of use by terror 

groups. 

I would say that no other transaction provides the same level of 

anonymity. Understanding this, will it be worth studying a gradual 

phase-out of our large denominations? 

Mr. OLIJAR. The largest denomination that we produce today is the $100 bill. 

Mr. PITTENGER. I understand that. 

Mr. OLIJAR. We do have the authority to print 500-, 1,000- or 

10,000-notes. I don’t think that we could look at doing that. It 

would have a very adverse impact on Commerce, the $100 note is 

increasingly used in transactions. 

The higher denomination notes when we stopped printing them in 1969, the $100 note today is worth $17 compared to the hundred 

it was in 1969. 

As the level of prices have gone up, the demand and usage of the $100 note has increased significantly in Commerce and it serves as 

a stored value internationally. 

Mr. PITTENGER. Mr. Ryder, you wish to comment on that? 

Mr. RYDER. The Mint, in 2016, produced a little over 16 billion 

coins. It reduced in 2017 to about 14 billion and we are on track 

to produce over 13 billion coins this year so it is hovering in that 

area. The Federal Reserve has been ordering that for the last 10 

years. 

Mr. PITTENGER. Does the Secret Service and Customs have the 

tools necessary to identify counterfeit coins and then prosecute 

those counter-felons? 

Mr. RYDER. Yes. The U.S. Mint is taking that issue very seriously. 

When I joined the Mint, I created a taskforce of some of the 

brightest men and women in our facility where we are addressing 

that issue on a weekly basis. 

The Gold bullion coming out of China that is counterfeit is a 

unique problem from a technology point of view as they are replacing the gold with tungsten. Tungsten has about the same weight 

as gold, the density and trying to detect that can be difficult but 

we are looking at technologies to address that issue both from a 

coining point of view within the metal itself or on the metal as well 

as packaging. 

mcarroll on FSR431 with DISTILLER

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Recently we have undertaken a new effort with consumer awareness on educating our consumers about what to look for. 

Mr. PITTENGER. Thank you. Let me ask you one other question, 

if I could. 

I am told that some countries including China may have truckloads of perhaps counterfeit coins that they maybe would engage 

us with a mint buyback program. 

Are we prepared to ensure that this buyback program that we 

have is secure? 

Mr. RYDER. Yes, sir. We are working diligently with the Office 

of Inspector General and the Secret Service, to address those 

issues. I believe we are on top of it and can take care of that issue 

when it comes up. 

Mr. PITTENGER. Thank you very much. My time has expired. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. Foster. 

Mr. FOSTER. Thank you, Mr. Chairman. 

I guess I should start out by saying that, as I guess the most senior representative from Illinois, if we are looking at a future where 

you are thinking about issuing digital currencies, I think I can 

speak for the entire delegation from Illinois, that that currency 

must be named for Abraham Lincoln. Just wanted to get on the 

record on that. 

Second, as I guess the only PhD physicists in Congress, if you 

are looking at methods for distinguishing tungsten from gold, you 

could look at low-frequency or medium-range gammas and x-rays 

which have a very, very strong dependence on atomic number and 

then well, probably with a pretty simple method, generate even a 

hand-held way of telling the difference there. 

Now back to digital currencies. I was wondering what you can 

learn, or maybe you already studied this, if you look at countries 

where they have made the transition to having most of the consumer payments be it cashless, payment by cellphone. That I presume is accompanied by a drop in low denomination bills and coins 

and perhaps a persistence of the higher denominations as they are 

used for other purposes. 

Have you looked at the adoption curves in those countries that 

have made this rapid transition and factored that into your planning? 

Mr. OLIJAR. We have. We are in constant contact with other 

countries and the mechanisms that they are using to drive efficiencies in the economy. They have not seen a significant increase 

in demand for the higher denomination notes as a result of that. 

The countries that have done the dollarization are very small, 

homogeneous countries, mostly Scandinavian countries going toward cashless but as I mentioned they are actually moving backward now and trying to make sure that they are serving the population. 

Mr. FOSTER. The total demand, particularly low denominations, 

is not affected when the consumer economy goes cashless, is that 

what they observe? 

Mr. OLIJAR. The demand for—it is the demand for all notes. 

mcarroll on FSR431 with DISTILLER

20 

Mr. FOSTER. I was talking about the shift. You may actually see 

a shift, my guess is that the low denominations would become just 

stored on your cellphone and it is the higher denominations where 

you want something you can hold in your hand and stuff under the 

mattress or whatever, do you see anything, have you looked at the 

difference in the distribution of value that consumers are asking 

for? 

Mr. OLIJAR. It is fairly much across the board when you are 

going cashless. 

Mr. FOSTER. That is interesting. OK. 

Is there a general report? If you could, as a response for the 

record, if there is some review article of what the response is in different countries I would be very interested? Don’t do a big internal 

study on this but if you can pretty quickly come up with some report of what the experiences in countries that are ahead of the 

curve of the U.S. on cashless economies, it would do everyone some 

good to see what is coming and look around the corner here a little 

bit. 

Mr. OLIJAR. Absolutely. We can get you that. 

Mr. FOSTER. Thank you. I appreciate it. I will yield back. 

Chairman BARR. The gentleman yield’s back. The Chair now recognizes the gentleman from Minnesota, Mr. Emmer. 

Mr. EMMER. I thank the Chair and the gentlemen for being here 

today. 

The United States dollar is particularly strong right now and 

two-thirds of U.S. $100 notes are thought to be circulating overseas. What is the state of counterfeiting of Federal Reserve notes 

these days? 

Mr. OLIJAR. The level of counterfeiting remains relatively stable. 

It is less than one one-hundredth of 1 percent. 

In 2011, we unveiled a redesigned $100 note with a Blue 3-D Security Ribbon. It has been extremely successful in the marketplace. 

To date, it has not been successfully replicated by the counterfeiters. They are continuing to counterfeit older designs. 

Mr. EMMER. I am sorry, they are, I missed it? 

Mr. OLIJAR. The counterfeiting is focused on older design notes 

and we are gradually taking those out of circulation as quickly as 

we can. 

Mr. EMMER. In general, has the counterfeiting been stable since 

2011 or just stable on $100 notes? 

Mr. OLIJAR. Overall counterfeiting has been stable. $100 notes 

have gone down. Counterfeiters have shifted towards the 50, which 

is why it is now the second note to be redesigned. 

Mr. EMMER. Is counterfeit currency produced in specific places or 

passed more in certain locations? 

Mr. OLIJAR. In the United States, 85 percent of the counterfeits 

are done with a PC or an inkjet printer and a scanner so there are 

literally thousands of them and unfortunately across the country 

where people are generating very small volumes of counterfeit. 

Outside the country there are some locations that are hot-beds 

of counterfeiting. 

Mr. EMMER. For instance? 

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Mr. OLIJAR. For instance, Peru. The Secret Service has opened 

an office there and they are working very closely with the Peruvian 

government to combat that. 

Mr. EMMER. Are there others or is Peru the outright winner? 

Mr. OLIJAR. There are some others that I could share with you. 

I would prefer not to do it publicly. 

Mr. EMMER. OK. 

Is the Secret Service still emphasizing the anti-counterfeiting 

mission the way it once did? 

Mr. OLIJAR. As I mentioned, yes. We are working very collaboratively with the Secret Service and the Federal Reserve to keep 

the Nation’s currency secure. 

Mr. EMMER. All right. 

Mr. Ryder, following a similar line of questioning, in an August 

14 interview you are quoted as saying that you have, ‘‘set up an 

internal steering committee at the Mint,’’ which is what you referred to a little bit earlier, that is addressing counterfeiting issues. 

Can you give us some more information about the specific mission of this steering committee, who sits on the committee, who 

runs it and what do you expect the committee to accomplish within 

the next year? Earlier you were referencing gold bullion and other 

things but just counterfeiting in general? 

Mr. RYDER. Yes, sir. As I said we take counterfeiting pretty seriously. 

I spent 25 years in that industry both in the currency as well as 

the coinage side of the business. Our team at the Mint is mostly 

operational-type individuals who have knowledge of the makeup of 

our products. 

We meet twice a week or twice a month usually in Philadelphia 

but we have a pretty good handle on the problem. We are addressing those problems properly with the Secret Service, the Office of 

Inspector General, on the bullion side as well as the circulating 

side. 

Mr. EMMER. Who sits on it? 

Mr. RYDER. I am sorry? 

Mr. EMMER. Who sits, so how many people do you have on this 

committee? 

Mr. RYDER. About 12 members on our steering committee, mostly 

members of the Mint. 

We are getting ready to have a Vendor Day at the Mint where 

any vendor who has an anti-counterfeiting technology can come to 

the Mint, present to us and it is our hope to select the best of the 

best that particularly pertain to both our packaging and our certificates of authenticity, as well as entertaining some pretty smart 

people with regard to the physics of what we might be able to do 

within the metal itself. 

Mr. EMMER. Do you run this committee personally or you have 

somebody else running it? 

Mr. RYDER. I run it. 

Mr. EMMER. In the last few seconds I have left for both of you, 

are there additional authorities that Congress should provide to aid 

your efforts to combat counterfeiting? 

Mr. RYDER. You are doing a great job as it— 

Mr. EMMER. We don’t hear that every day. 

mcarroll on FSR431 with DISTILLER

22 

Mr. RYDER. No. But as I have had several letters in this regard, 

it keeps us on our toes. If you find a problem out there in your districts, any of you, it is good that you let us know either verbally 

or in writing and we will address it. 

Mr. OLIJAR. Currency is a counterfeiting game and we greatly 

appreciate your support in the anti-counterfeiting mission we have. 

Mr. EMMER. Thank you both. 

I see my time has expired. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from West Virginia, Mr. 

Mooney. 

Mr. MOONEY. Thank you, Mr. Chairman. 

It is good follow up to my colleague’s comments about counterfeiting. 

Your predecessors have not incorporated anti-counterfeiting technologies into U.S. coins, minted of precious metals. My efforts to 

press your agency on this inaction has been met with responses 

suggesting, you have not had that many complaints or see a large 

problem. 

But in my meetings with law enforcement, I know the Secret 

Service and U.S. Customs and Border Enforcement have been dealing with many cases and would certainly like more assistance from 

the U.S. Mint. 

Other than providing ongoing cooperation with investigations, 

one thing the Mint can do is adopt the types of anti-counterfeiting 

technologies that other sovereign mints have adopted long ago. 

I have had a demonstration of one of these in my office. This 

technology is called a ‘‘PAMP VeriScan’’ and it seems to work 

great, so when will the U.S. begin to address these problems and 

implement these types of security standards? 

Mr. RYDER. I believe we are adjusting to them now, I am very 

active in this area. 

Finding a solution for the bullion problem is an interesting problem. I have talked recently to a very bright physicist who has some 

very interesting ideas about how to resolve that at a relatively inexpensive cost but from a technology point of view, it is very robust. 

Our team at the Mint is addressing many of the issues that you 

are speaking about and we will continue to do so. 

Mr. MOONEY. OK. I look forward to working with you. I appreciate your comments earlier that if we hear problems we pass it on 

to you and so that is what I am doing. 

It is important we do that. It is in the Constitution that we have 

the right to do that, the duty to do that. 

Mr. RYDER. Yes. 

Mr. MOONEY. Unlike a lot of things government does, that is actually in the Constitution and I would just comment as an aside 

to my colleagues on the other side of the aisle, who are complaining 

about the value of the penny, it is the inflationary practices of the 

Fed that we should stand up to because those inflation costs have 

devalued the penny greatly over the years. 

The Fed’s goal is 2 percent. It is been higher than that many 

years so, yes, the penny is worth a lot less and my constituents, 

many of whom save and are the ones that you mentioned, Director 

mcarroll on FSR431 with DISTILLER

23 

Olijar, about folks that are not highly banked and I are just saving 

their pennies and their dollars, they are the ones who were hurt 

by those inflationary prices so maybe we should keep that in mind 

as we complain about the value of the penny, to my colleagues on 

their side of the aisle. 

Another question however is, the IRS currently classifies these 

precious metals and coins as collectibles like Beanie Babies and 

baseball cards and then requires taxpayers to report capital gains, 

which are taxed at a discriminatory high collectibles rate of 28 percent. 

My view, which is backed up by language in the U.S. Constitution, is that gold and silver coins are money and indeed these 

American Eagle coins are legal tender. 

If they are indeed U.S. money, it seems there should be no taxes 

on them at all so why are we taxing these coins as collectibles? 

Mr. RYDER. That is a very good question. It would help our investor community, collector community if it weren’t taxed. 

Obviously, it is not my decision, but it is something that we deal 

with, but again there is not much I can do about it. 

Mr. MOONEY. OK. I see my colleague Frank Lucas is here so we 

have been working on this issue and appreciate seeing you and I 

am glad you are here to ask some questions. 

I will ask you one more before I finish here. I understand from 

my meetings with law enforcement that one hurdle in getting counterfeit prosecutions pursued is the statutory threshold of the 

$10,000 in value. 

Gold Eagles have a face value of $50; however, as a direct result 

of the Federal Reserve’s inflationary policies over many decades, 

the market value of the gold contained in a single one-ounce Gold 

Eagle is now worth about $1,200 so $10,000 in face value of these 

coins is worth about $240,000 at current gold prices. 

Shouldn’t the statutory threshold be modified so that prosecutors 

can look at actual values involved in these frauds and therefore 

pursue more cases and leads? 

Mr. RYDER. It is something probably they should take a look at. 

Mr. MOONEY. OK. Thank you. 

Mr. Chairman I will go ahead and yield back the balance of my 

time. 

Chairman BARR. The gentleman yields back. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. I thank the Chairman. Thank you for conducting this 

hearing. It is good to have our leaders from the Mint, the Bureau 

of Engraving with us today. 

First of all, I know you have addressed this but I was not in the 

room, I would like to talk a little bit about the proposed facility you 

are considering in the Bureau of Engraving here in the Beltway. 

Is there no way to expand the facility in Fort Worth to increase 

capacity and thereby not build another facility here? That is question one. 

Question two is, are you using the same approach which is donated land and treating it in the same manner you did when you 

built the facility in Fort Worth back in 1986? 

Then, third I would say, what cost-benefit analysis it requires? 

mcarroll on FSR431 with DISTILLER

24 

I understand the part about expensive property here in Washington, D.C., higher and better use, old facility but I am real interested in this issue of could you just do it by expanding in Fort 

Worth or are you required from a safety point of view to have two 

production facilities? 

Thank you very much. 

Mr. OLIJAR. That is the primary driver for two facilities, it is in 

the Nation’s and the world’s interest that we have two manufacturing facilities. Putting all of our eggs in one basket presents a 

significantly high risk. That is one of the reasons that the Fort 

Worth facility was constructed so that we had two manufacturing 

facilities. 

When the facility in Washington, D.C. faced a threat from the 

airliner that went down on the 14th Street Bridge, we had to look 

at that as a very significant economic threat to the country. I want 

to make sure that we can meet the Nation’s and the world’s demand for our currency. 

Mr. HILL. Who supervises construction on a Treasury project like 

that? 

Mr. OLIJAR. We don’t have the expertise internally to do that 

type of a construction. We would work with either GSA or the 

Army Corps of Engineers to supervise the production. It is well beyond our capabilities. 

Mr. HILL. Thank you. 

For the facility location here, are you going to use the same approach you did in Texas on considering an economic advantage to 

Maryland or Virginia and ask for donated land and State support 

for that construction? 

Mr. OLIJAR. We are considering going out and asking to see what 

type of land and facility would be provided to us. 

Mr. HILL. Thank you. I appreciate that. 

I noted in the preparation for the hearing, there was some interest that the Bureau might propose conducting your high-quality engraving, printing for non-Federal customers. Can you tell me about 

that? 

Mr. OLIJAR. Yes, yes. A coalition of the States has approached us 

to get secure documents, I think birth certificates done. There is no 

capacity and capability to do that in the United States today. The 

States have reached out to Canada to get their secure documents 

printed. We have the capability. We could do it without having any 

impact on our core mission and would incorporate the necessary security features that they are looking for. 

Mr. HILL. I presume that is because as the bond and stock market has gone electronic, we have no private engraver, printers left 

in the United States? 

Mr. OLIJAR. That is correct. No large scale. 

Mr. HILL. Thank you very much. 

Mr. Chairman I appreciate the time and I yield back the balance. 

Chairman BARR. The Chair now recognizes the gentleman from 

Ohio, Mr. Davidson. 

Mr. DAVIDSON. Thank you, Chairman. Thank you both for your 

time here today and the work you do on behalf of our country. 

I am curious if we look at the problem Director Ryder, with the 

counterfeit bullion coins coming into the country, do Secret Service 

mcarroll on FSR431 with DISTILLER

25 

and Customs have adequate tools to detect the counterfeits? Do 

they have adequate legal authorities? Are there changes that need 

to be made and if so what might we do to address that? 

Mr. RYDER. I don’t think that Customs, based on the problem 

that we have, has the right tools because I don’t think the tools 

exist to easily authenticate the difference between an authentic 

bullion coin or one that has been incorporated with tungsten particularly. 

If it is simply a counterfeit coin that is made of gold, they have 

the capabilities of addressing that issue but the tungsten issue is 

an interesting problem and it is difficult to manufacture an inexpensive detector, when I say inexpensive, something less than say 

$5,000 that can do the job. 

We currently have quite a number of those types of devices in 

our facilities and they do not detect the tungsten without destructive testing. 

Mr. DAVIDSON. Have you put out an RFI? DARPA, for example, 

funds defense projects when, gee, I wish there was a technology solution to this and they solicit proposals. Have you solicited proposals from the commercial sector for innovators whether they are 

PhD candidates or existing companies to try to solve this problem? 

Mr. RYDER. We have. I have sat down with a number of companies to talk to them. As I said earlier, we are going to have a Vendor Day to allow anybody who might have something, come and 

talk to us. 

I have talked to NASA particularly with some of their scientists 

about some of the things they might be doing but it is something 

that is ongoing, is something that we have to address. 

Mr. DAVIDSON. Thank you. And, one of the other challenges of 

course, when you have cash or coins, is they do store value, they 

are the legal tender of the United States of America but sometimes 

people lose them. When you lose them they are gone or cash and 

coins, are they used for illicit finance? 

Mr. RYDER. In a number of cases, yes, they are. 

Mr. DAVIDSON. Do people launder money— 

Mr. RYDER. Absolutely. 

Mr. DAVIDSON. With cash? OK. 

Many of these same objections are raised about cryptocurrencies 

or crypto assets of various types and as we speak about those, how 

much cash could you store inside this phone case? 

Mr. RYDER. Quite a bit. 

Mr. DAVIDSON. If it were digitized, you could store quite a lot but 

in a similar package, you really would not be able to carry much 

value. If you had gold coins or melted this and turned it into a 

piece of gold but that is not what we print in the Mint, we print 

currency and coins, paper currency. 

There is a demand in the future for crypto out there and the 

question is, will there be intermediaries like currently, Visa and 

MasterCard, or cryptocurrencies, whether it is Bitcoin or one of the 

numerous other coins that are out there, seeking to become currencies? 

Recent reports have cited that demand for investor-grade bullion 

coins has decreased and perhaps some of that decrease is accounted 

for due to demand for Bitcoin or Ether or XRP because they are 

mcarroll on FSR431 with DISTILLER

26 

an emerging asset class and present opportunities for investor to 

store values. 

Do you see a correlation between the rise in demand for these 

cryptocurrencies and decline for bullion? 

Mr. RYDER. There are two different customer bases, two different 

people who have two different agendas. 

The bullion products have been selling quite a bit in reduced 

numbers in the last couple of years mostly because investors have 

taken on different types of investments. 

We have seen a rise in the last 2 or 3 months where we have 

seen a slight increase from an investment point of view. 

But as I said, I believe the crypto-type investments are built for 

specific investors who have specific investment goals. 

Mr. DAVIDSON. OK. My time has expired. 

I look forward to following up with you on additional items. 

I yield Chairman. 

Chairman BARR. Thank you. 

The gentleman yields back. 

The Chair recognizes the gentlelady from New York, Ms. Tenney. 

Ms. TENNEY. Thank you, Chairman Barr. 

I really appreciate the panel for being here today. 

Obviously the jurisdiction of this committee is to give oversight 

over the institutions that produce our currency and aid in facilitating our everyday commerce. 

I have a question, just jump right to it, is, according to the bipartisan study from the Dollar Coin Alliance in Canada, approximately 10 percent of our population saved $450 million over the 

first 5 years of moving to a coin-base as opposed to the dollar bill. 

Can you tell me what your opinion is on that happening, Mr. 

Olijar, first and then Mr. Ryder either way? I would like to hear 

from both you, what is your opinion on that, particularly referring 

to the Currency Optimization, Innovation, and National Savings 

Act. Let me just clarify, a study on the penny and then moving to 

the coin similar to Europe and Canada, if you could tell me what 

is your opinion, it says there is going to be a cost savings, is that 

true? Can you give me a little quick pro and con just for a few seconds there? 

Mr. OLIJAR. The American public obviously loves the dollar bill 

and prefers to use that in commerce. Treasury’s policy is that the 

note and the bill co-circulate and given a choice, people significantly prefer the paper note. 

The analysis that GAO did of the conversion shows that after 10 years it would be a net cost to the U.S. Government of over $500 

million of making that conversion. 

Ms. TENNEY. How about giving, Mr. Ryder, do have an opinion? 

Mr. RYDER. Yes. As the chairman mentioned in his opening 

statement, one of the issues that has constantly plagued the dollar 

coin is reluctance to remove the dollar bill. 

Ms. TENNEY. Yes. 

Mr. RYDER. The two just haven’t co-circulated. Currently there 

are 1.1 billion-dollar coins in the Federal Reserve storage vault and 

in our storage vaults, and that equates to about a 14-year supply, 

if we use 80 million coins a year. 

The program as designed hasn’t worked. 

mcarroll on FSR431 with DISTILLER

27 

Ms. TENNEY. Yes. It is interesting because the GAO says that savings would be about $4.5 billion over 30 years. That is pretty 

significant when you realize the paper version lasts about 5.8 years 

and the coin lasts longer. 

I know when I was in Europe and you get the coin, as an American citizen we are so used to having the dollar bill but actually 

you find the coin is pretty convenient. 

Maybe your point is right, maybe if the Americans didn’t have 

the choice maybe they would actually decide they liked the dollar 

coin better. That is up for debate at this point. 

But I am thinking as you are advocating for, and I am looking 

at the GAO on renovating the new site, that you are proposing, 

would be $2 billion but then a new site, which would be higher 

technology, as you advocate, would be $1.4 billion so there would 

be a savings. 

If we did move to the dollar coin, wouldn’t that actually take care 

of some of the savings on building the building that you want to 

build? Technically we could save money that way if we are looking 

at a fiscally conservative message. 

Mr. OLIJAR. I don’t think it would have a significant impact overall, if you eliminated the dollar bill, the demand for the $2 note 

would most certainly go up and as it exists today the $1 note is 

only about 14 percent of our volume. 

Ms. TENNEY. OK. I know you have answered this before but I 

missed it, could you just tell me again what your opinion is on 

eliminating the penny, is that something you would advocate for or 

not Mr. Olijar first? 

Mr. OLIJAR. I am agnostic. 

Ms. TENNEY. OK. 

Mr. OLIJAR. I am a coin collector so— 

Ms. TENNEY. Oh, there you go. 

How do you feel about challenge coins, they are out there— 

Mr. OLIJAR. Love them. 

Ms. TENNEY. We could be making those. 

Mr. Ryder, what do you think? 

Mr. RYDER. No. It is not the intention of the Treasury Department to eliminate the penny, our intention is to try to create programs to increase circulation of pennies that are currently out 

there. 

Ms. TENNEY. Yes. 

Mr. RYDER. If we can do that effectively with the Federal Reserve’s assistance, I believe we can reduce the penny production by 

approximately 2 to 3 billion per year. 

Ms. TENNEY. The savings? 

Mr. RYDER. 2 to 3 billion demand for— 

Ms. TENNEY. Demand? OK. 

How much in savings would that be to the taxpayer? 

Mr. RYDER. Probably in the neighborhood of $20 million, $25 million. 

Ms. TENNEY. Twenty-five million annually? 

Mr. RYDER. Potentially. 

Ms. TENNEY. OK. That is better than nothing. 

Mr. RYDER. Yes ma’am. 

Ms. TENNEY. Thank you. I appreciate your comments. 

mcarroll on FSR431 with DISTILLER

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Thank you. I yield back. 

Chairman BARR. The gentlelady yields back. 

The Chairman recognizes the gentleman from Oklahoma, Mr. 

Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. I apologize for being late. 

This is also Farm Bill Conference morning, so kicking off with the 

esteemed other body to start the process to address that. 

To both directors, I apologize for being late and have arrived way 

into the discussion so just for the sake of conversation, you mentioned that 14 percent of the paper currency printing is the $1 bill. 

Of the volume of Mint production what percentage in dollar 

value or tonnage, however you want to describe it, Mr. Ryder, what 

percentage is the one-cent piece? 

Mr. RYDER. Currently the one-cent is about 8.4 billion compared 

to the five-cent which is 1.3; the dime is 2.4 billion; the quarterdollar is at 1.9, for a total of about 14 billion coins produced. 

Mr. LUCAS. More than slightly half of the production of the Mint 

at current levels would be one-cent pieces? 

Mr. RYDER. Correct. 

Mr. LUCAS. OK. Fair enough. 

As my colleagues discuss these issues of course, I think back to 

the historic beginning of both your institutions. Mint, 1790’s, Bureau of Engraving and Printing, 1860’s so to speak, and the goal 

of both institutions reflected the time. And for the benefit of some 

of my colleagues here, the original Mint Act of 1792, the goal was 

to make sure that the coins produced at the Mint, the material in 

that coin reflected the value of the coin at the time. 

A one-cent piece was a big old chunk of copper. From 1793 to 

1857 we made half cents, we did all sorts of stuff like that and with 

time and commerce and the focus, things change. We went from big 

old giant one-cent piece to the present coin that we all think of, of 

course. Just as on the paper side, we went from those rather large 

banknotes prior to 1929, to the size we use now. Nothing has ever 

set in stone and the goal is to reflect the needs of commerce and 

of the industry. 

It would seem to me that, even though as some of my cohorts discussed, Bitcoin and the other electronic types of currency or even 

the more traditional use of debit and credit cards and that sort of 

stuff, obviously from the production levels that both of your institutions are engaged in, there is still a need for the physical commodity, the consumer still wants the physical commodity so it is 

important that we maintain that. 

I would suggest that at some point, I believe we need to assess 

in both currency and in coins what we have. We don’t make halfcent pieces anymore. We don’t make half-dimes anymore. We went 

off the Gold Standard. We don’t stamp out gold coins anymore. 

We released into general circulation the last standard silver dollars in 1960, to 1963, somewhere along that period of time so, at 

some point, we need to have a piece of legislation, I believe, that 

addresses the denominations, the makeup, and the size, a comprehensive review and our neighbors around the world have done 

that. But that is a different day. 

A number of my colleagues have stressed the importance of the 

bullion coin programs and counterfeiting and that is an issue not 

mcarroll on FSR431 with DISTILLER

29 

just with the bullion coin programs but as the value of the historic 

coin issues for say the Mint have gone up, the tendency and the 

focus on counterfeiting those two are there also. 

Can you explain, each of you from your own perspective, what 

you believe is the greatest challenge you face, is it production volumes, is it your old facilities, is it maintaining the integrity of the 

products you produce, that is an open-ended question? 

Mr. OLIJAR. For me at the Bureau of Engraving and Printing, 

the greatest challenge that we face is keeping the Nation’s currency secure. 

As I have said, there are counterfeiting threats that we face 

around the world today and our paper currency is really a confidence-game and we need to maintain people’s confidence in our 

currency in order to continue its usage as a store value and in commerce. 

Mr. LUCAS. This is not an appropriate question for you but my 

understanding is more a Federal Reserve question, don’t we have 

more $100 bills outside of the United States physically than we 

have inside the United States? 

Mr. OLIJAR. Yes. It is estimated two-thirds of them circulate outside this country, yes. 

Mr. LUCAS. That says something about the store value that our 

paper currency represents and am I fair to say too that we are one 

of the few countries, if maybe not the only country, in the world 

where if I go to a bank with a product that you printed and the 

Treasury issued in 1863, it cashes just the same as if I pull out a 

brand-new $1 bill that came from D.C. or from Fort Worth, unlike 

most of the world that recalls currency and cancels currency? 

Mr. OLIJAR. That is correct. We have never devalued and or disdenominated our currency. I would say good today, good tomorrow, 

good forever, that is what the United States say. 

Mr. LUCAS. Everybody on the planet wants it under their pillow, 

if they want a nest egg. 

From the Mint perspective, again the products that you have 

issued, your institutions issued since 1793, 1792, all still legal tender, all still spendable, tell me about the challenges you face? 

Mr. RYDER. I agree with Len, counterfeiting is an issue that we 

have to address. That is something we take very seriously. 

On the numismatic side of our business, our customer base has 

dwindled. When I was Mint Director in 1992, we had a customer 

base of around 2.7 million, today it is around 500,000. 

Working with Congress to create some new innovative projects 

from both the bullion and the numismatic side would be of great 

interest to me. 

Mr. LUCAS. Would the Chairman indulge me for 1 more minute? 

One of the comments that I get direct from the general public, 

on the occasions that these topics come in, they point out how from 

basically the mid-1960’s until the early 1980’s there were very few 

products available to the consumer out there from the Mint, other 

than just the standard-issue products, the proof sets, the Mint sets, 

and the things that went through commerce. 

Since the 1980’s the number of products, the number of metals, 

the number of different pieces, I occasionally get comments about 

mcarroll on FSR431 with DISTILLER

30 

how deep one’s pocket would have to be if you wanted a complete 

set. 

Do you think that is a fair observation from the public? 

Mr. RYDER. Yes. I believe that over the years, there have been 

quite a number of products legislated that we have had to manufacture, that haven’t been that successful. 

Mr. LUCAS. It is a fair observation, you only make what we authorized or insist you make? 

Mr. RYDER. Correct. 

Mr. LUCAS. That issue is shared by this side of the table? 

Mr. RYDER. With the exception of some of our bullion products 

that sell quite nicely, a new 9999 bullion product, the Buffalo program, a Palladium program that was authorized by Congress. The 

Secretary of Treasury has certain authorities to be able to do certain things. The majority of the products are legislated but I would 

really look forward to working with the Congress when we are 

drafting that type of legislation to work together to create legislation that makes a bit more sense from the consumers’ point of view 

creating more of a rarity, creating different programs. 

I would love to see the next Quarter programs to be more of a 

sports-related type of product to follow the America the Beautiful 

program which generated almost 72 million. 

Changing that in 2021 with the help of Congress would be a very 

interesting challenge but very rewarding for our customer base. 

Mr. LUCAS. Mr. Chairman, there is not enough time left in this 

session of Congress to address these issues, but this is perhaps 

something we need to, as an institution, look at in the coming year 

or 2, the overall process completely. 

Chairman BARR. I thank the gentleman for his suggestion. 

Mr. LUCAS. I yield back. 

Chairman BARR. Thank you. The gentleman yields back. 

I appreciate the gentleman’s suggestion and I will be happy to 

work with him to pursue that. 

If the witnesses would indulge me for one final round of questions, I just wanted to follow up on a few points and since we were 

on the subject of the declining numismatic customer base, I did 

want to ask why that is the case to Mr. Ryder. 

Why do you think that is the case especially given the success 

of the America the Beautiful Quarters program and do you count 

the Commemorative Coin programs or the America the Beautiful 

Quarters program as part of that new numismatic customer issue? 

Mr. RYDER. It is the primary reason in my opinion. In the last 

10 years, the Mint was not given authority to spend any money on 

marketing our products globally. 

I am trying to change that around to get more allocation of funds 

from the Treasury Department to spend on important advertising 

of these programs which is another one of my priorities. 

Chairman BARR. You may have already answered this question, 

but from the start to the projected finish of the America the Beautiful Quarters program, what is the total seigniorage that will be 

produced as a result of that program as a result of coin collectors 

pulling those quarters out of circulation for keep-sake? 

Mr. RYDER. That is a good question and I don’t know the specific 

answer. 

mcarroll on FSR431 with DISTILLER

31 

The total revenue that we generated on that program after cost and whatnot was about $72 million. 

A new program that is coming up now, the American Innovators 

program which is a Dollar-Coin program, we are hoping to generate 

total revenue in this neighborhood of $350 million. 

But that is going to be a brand-new program but I would stress 

that the America the Beautiful Quarters program expires in 2021, 

and I would really like to work with the Congress to create a new 

program going forward after 2021 that would inspire young collectors and whatnot with the right theme to get back into the coin collecting community and raise our revenues that much more. 

Chairman BARR. Some numismatists in my district came to me 

with an idea that ultimately manifested itself in legislation I introduced a couple of Congress’ ago, we called it the ‘‘American Liberty 

Coinage and Deficit Reduction Act,’’ and that bill proposed to direct 

the Mint to, on every other year, instead of having the head-side 

of the coin reflect Statesmen from the past, not pulling those off 

of the coins, but keeping them in every other year, but in every 

other year going forward putting a symbol of liberty on the coin. 

The idea was that this could create additional collectors. It could 

attract more seigniorage. 

Is that an idea that would appeal to you or that you would consider going forward? 

Mr. RYDER. Absolutely. 

We are going to introduce another Liberty product in 2020 or 

2019 I believe it is, but I like the theme that you have on that 

piece of legislation, Liberty. 

In my opinion, Liberty comes in a lot of different forms, that encompasses the United States of America and it could be anything 

from the Statue of Liberty to a starburst of fireworks, there are a 

lot of things that, from a design point of view, we could put in that 

program that would generate interest going forward for the collector community. 

Chairman BARR. Yes. The legislation specifically referenced celebrations of American Liberty; the Union; American values; attributes of freedom; independence; civil governance; enlightenment; 

peace; strength; equality; democracy; justice; those concepts could 

be used to generate additional interest and maybe help increase 

the numismatic customer base to address that issue that you mentioned. 

Mr. RYDER. Absolutely. 

Chairman BARR. I would love to work with you Mr. Ryder on 

that issue. 

Our time has expired today but, would the gentleman like to ask 

another question, in my remaining time? 

Mr. LUCAS. No Mr. Chairman. Just to offer and an observation 

there. 

Chairman BARR. Sure. 

Mr. LUCAS. One of the important things about our coinage, which 

sometimes we forget in the day-to-day commerce, this is something 

that as societies, as countries that we took up on this planet 2,500 

years ago, and in many ways there are images of leaders, images 

of concepts from the ancient times, that only exist because they 

were incorporated as a coinage theme, so we should always be armcarroll on FSR431 with DISTILLER

32 

tistically mindful about the legacy that we leave when we produce 

things. 

We are not just stamping out pieces of metal, we are leaving a 

statement for all time, about who we were and what we are, so the 

artistic element always must be factored into our coinage and engraving programs. 

Thank you, Mr. Chairman. 

Chairman BARR. Well said. I couldn’t agree with you more. I appreciate your passion and interest in the issue. It is very important. 

We appreciate the service of Mr. Olijar and Mr. Ryder and for 

the work of the thousands of public servants who work for your Bureaus, we appreciate every single one of them for their work and 

for their service to our country. 

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. 

Once again, I want to thank our witnesses for their testimony 

today. 

This hearing is now adjourned. 

[Whereupon, at 11:48 a.m., the subcommittee was adjourned.] 

mcarroll on FSR431 with DISTILLER

(33) 

A P P E N D I X 

September 5, 2018 

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STATEMENT OF LEONARD R. OLIJAR 

Director 

Bureau of Engraving and Printing 

United States Department of the Treasury 

before the 

Financial Services Committee 

Subcommittee on Monetary Policy and Trade 

United States House of Representatives 

September 5, 2018 

Good morning Chairman Barr, Ranking Member Moore, and distinguished members of the 

subcommittee. Thank you for inviting me to testify before you today about transformative 

initiatives underway at the Bureau of Engraving and Printing (BEP). 

As you know, the mission of the BEP is to develop and produce United States currency notes 

that are trusted worldwide. BEP's vision is to maintain its position as a world-class securities 

printer, providing our customers and the public superior products through excellence in 

manufacturing and technological innovation. 

Cash Demand 

The demand for United States currency remains strong. There are now more than 42 billion 

notes in circulation, with a value of more than $1.7 trillion- more than ever before, and cash in 

circulation continues to grow almost 5% per year. Approximately 7 billion notes have been 

ordered annually for the past decade. According to the Government Accountability Office, "the 

volume of U.S. currency notes in circulation increased by 43 percent from 2008 to 2016." Up to 

two-thirds of the value ofU.S. currency is held overseas, where United States' currency remains 

the world's currency. It is the most trusted international store of value, and serves as a hedge 

against uncertainties, natural disasters, and political turmoil. Any time there is political 

instability, the rush is on for United States currency. Over the past several years, the frequency 

of cash use remained unchanged; approximately 32% of all transactions, and more than 50% of 

all transactions under $25 are done in cash, in spite of the availability of other forms of payment. 

In the past five years, several small countries have set a goal of going cashless. However, more 

recently, they have recognized that a cashless society presents a significant economic risk and 

neglects to account for those who do not have access to smart phones, computers, banks and 

credit. I believe that 21st century warfare has a significant cyber component, and these countries 

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are now recognizing the risk if your enemy is able to take down your electronic infrastructure, 

or if a natural disaster hits, there will be no way to conduct commerce in a cashless environment, 

and the economy will be crippled. With respect to access to financial institutions, seven percent 

of U.S. households are unbanked, and almost twenty percent are underbanked. As a result, over 

45 million U.S. households do not have access to the payment systems that are used in lieu of 

cash. Like other nations, our duty to serve this portion of the population is a factor in slowing 

any move to a cashless economy. 

Overview 

The BEP was established and began producing currency in 1862 through statutory authority 

conferred upon the Secretary of the Treasury. 31 U.S.C. §§ 32l(a) (4) and 5114 authorize the 

Secretary of the Treasury to engrave and print currency and security documents for the United 

States Government, and this authority has been delegated to BEP. 1n addition to printing Federal 

Reserve notes for the Federal Reserve System, the BEP also produces miscellaneous products 

and security documents at the request of other federal agencies. As the security printer for the 

United States Government, we also 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 reviews cash destruction 

and unfit currency operations at Federal Reserve Banks. The BEP has authority to produce 

currency, postage stamps, and other security documents for foreign governments as well, per the 

Intelligence Reform and Terrorism Prevention Act of2004, (Pub. L. No. 108-458, Title VI, 

SubtitleD,§ 630l(a); 118 Stat. 3638, 3748 (Dec. 17, 2004)). BEP is also seeking authority to 

provide these secure documents for state and local governments. As a free service to the public, 

the BEP also processes claims for the redemption of mutilated paper currency (31 CFR, §§ 100.5 

- 1 00.9). In FY 2017, the BEP redeemed 20,602 mutilated currency cases valued at 

$40,449,496.00. Other BEP activities include manufacturing inks and engraving plates and dies. 

BEP operations are financed by means of a revolving fund, which was established in 1950 in 

accordance with Public Law 81-656. This fund is reimbursed through product sales for direct 

and indirect costs of operations, including administrative expenses. In 1977, Public Law 95-81 

authorized the BEP to include an amount sufficient to fund capital investments and to meet 

working capital requirements in the prices charged for products, which eliminated the need for 

annual appropriations. 

The BEP has a diverse workforce of approximately 2,000 employees and contractors and two 

facilities, one operating in Washington, D.C. (DCF) and the other in Fort Worth, Texas (WCF). 

Both facilities are capable of producing all banknote denominations. As this nation's sole 

currency manufacturer, the BEP produces Federal Reserve notes based on an annual currency 

order received from the Board of Governors of the Federal Reserve System. On average, the 

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BEP has produced seven billion notes per year for the past five years. The Fort Worth facility 

typically produces about 60 percent of the annual production order, while the Washington 

facility produces the other 40 percent and conducts the majority of research and development 

associated with currency production and security features. 

Currency Redesign Program 

The primary reason Federal Reserve notes are redesigned is for security. As the world's 

currency, we face domestic and international threats, thereby focusing our redesign on 

addressing and combatting current and emerging counterfeiting threats, not aesthetics. The 

currency redesign timeline is driven by security feature development; and the redesign sequence 

for the denominations is driven by the security threats. 

Securing U.S. currency requires strong designs, aggressive law enforcement, and an educated 

public. The BEP works collaboratively through the Advanced Counterfeit Deterrence Steering 

(ACD) Committee with the Board of Governors of the Federal Reserve System, the United 

States Secret Service (USSS), and the Department of the Treasury to improve the counterfeit 

deterrent features in Federal Reserve notes. 

When deliberating the various options for the next denomination to be redesigned, the ACD 

Committee engages in a detailed analysis consisting of a counterfeit threat assessment, the state 

of security feature development to counter such threats, production capabilities and complexities, 

societal issues, relative use ofvruious notes in transactional commerce, and impact on consumers 

and banknote equipment manufacturers. The ACD Committee recommends new Federal 

Reserve note designs to the Secretary of the Treasury, who then makes final design decisions. 

Currency notes contain an array of counterfeit deterrent security features, some of which are 

visible and easily recognizable to the public (micro-printing, raised printing, watermarks, 

security thread and color shifting ink) and some of which are covert or machine-readable only. 

Notes also include a digital counterfeit deterrent system that was developed under the auspices of 

the Central Bank Counterfeit Deterrence Group (CBCDG) to thwart digital counterfeiting. The 

CBCDG digital counterfeit deterrent system, which is being used in a number of countries, relies 

on a hidden marker embedded in the note's design that can be read or detected by software 

deployed in digital printers. Due to these cutting-edge features, the overall level of 

counterfeiting remains low; less than one one-hundredth of one percent of notes in circulation are 

counterfeit. 

To stay ahead of the threats to our currency from increasingly sophisticated reprographic 

technology, the U.S. Government must continuously develop new currency designs with state-ofthe-art security features. While the level of counterfeiting is low, BEP must continually develop 

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new security features and currency designs to be ready to respond to current and emerging 

counterfeiting threats. 

The most recent redesign series or next generation (NXG) notes, were marked by the 

reintroduction of color, and introduced into circulation beginning in 2003. On April 21, 2010, 

the U.S. Government unveiled the last banknote in that series, the NXG $100 note, which 

included innovative, new public security features, including the 3-D Security Ribbon which has 

been very successful in deterring counterfeiting of that denomination. 

Today, the BEP is developing security features for a new series to continue to deter 

counterfeiting threats. In 2013, the ACD Steering Committee decided that the $10 note would be 

the next note to be redesigned (expected completion in 2026), followed by the $5 (2028), $20 

(2030), $50 (2032-2035), and $100 (2034-2038) notes pending any new developments in 

counterfeiting threats orteclmology issues. The success of the redesigned NXG $100 in 

thwarting counterfeiting, and the increased use of the $50 note in ATMs, has made the $50 note 

a more frequent target of counterfeiters. As a result, the ACD Committee has recommended that 

the $50 note be redesigned sooner than originally planned. The BEP and the Federal Reserve 

Board are working together to accelerate its redesign, with a focus on security feature 

development. 

Once production is underway, the Board of Governors of the Federal Reserve System, as the 

issuing authority, will determine the actual issue dates for the redesigned notes. 

Innovations 

BEP is officially registered to the ISO 9001:2015 standard for Quality Management Systems for 

the development and production of US Currency and the ISO 14001:2015 Environmental 

Management System standard, which means that BEP's processes and manufacturing operations 

conform to and/or exceed international quality standards. BEP is consistently thinking outside 

the box to develop more efficient, cost-effective, and environmentally sustainable solutions for 

currency manufacturing. 

In 2014, BEP successfully moved from printing 32-subject sheets to 50-subject sheets for $1 

notes through the installation of custom Large Examining Printing Equipment (LEPE). There is 

currently one LEPE press in Washington, D.C. and two at the Fort Worth Facility. The LEPE 

presses significantly increased our efficiency by consolidating four production processes into a 

single process. This, combined with being able to print a larger number of notes per currency 

sheet, has resulted in considerable cost savings. The $5 note is currently undergoing validation 

testing for 50-subject production. Ultimately, additional specialized equipment will be 

incorporated into the process at BEP and every denomination will be printed on a larger sheet. 

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Currency production equipment is very unique and takes years to purchase, build, test, and 

install. Recognizing this, we have increased efficiency by 13% at the DCF by refurbishing, 

extending the life, and relocating a 30-year-old currency production press from the WCF. The 

press is now the most productive press of its kind at DCF. Installation of Single Note Inspection 

(SNI) equipment in 2015 allows BEP to reclaim good notes from defective sheets. This 

reclamation process has reduced overall spoilage by two-thirds. These efficiencies have saved us 

more than $100 million since their introduction. In addition, the reduced spoilage eliminated 

more than 300 tons of non-hazardous waste. 

New Facility 

The BEP currently operates, without a security perimeter, out of two, six-story, multi-wing 

buildings across the street from each other in downtown Washington, D.C. While ultramodern 

100 years ago, the structure and age of the existing buildings does not allow for efficient 

production of the technologically-sophisticated, secure currency notes of today. In order to stay 

ahead of worldwide counterfeiting trends and threats amplified by ever-improving commercial 

and non-commercial printing capabilities, the BEP must replace the production equipment in the 

Washington, D.C. facility to support the next generation of currency scheduled for release over 

the coming decade. 

The President's FY20 19 Budget proposes statutory authority to use BEP' s revolving fund to 

construct a smaller, more efficient, and more secure manufacturing plant, to replace our existing 

Washington, D.C. facility. Without this authority, BEP would be required to renovate its current 

facility, which is not well suited for modem manufacturing. 

The next generation of currency will include additional overt and covert security features, which 

will require additional production equipment that will not fit inside the current Washington, D.C. 

facility as constructed. This will require extensive and expensive renovations if production is not 

moved to a modem facility. In fact. the need for additional production equipment has forced the 

BEP to initiate a 260,000 square-foot addition to our more modem production facility located in 

Fort Worth, Texas. 

The BEP has conducted multiple facility feasibility studies over the past 25 years to determine 

the best approach to recapitalize the aging Washington, DC production facilities. As reviewed 

and supported by a recent GAO engagement, the BEP's recommended facility approach is to 

reduce our federal footprint, and construct a smaller, more efficient, more secure, single-floor 

manufacturing facility (akin to a warehouse). Construction of a modem facility would cost an 

estimated $579 million less than the alternative option of a risky, large, whole-sale renovation of 

BEP's existing Washington, D.C. facilities that would not produce operational efficiencies. 

Moreover, BEP would reduce its real estate portfolio by 28 percent and save $38 million dollars 

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annually due primarily to staff reductions from increased automation and more efficient 

operations associated with a new, modem, single-floor production facility. 

As noted in the GAO report, the antiquated Washington, D.C. buildings must contend with a 

number of safety and physical security vulnerabilities currently exacerbated by their location in a 

congested, urban city center and inflexible structures such as a lack of building setback, blast 

resistance shortfalls, and minimal vehicle screening capabilities. While certain security 

improvements, such as blast resistant windows or vehicle barriers, could be installed if the 

facility is renovated, other standards could only be addressed with a new facility, such as an 

adequate set-back security perimeter to provide a point of separation between the facility and 

where an unscreened vehicle can travel or park. Moreover, the current facility's historic nature 

also limits BEP's ability to make changes to meet the necessary level of protection a facility of 

its security level should have. A new facility, by design, would modernize and enhance BEP's 

security profile and limit BEP's vulnerability and high risk to threats and explosive devices. 

No action has been taken on the three facility studies done over the past 25 years, and doing 

nothing is no longer an option without jeopardizing BEP's mission and the U.S. Currency 

Program. It is our hope this Committee will support legislation facilitating the construction of a 

smaller, more efficient production facility. 

Meaningful Access 

In May 2011, then Secretary of the Treasury Timothy F. Geithner approved the pursuit of a 

three-pronged strategy to provide meaningful access to U.S. Federal Reserve notes for the blind 

and visually-impaired community in assisting them to denominate currency notes: 1) continued 

use oflarge, high contrast numerals and different colors on each denomination it is permitted by 

law to alter; 2) a raised tactile feature unique to each U.S. currency note it may lawfully alter; 

and 3) a Currency Reader Program. 

The BEP has been actively engaged in meaningful access solutions, while also giving 

appropriate consideration to the interests of domestic and international users of currency, U.S. 

businesses, and cash handling and cash-intensive industries. 

Large numerals have appeared on the back of U.S. currency notes since 1997 to assist the 

visually impaired. This feature provides meaningful access to the largest segment of the 

visually-impaired community. Since the issuance of the NXG notes, the BEP has increased the 

contrast and color on the large numerals based upon feedback from the visually-impaired 

community, who have also indicated that it is a preferred method of denominating currency. 

BEP intends to continue the practice of placing large, high-contrast numerals on future currency 

notes. 

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Currency Reader Program 

BEP continues to provide meaningful access to U.S. currency for a large proportion of blind and 

visually-impaired persons through the U.S. Currency Reader distribution program operated in 

conjunction with the National Library Service. The distribution program officially launched in 

2015 and is the one method that provides virtually all blind and visually-impaired U.S. citizens 

and legal residents with a means to identify different Federal Reserve notes. Furthermore, it 

provides virtually l 00% accuracy in identifying the denomination of currency. To leverage 

existing expertise and a pre-existing national distribution system, the BEP contracted for 

currency reader program support from the Library of Congress National Library Services for the 

Blind and Physically Handicapped (LOC/NLS). NLS administers a Talking Book Program, a 

free library program where Braille and audio materials are made available to U.S. residents and 

citizens living abroad, whose low vision, blindness, or physical handicap makes it difficult to 

read a standard printed page. 

As of August 20, 2018, the BEP has distributed more than 64,000 electronic currency readers at 

no cost to patrons through NLS and at conferences that cater to the blind and visually-impaired 

community, such as the American Council of the Blind, the National Federation of the Blind and 

the Blinded Veterans Association. 

If patrons are unable to attend a live distribution event, the currency reader application form is 

also available for download through BEP's website in both English and Spanish; interested 

persons may also request via email or by calling BEP's dedicated call center that a currency 

reader application be mailed to them. 

As part of its ongoing efforts to promote the distribution of currency readers, the BEP also works 

with third-party organizations that work with blind and visually-impaired persons, to distribute 

currency readers directly to their patrons, such as the Association of Assistive Technology Act 

Programs (AT AP) and the Lighthouse for the Blind. 

Meaningful Access (Mobile Applications) 

Technology has continued to advance dramatically in terms of mobile devices, Artificial 

Intelligence, and accessibility. As such, BEP continues to provide meaningful access for a large 

segment of the blind and visually-impaired community through free mobile device applications, 

which allow smartphones and similar devices to function as currency readers. The number of 

downloads of these applications continues to increase. The EyeNote® app for Apple devices, 

which BEP developed in 2010, has been downloaded nearly 55,000 times. The IDEAL Currency 

Identifier app, developed in collaboration with the Department of Education in 2012 for the 

Android operating system, has been downloaded approximately 15,700 times. These 

applications are providing an immediate accommodation for a segment of the blind and visually 

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impaired population, and may ultimately result in lower demand for currency readers over time. 

Furthermore, they denominate currency with near-perfect accuracy. 

Tactile Feature Technology 

BEP continues to pursue the creation of a durable, usable, and manufacturable tactile feature. 

The BEP has now settled on a four-position rectangle shape for the feature as offering the best 

possibility of success, but has not yet chosen between the two remaining potential methods of 

application (Intaglio and Coated-embossed). Any tactile feature must satisfY several criteria, 

each of which is required: it must enable blind and other visually impaired persons to 

denominate currency effectively; it must be able to function in commerce without interfering 

with security features; it must be sufficiently durable to remain usable through the extensive 

handling of currency; and, BEP's machinery must be able to produce the feature consistently in 

the large volumes required. Finding a tactile feature that is both durable and allows for accurate 

denomination remains a great challenge. BEP established a testing schedule to evaluate all of 

these factors using the rectangle shape and the two remaining potential application methods. 

Under that schedule, BEP began conducting durability testing early in the year. 

As part of longstanding practices by BEP to ensure quality and acceptance of the nation's 

currency in commerce, all U.S. currency must survive a series of durability tests designed to 

simulate the actual use of currency in circulation. These tests include a Crumble test which 

crushes currency a number oftimes, a Laundering test which simulates accidental washing of 

currency, and Chemical Resistance tests which saturate the bills with chemical substances, all to 

verify that the Raised Tactile Feature (RTF) remains virtually intact and adheres to the bill. All 

features of a bill, such as security features and an RTF, must be able to survive these same 

tests. Additionally, the RTF will be subject to new durability tests to assess functionality, 

namely a Scrape test simulating abrasion, and a Humidity test with long exposure to hot and 

humid conditions, both to ensure that the RTF remains intact. It is currently unknown whether 

any RTF will successfully pass all of these tests. After RTF down-selection and optimization, the 

feature will also go through the process of integration with the security features into the currency 

design, which may require additional testing as an integrated currency note. BEP must verify 

that any potential RTF does not interfere with any security teatures that are selected for 

incorporation into the next generation of notes. 

BEP continues to conduct end-user, focus group testing to determine feature effectiveness and 

the preferences of blind and visually-impaired persons. Banknote equipment testing has also 

begun in order to determine whether the tactile feature will function in high-speed currency 

processing and handling, and critical manufacturing testing is scheduled later this year to verify 

manufacturability. Further large-scale testing with blind and visually-impaired persons is 

scheduled for later this year, and final analysis of the resulting data is expected in late 2018. In 

2019, BEP plans to begin a Technology Integration Phase during which it will detennine how 

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any potential tactile feature will interact with the rest of the note, including most critically, the 

security features. By late 2019, BEP intends to make a fmal decision as to which, if any, 

potential tactile feature option is able to meet all of the criteria described above. 

At the same time the BEP is developing tactile features, it is working closely with the ACD to 

identify counterfeiting threats and determine appropriate measures to respond to them. Due to 

the interrelated nature of the various processes, the overall creation of any one Federal Reserve 

note design is a lengthy and complex endeavor, requiring appropriate progress on several fronts, 

including changes to the Washington, D.C. facility. 

Strategic Human Capital Initiative 

The BEP is only as strong as its unique and highly specialized workforce, and I am extremely 

proud of the over 150year legacy we have established through craftsmanship, creativity, and 

ingenuity. In recognizing BEP's ongoing need to incorporate more sophisticated systems and 

equipment to produce an increasingly technologically advanced product to combat security 

threats such as counterfeiting; we established a well-defined, multi-year, strategic Human Capital 

Plan consisting of five goals and related initiatives targeted to address challenges affecting 

BEP's workforce, as a whole, and to guide organizational activities as we work to continuously 

improve in a number of critical, human capital areas such as hiring, training, engagement, and 

leadership and skills development. 

Workforce Planning helps the BEP make sure the right people are in the right positions at the 

right time. We are using data to align staffing needs and strategic goals to fiscal resources, 

which positions us to better create fonnidable banknotes well into the future. 

BEP employees take pride in the fultllmcnt ofBEP's mission and show great loyalty we are 

proud that the average tenure of our employees is 20 years. Employees have indicated that they 

enjoy job stability, a sense of tangible accomplishment, and work-life flexibilities in progress at 

the agency. However, with very little turnover and most of our employees retiring through 

attrition, this also means BEP has an increasingly aging workforce. Therefore, a Knowledge 

Management Program was developed to stabilize succession planning and facilitate knowledge 

sharing across the Bureau as we look to capture the unique skills and historical knowledge that 

many of our long-time employees possess. 

In maintaining and building a world-class workforce of the future, it was important to gain buyin and commitment from all levels of the workforce, from front-line employees to senior 

leadership. The human capital goals and initiatives in this plan were designed as a proactive 

measure to improve and foster a positive and engaging work environment that results in high 

levels of job satisfaction and productivity as well as provide a strong foundation for the retention 

and recruitment of future talent as we become more automated and science driven. 

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As we can all attest, the world is becoming increasingly technical. Whether building rockets 

using 3D printers, finding cures for diseases, or developing mechanisms to meet everyday 

activities like ordering groceries through mobile apps, there is an overwhelming need for people 

with strong science, computer, and mathematics skills in almost every industry around the globe. 

This can also be said of the Banknote industry as technology capable of capturing and 

reproducing accurate currency images, such as printers and scanners, continue to advance 

technologically, become more portable, and accessible, financially, to the would-be, everyday 

counterfeiter. Recruiting in the Science, Technology, Engineering, and Mathematics (STEM) 

fields is challenging. Competition from the private sector, long lead times to bring people 

onboard, backlogs for background clearances, a complex hiring process, and a general 

unawareness of the benefits of careers in public service, etc. all contribute to difficulties in 

attracting and retaining viable candidates. To keep pace with rapid, technology changes, changes 

in materials availability, and environmental requirements, the BEP is constantly looking for ways 

to broaden its own Research and Development and production programs, and acquire appropriate 

technology and qualified staff capable of taking the agency and its products well into the next 

century. As part of this initiative, we have developed a separate (STEM) strategic program 

(anticipated to launch in 2020) to address the specific development and training needs of/for 

STEM positions at BEP. 

In response to a recent call from the Office of Personnel Management, Treasury directly 

supported BEP's STEM recruitment efforts by requesting inclusion of Engineers and Physical 

Scientists in a government-wide Direct Hire Authority for STEM occupations that is currently 

under consideration. Significant investments have also been made in apprenticeships, trainee 

programs, and career development to address skill/knowledge gaps, including the formalized 

development of leadership at BEP. 

All of these initiatives make an important impact as BEP continues to focus on being an 

excellent place to work and deliver a world-class product to our customers. 

Conclusion 

Mr. Chairman, this concludes my remarks about initiatives at the BEP. I will be happy to 

respond to any questions you or other members of the Committee may wish to ask. Thank you. 

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Apri12018 

GA0-18-338 

United States Government Accountability Office 

Report to the Chairman, Subcommittee 

on Capital Markets, Securities, and 

Investment, Committee on Financial 

Services, House of Representatives 

BUREAU OF 

ENGRAVING AND 

PRINTING 

Options for and Costs 

of a Future Currency 

Production Facility 
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Wh~G~Cl ~idThi~ ~ttldY BE~;'>vlttii~lr;\i~UrY,lfl>~ig~s and prri<jticescp~:cvrr~n\;jl not~s at!)EP's 

taci!ili<(S iQ ~h/!lQ!on, D.~ an~ Fort 

WQt)!l:Tex!Js,'[hllFedef'11 Reserye p . 

I 

land·ilhdcclhst(u~·anew.ptoqUctiotv 

t.)cilit)( 1n;tmiD.G•'area;, BEP Pfficlats 

··GAO .was'a~k~~~~review SEf?'s·· ratim~ ptilrn!rltP~ss. Thi~repoit 0) d!<lscnlfea the.resuft~ .otfaciflty 

studies.tl)at.!3EP.\lasJund~~ and 

factors ~hafl,.dBEP;to Pf!)POs<! a heW 

Prq~uc!ii:in,•f:ieiti\y, (2~ exam!!J.es. t(l<\ exter!t !Q wN<;I\!IEF,'!s . .,cti"Ps ali!:Jn 

GAo~riaiY~~~EP<lcicu!llents:ll~d .: 

d~:llf;oil)ifrt0-QOJ7 o"' -currency,.~Ote pr<!_duf!i(!t),V\s1ted·b~thf!EP 

jlrridut;tlpn.fa\'iliti~s. ~;sse~se.t;! B8P.'s 

'!"lion~ .ag~ins\ !~;ling CaRita! planning; 

and cqst estimatmg P[aC)ices; and • 

interv!e~d o_(!iciaf~ fl:orn E!EP; GS(I: 

th~ ~~cteral)Je$t;l~il"d!re~~ury. 

GAO .p'l)Viti£ld Itt!. drall;r~pprt1~ BEP, 

GSA; the> F~qet"l Reserve;. and .•. 'Treas4rv for r~vte.\'1: Ji\Ef?e<)<)rdinated 

wfth treas~rylll its -.,ommenm. In the. · 

eomments; fllP!Od~"'1'd.ln~ppenaix i, •.. !3EP ~l)'!Ph,aslz!ld tht;_.falJtorS lllat led_ 

BEl' to deletmi"!"tfla.t a naw.~acili!¥ IS tna p)el~d<~:lletnatiye; E!ep aml tl\e f:ed~;ll Rase~als<tptovfd~. ·.·• •> •·. 

technl~lq<l/T\menl~; \Yhiehwe· ': ••. 

inCQtpoiated.<l". @pproprialc"'·· GSA did 

nQt p[oVid<! eoro!l1en\s,. . 

Vi~,~~~~i~~-~f~t,'~~!~,iri~af!od: cofllact.l0f\1<_etta,n'il' •t (21/21 q12·2834,'<>r. 

te(1~":tJ~l~g~~o~: 

BUREAU OF ENGRAVING AND PRINTING 

Options for and Costs of a Future Currency 

Production Facility 

What GAO Found 

The Bureau of Engraving and Printing's (BEP) studies and research determined 

that a new production facility would be less expensive and better address BEP's 

need for secure, efficient, and flexible currency production than a renovation of 

its Washington, D.C. facility. According to 2017 cost estimates, BEP's preferred 

option-a new production facility in the Washington, D.C., area and some 

renovated administrative space in its current D.C. facility-would cost 

approximately $1.4 billion, while a renovation of its current facility for both 

production and administrative functions would cost approximately $2.0 billion. A 

new facility similar to BEP's Texas facility could have a secure perimeter that 

meets federal building security standards. Such a perimeter ls not possible wlth 

the current facility. A new facility could also house production on a single 

production ftoor to allow for a more efficient production process. 

BEP generally followed leading capital-planning practices, and its 2017 cost 

estimate of a new production facility partially met the characteristics of a reliable 

cost estimate. BEP's capital planning followed leading practices, for example, by 

including a needs assessment, a link to BEP's strategic plan, and a long-term 

capital plan. BEP's cost estimate partially followed leading practices, for 

example, by including most life-cycle cost components and documentation of the 

data used for the estimate. However, it did not include sufficient sensitivity 

analyses, which identify a range of costs-based on varying assumptions. BEP 

officials stated that they plan to follow the updated GSA guidance that includes 

GAO's cost-estimating leading practices when updating this early stage estimate. 

The ability to sell or repurpose any part of the current D.C. facilrty could affect the 

total federal costs of BEP's actions. According to officials from the Department of 

the Treasury (Treasury) and the General Services Administration (GSA), there 

could be savings if Treasury could consolidate staff or operations into the 

vacated facility. There could also be savings if the unneeded facility could be 

sold to a private buyer. However there would be costs to prepare the facility for 

use by other entities or if the unneeded facility does not sell. Agency officials said 

that it is too early to determine specific costs and savings. 

-------------United States Government Accountability Office 
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Contents 

Letter 

Appendix I 

Appendix II 

Tables 

Background 4 

BEP's Proposal for a New Production Facility Considered Project 

Costs and Feasibility, Security, Efficiency, Safety, and Future 

Flexibility 7 

BEP Generally Followed Leading Capital-Planning Practices, and 

Its 2017 Cost Estimate Partially Met the Characteristics of a 

Reliable Cost Estimate 15 

Ability to Sell or Repurpose Potentially Vacant Space Could Affect 

the Total Cost to the Federal Government 22 

Agency Comments 27 

Comments from the Department of the Treasury 

GAO Contact and Staff Acknowledgments 

Table 1: Studies Related to a New Production Facility 

Commissioned by the Bureau of Engraving and Printing 

29 

31 

(BEP) Since 2010 8 

Table 2: Current and Proposed Use of Bureau of Engraving and 

Printing's (BEP) Buildings in the D.C. Area under the 

Hybrid Alternative 9 

Table 3: Fiscal Year 2016 Production Reported by the Bureau of 

Engraving and Printing (BEP) at Washington, D.C., and 

Fort Worth, Texas, Facilities 12 

Table 4: GAO's Assessment of the Bureau of Engraving and 

Printing's Adherence to Leading Capital-Planning 

Practices for Its Proposed New Currency Production 

Facility 16 

Table 5: Alternative Methods BEP Considered to Fund and Obtain 

Land and a Building for a New Production Facility 18 

Table 6: GAO'S Assessment of the Extent to Which the Bureau of 

Engraving and Printing's (BEP) 2017 Cost Estimate Meets 

the Characteristics of a High-Quality, Reliable Cost 

Estimate. 19 

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Figures 

Figure 1: Aerial Views of the Bureau of Engraving and Printing's 

Washington, D.C., and Fort Worth, Texas, Facilities 6 

Figure 2: Potential Disposition and Funding of BEP's Washington, 

D.C., Facility and Related Potential Costs or Savings 23 

Abbreviations 

BEP Bureau of Engraving and Printing 

D.C. Washington, D.C. 

GSA General Services Administration 

ISC Interagency Security Committee 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 

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GAO u.s. GOVERNMENT ACCOUNTABILITY OFFICE 

441 G St. N.W. 

Washington, DC 20548 

AprilS, 2018 

The Honorable Bill Huizenga 

Chairman 

Subcommittee on Capital Markets, Securities, and Investment 

Committee on Financial Services 

House of Representatives 

Dear Mr. Chairman: 

For over 150 years, the Bureau of Engraving and Printing (BEP) within 

the U.S. Department of the Treasury (Treasury) has been responsible for 

designing and producing U.S. currency notes. BEP prints the notes for 

the Federal Reserve System (Federal Reserve), which is BEP's primary 

client.' BEP reported that in fiscal year 2018, it plans to produce 7.4 

billion notes worth about $233 billion at its facilities in Washington, D. C., 

and Fort Worth, Texas. The D.C. facility is over 100 years old, and 

currency production primarily takes place on different floors in one of its 

two multi-wing, multi-level buildings. The Fort Worth facility is less than 30 

years old and includes a large, one-level open space for producing 

currency. 

BEP has explored renovating the D.C. facility or replacing it with a new 

facility in the D.C. area to bring its currency production up to 21st -century 

production standards. BEP has proposed building a new currency 

production facility in the D.C. area and repurposing one of its current D.C. 

buildings for administrative functions. According to Treasury officials. 

while BEP has the legal authority to use its revolving fund to renovate an 

existing facility, it does not have legal authority to purchase land and 

construct a new facility, nor the authority to use the revolving fund to pay 

for such a project. As a result, BEP is seeking the necessary legal 

authority to purchase land and construct a new building in the D.C. area, 

as part of the fiscal year 2018 Presidents budget proposal. BEP officials 

have stated that if BEP does not receive this legal authority and funding, it 

will begin a renovation of the current D.C. facility. According to BEP, it 

would be designed to address the facility's deficiencies and to 

accommodate new, larger printing equipment that BEP anticipates 

1 According to BEP officials, almost 100 percent of BEP's production consists of producing 

bank notes for the Federal Reserve. On occasion, BEP receives orders from other 

agendes to print certificates and other documents. 

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needing over the next few years for security features being developed for 

new currency notes. 

You asked us to review BEP's proposal to build a new production facility 

in the Washington, D.C., area. This report: 

describes the results of the facility studies that BEP has funded and 

factors that led BEP to propose a new production building; 

examines the extent to which BEP's actions align with leading capitalplanning and cost-estimating practices; and 

describes other factors that could affect total federal costs if BEP were 

to construct a new production facility or renovate its existing D.C. 

facility. 

To describe the results of the facility studies that BEP has funded and the 

factors BEP considered in proposing a new currency production facility, 

we reviewed studies and cost estimates BEP undertook between 2010 

and 2017, its strategic plans, and pertinent BEP operations and 

production data. Specifically, we reviewed workers' compensation claims 

and manufacturing costs from fiscal years 2013 through 2016. We also 

reviewed employee staffing levels as of September 2017. While we did 

not independently assess the validity of these data, we reviewed the data 

for outliers and obvious errors. We found the data to be sufficiently 

reliable for our purposes. We conducted a literature review of research on 

currency demand. We reviewed the President's 2017 and 2018 budget 

proposals as well as relevant statutes and regulations. We visited BEP's 

facilities in Washington, D.C., and Fort Worth, Texas, to examine the 

production process at both facilities. We interviewed officials from BEP, 

the Federal Reserve, and Treasury. We also interviewed officials from the 

General Services Administration (GSA), which is responsible for helping 

federal agencies acquire and dispose of office space, among other things. 

To determine the extent to which BEP's actions aligned with leading 

capital-planning and cost-estimating practices, we first identified leading 

capital-planning and cost-estimating practices from a variety of federal 

sources. In particular, we reviewed the leading capital investment 

decision-making practices identified by GAO and OMB in their respective 

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guides! as well as leading cost-estimating practices identified in GAO's 

Cost Estimating and Assessment Guide. 3 We focused on the capitalplanning processes that would be most applicable to BEP, which has 

limited real property. The applicable processes include: 

conducting an assessment of current and future needs; 

evaluating alternatives to determine how to best bridge performance 

gaps; 

strategically linking capital investments to a strategic-planning 

process; and 

documenting the agency's goals and objectives, among other things, 

in a long-term capital plan4 

We compared these leading practices against actions BEP took since 

2010 that led BEP to conclude that the agency would be best served by a 

new production facility. Specifically, we reviewed BEP's 2010 and 2013 

feasibility studies, BEP and Treasury strategic and long-term capital 

plans, and other relevant documents. Regarding cost estimating, we 

focused on four broad characteristics of high quality, reliable cost 

estimates identified in the Cost Estimating and Assessment Guide. These 

characteristics include that the estimates are comprehensive, welldocumented, accurate, and credible. We compared BEP's 2017 estimate 

for the cost of BEP's proposal for a new facility to these practices 

because it was BEP's most recent cost estimate for constructing a new 

facility. As part of our work, we reviewed the cost information that BEP 

used to develop its 2017 cost estimate and interviewed senior BEP 

officials on the estimates. 

To describe other factors that could affect the overall cost to the federal 

government if BEP were to construct a new production facility or renovate 

2GAO, Executive Guide: Leading Practices in Capital Decision-Making. GAO/AIMD~99-32 

(Washington, D.C.: December 1998}; and OMB, Capital Programming Guide, Supplement 

to Office of Management and Budget Circular A-11: Planning, Budgeting, and Acquisition 

of Capital Assets (2017). 

3GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs. GA0-09-2SP (Washington, D.C.: March 2009). 

4

We found that not all leading capital-planning practices were app!lcab!e to BEP, such as 

a review and approval of a framework with established criteria for selecting capital 

investments and project prioritization. BEP's proposal for a new D.C. faciHty !S not 

contmgent on capital decisions made for its Fort Worth facility. 

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Background 

its existing D.C. facility, we reviewed BEP studies and discussed potential 

uses of BEP's current buildings with BEP, Treasury, and GSA officials. 

We reviewed GSA documentation and previous GAO work on the building 

disposal process, and interviewed officials at BEP, Treasury, and GSA on 

their plans for the use of each BEP building depending on the selected 

alternative. 

We conducted this performance audit from Apri12017 to April2018 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

BEP produces notes at the request of the Federal Reserve. Each year, 

the Federal Reserve determines how many currency notes are needed to 

meet the demand for currency. Federal Reserve and BEP officials then 

agree on a payment amount for note production, including costs 

associated with maintaining BEP's facilities. The Federal Reserve's 

payments are deposited into BEP's revolving fund; the revolving fund is 

used for BEP's operational expenses, including note production. 5 

According to Treasury officials. the revolving fund can pay for renovations 

and retrofitting of a production facility, but not for land purchase or new 

building construction• In 2016, the Federal Reserve paid around $660 

million for note production. 

In order to cover all expenses associated with the Federal Reserve's 

needs, including currency production, the Federal Reserve generates 

income primarily from the interest on their holdings of U.S. government 

securities, agency mortgage-backed securities, and agency debt acquired 

through open market operations. The Federal Reserve is required to 

transfer any surplus funds over $7.5 billion to the General Fund of the 

5See 12 U.S. C.§ 420; 31 U.S. C.§ 5142 

6

Treasury officials based this interpretation, in part, on a 1951 Comptroller General 

decision, which determined that BEP's revolving fund could be used for the cost of 

replacements and additions of such equipment and installations as elevators, air 

conditioning, water cooling, electrical, plumbing and heating equipment, permanent and 

semi-permanent partitions, and flooring. See B-104492, Oct. 4, 1951. 

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U.S. Treasury. 7 Increases or decreases in operating costs or BEP's 

currency production could affect these surpluses and subsequent 

transfers to the General Fund. Historically, the Federal Reserve has had 

significant surpluses. In 2016, the Federal Reserve transferred $92 billion 

to the General Fund. 

BEP's Washington, D.C., facility consists of a 104-year old, multi-story, 

multi-wing Main Building and an 80-year old multi-story, multi-wing Annex 

Building (see fig. 1). The Main Building is the primary production building, 

and the Annex Building is used primarily for administrative functions. Both 

buildings qualify for historic designation and thus any alterations would be 

subject to certain requirements under the National Historic Preservation 

Act of 1966, as amended8 In addition to these buildings, BEP leases a 

warehouse in Landover, Maryland, to store production supplies in part 

because the two Washington, D.C., buildings do not have the. necessary 

infrastructure to accommodate shipments carried by large commercial 

trucks.' 

712 U.S C.§ 289 (a)(3). 

'See Pub. L. No. 89-665,80 Stat 915 (Oct 15, 1966) (codified as amended at 54 U.S.C. 

§§ 300101-307108). 

9

!n March 2012, BEP renewed a 10-year lease with GSA to continue use of the 

warehouse. BEP rents the building through GSA from a private owner, and makes part of 

the buHding available for use by other Treasury components through interagency 

agreements. According to GSA officials, the cost to BEP is approximately $2.9 million per 

year after payments from other Treasury components. 

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Sour~· Natiooal Park Service aM GAO. I GA0-18-338 

Note: The figure does not include lhe warehouse in Landover, Maryland 

BEP's Fort Worth facility was built in order to ensure reliable currency 

production in the event of any disruption of operations at the D.C. facility. 

BEP was able to obtain donated land and a building in Fort Worth and 

therefore did not need to purchase land or construct a new facility. 10 

Specifically, in 1986, BEP accepted a proposal from the City of Fort 

Worth that included 100 acres of donated land and a donated building 

shell to be built to BEP's specifications. BEP then used its revolving fund 

to pay for the building's interior retrofitting, including a central energy 

plant and installation of currency presses. The Fort Worth facility began 

1

orhe Department of the Treasury has the authority to accept gifts of real and personal 

property for the purpose of aiding or facilitating the work of the Department of the 

Treasury. 31 U.S. C.§ 321(d)(1). 

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BEP's Proposal for a 

New Production 

Facility Considered 

Project Costs and 

Feasibility, Security, 

Efficiency, Safety, and 

Future Flexibility 

BEP Studies from 2010 to 

2017 Determined the Cost 

and Feasibility of Multiple 

Alternatives 

producing notes in December 1990 and was intended to produce around 

25 percent of U.S. notes. According to BEP officials, as a result of 

increased demand for U.S. notes and production limitations associated 

with the D.C. facility, the Fort Worth facility has produced an increasingly 

large share of notes. In fiscal year 2016 the Fort Worth facility produced 

nearly 60 percent of notes, while the D. C. facility produced the remaining 

40 percent. 

From 2010 through 2017, BEP contracted for various studies to 

investigate alternatives, costs, potential sites, and program requirements 

to ensure future currency production in the D.C. area (see table 1 for 

details of the studies)." In BEP's 2013 study and since then, the agency 

has focused on three alternatives: 

"Renovation"-a major renovation of the current facility 

"New build"-a new building in a different location that would house 

currency production and all administrative functions 

"Hybrid"-a new building in a different location that would house 

currency production, but having administrative functions in one of its 

current buildings 

According to BEP officials, the cost estimates in the 2013 study were an 

important factor in their preference for a new facility instead of a 

renovation. 

11Bureau of Engraving and Printing, Feasibility Study for Renovation and/or Relocation of 

the Washington, DC Facility (Dec. 15, 2010); Bureau of Engraving and Printing, Facility 

Strategic Alternatives Study (Jan. 23, 2013}; Federal Agency Initial Site Investigation and 

Screening (Sept. 30, 2015); Bureau of Engraving and Printing, Future Workplace 

Recommendations Report (Aug. 17, 2017) 

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Table 1: Studies Related to a New Production Facility Commissioned by the Bureau of Engraving and Printing {BEP) Since 

2010 

Date Completed December 2010 

Purpose 

Conclusion 

Identify and rank nine 

alternative solutions for 

future BEP operations 

Ranked the new build 

option highest 

Source GAO analys•s of BE.P data I GA0·1 6.338 

January 2013 

Review and rank 

three alternatives 

(new build, 

renovation, and 

hybrid) to continue 

production in the 

Washington, D.C. 

area 

Ranked the new 

build option highest 

September 2015 

Identify and rate potentia! 

sites for a new BEP 

production facility within 30 

miles of the Washington 

Monument 

Identified 31 federal and 

non-federal sites 

August 2017 

Identify program requirements and 

cost estimates for (1} the hybrid and 

(2) renovation alternatives. 

Estimated the cost for (1) the hybrid 

option at $1.389 billion and (2) 

renovation at $1.957 billiona 

3

The cost estlmate includes additional project costs determined by BEP. 

The 2013 study concluded that BEP should pursue the new build 

alternative because it was estimated to be the least costly option, could 

be completed in the shortest time frame, and promised the greatest 

efficiencies. The study found that the renovation alternative would be the 

most costly option and take the longest time to complete because it would 

require BEP to produce currency at its current location while it was being 

renovated. BEP officials told us this would require moving production 

equipment from the Main Building to the Annex during the renovation and 

back to the Main Building once it was renovated. 12 According to GSA 

officials, renovations are often more costly than new construction. 

According to Federal Reserve officials, moving large, complex printing 

presses and machines from one building to another and then back again 

significantly expands the renovation's timeframe, as time would be 

needed to test the machines to get them back into specification. The 

Federal Reserve further noted that some modern presses will not fit into 

the Main Building without significant structural alterations, which would 

add cost and time to a renovation. 

Following the release of the 2013 study, BEP proposed to the Secretary 

of Treasury, with the support of Treasury officials, that Treasury and BEP 

pursue the hybrid alternative as their first choice (see table 2 for details 

on BEP's proposal). BEP officials told us that they, along with Treasury, 

Reserve officials noted that equipment past its useful life would most likely be 

replaced with new equipment and thus not be moved back into the Main Building. 

However, some equipment could be moved back into renovated space. 

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selected the hybrid alternative even though the hybrid was more 

expensive than the new build alternative. According to BEP officials, the 

cost difference between the hybrid and new build was outweighed by the 

value of maintaining administrative functions in Washington, D.C., to 

facilitate the day-to-day decision-making process among BEP, Treasury, 

and Federal Reserve officials. According to Treasury officials, the ability 

for other Treasury employees to co-locate in the Main Building after the 

repurposing is completed would also provide long-term cost benefits to 

Treasury because Treasury could save on expensive lease agreements 

in downtown Washington, D.C. Further, Treasury officials noted that it is 

important that the Treasury Department maintain the Main Building as an 

asset because of its location and history, and Treasury officials prefer that 

BEP maintain some functions in the building. The 2017 study provided 

cost estimates of BEP's and Treasury's preferred hybrid option, as well as 

the renovation option that BEP officials said they would pursue if BEP 

does not receive the necessary legal authority to construct a new facility. 

The study estimated that the hybrid option would cost approximately 

$1.389 billion and that the renovation option would cost approximately 

$1.957 billion.'' 

Table 2: Current and Proposed Use of Bureau of Engraving and Printing's (BEP) Buildings in the D.C. Area under the Hybrid 

Alternative 

Building 

Main Building 

Annex Building 

Use 

Current Proposed 

Houses most production functions, some Would house primary BEP administrative functions and visitor 

administrative functions, and public tour center; remaining twcrthirds of space could house other 

Treasury bureaus and offices 

Houses most administrative functions and Would be declared excess and enter GSA's disposal process 

some production functions 

-;. WN·.,.·.·a_wr_ech_

0

o_nus"'ster_u--:ctc-l.o-n---cScct-core_s.C,pr,-od-cu-cct_i_on_m_at_er!als GSA !ease would not be renewed once new facility is complete 

Not applicable Would house all production functions, some administrative 

functions, a gift shop, and space for a public tour 

Source GAO analysts of BEP data j GA0-18-338 

Federal Reserve officials told us they concur with the 2013 study that a 

new facility is warranted, that a renovation of the existing facility would be 

more costly than a new facility, and a renovation would not provide the 

same degree of efficiency. Federal Reserve officials said that they prefer 

the new build alternative because the 2013 study identified this alternative 

13The cost estimates include additional project costs determined by BEP. 

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BEP Considered Other 

Factors in Deciding to 

Propose a New Production 

Facility 

Security 

as the least expensive option, and would provide a modern, efficient 

manufacturing process. These officials also told us that, whatever 

alternative BEP pursues, the Federal Reserve will be financially 

responsible -whether it is for a new building, 14 a renovated building, or 

the continuation of the currency production process in the D.C. facility. 

BEP officials stated that they support a new building over a renovation 

because the new build would both be less expensive and have greater 

benefits than a renovation. Furthermore, BEP officials told us that while 

they prefer to remain in the D.C. area, they would approve of the 

construction of a new facility in a different location if necessary. However, 

BEP officials also told us that if BEP does not get the legal authority 

necessary to use its revolving fund to purchase land and build a new 

facility in 2018, BEP will pursue a renovation of the existing D.C. facility 

beginning at the end of 2018. 

As a federal facility, BEP must meet physical security standards 

established by the Interagency Security Committee (ISC). 15 According to 

an assessment conducted by BEP's Office of Security16, the D.C. facility 

does not meet many of the necessary requirements for a facility of its 

security level. While certain security improvements, such as blast 

resistant windows or vehicle barriers, could be installed if the facility is 

renovated, other standards could only be addressed with a new facility. 

Specifically, the current buildings are located in an urban center 

14According to Federal Reserve officials, it is not clear if the Board currently has the 

authority to acquire !and and pay for the construction of the building "shell" for a new BEP 

facility. 

15The ISC, housed within the Department of Homeland Security, defines the criteria and 

process used to determine a facility's risk level and the applicable physical security 

standards for each risk level. Exec. Order No. 12977, 60 Fed. Reg. 54411 (Oct. 24, 1995). 

Each executive agency and department must cooperate and comply with the policies and 

recommendations of the !SC except where the Director of Central Intelligence determines 

that compliance would jeopardize tnte!!igence sources and methods. 

16Bureau of Engraving and Printing, Facility Risk Assessment {July 25, 2015). 

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Efficiency 

surrounded by buildings (see fig. 1 above). As a result, according to the 

assessment, the facility does not have a secure perimeter because it 

lacks the required setback between the building and any point where an 

unscreened vehicle can travel or park. BEP officials said that even after a 

renovation, the facility would continue to have inadequate setback 

distance. According to the assessment, the facility's designation as a 

historic building also limits BEP's ability to make changes to the current 

facility to meet the necessary level of protection. For example, the 

facility's placement on the historic registry limits BEP's ability to make 

certain structural changes that could mitigate the building's chances of 

progressively collapsing in the event of certain types of destructive 

attacks or actions. BEP's Office of Security attributed certain security 

deficiencies to the facility's limited setback distance and the buildings' 

structure, and determined that the D.C. facility is at relatively high risk to 

threats such as an externally-placed portable explosive device. 

BEP aims to provide quality banknotes in an efficient, cost effective 

manner. 17 However, BEP officials concluded that the layout of the D.C. 

facility makes production less efficient than the Fort Worth facility. 

According to BEP production data, frorn 2013 to 2016, manufacturing 

costs were higher at the D.C. facility for all comparable denominations. 

For example, in 2016, production costs of $1 and $20 notes were 23 

percent and 7 percent higher, respectively, at the D.C. facility compared 

to the Fort Worth facility. 18 Additionally, the D.C. facility employs more 

manufacturing personnel than Fort Worth, even though it produces fewer 

notes (see table 3). BEP officials attributed the difference in the costs to 

the D.C. facility's multi-floor, rnulti-wing production layout. Specifically, in 

D.C., after notes are printed on one side, they are moved to another floor 

to dry for at least 72 hours, brought back to the original floor to be printed 

on the opposite side, and again moved to the other floor to dry. In Fort 

Worth, because the production occurs in one large room on one floor, 

these processes occur in adjacent spaces on the sarne floor. As a result, 

according to BEP, notes travel more than twice as far during production in 

the D.C. facility. 

17Bureau of Engraving and Printing, 2014-2018 Strategic Plan 

18Manufacturing cost !ndudes depreciation costs. Each note costs a different amount 

because of variations in processes and materials used. Note production is divided 

between the two facilities, but each facility does not produce every denomination. 

Therefore, only the $1 and $20 programs are comparable between the two facmtles. 

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Safety 

Table 3: Fiscal Year 2016 Production Reported by the Bureau of Engraving and 

Printing (BEP) at Washington, D.C., and Fort Worth, Texas, Facilities 

D.C. facility Fort Worth 

facility 

Percentage of notes produced 42% 58% 

Distance travelled by currency paper 5,615 feet 2,230 feet 

Manufacturing cost per 1,000 $1 notesa $29.62 $24.07 

-M-a-nu_rn_ct-ur-in-g-co~-~--r-1,-rnm~$~20~n~o~re~s,------------.$~47~.~59~------~$~4~4~.6,-1 

-Numbef.Ot manufacturing employees" 464 422 

Source GAOanalys•sofBEPdata !GA0-18-338 

Note: We did not independently validate the accuracy of these figures 

~Manufacturing cost includes depreciation costs. 

bEach note costs a different amount because of variations in processes and materials used. Note 

production is divided between the two facilities, but each facility does not produce every 

denomination. Therefore, only the $1 and $20 programs are comparable between the two facilities. 

"Number of employees is as of September 2017 

According to BEP, Treasury, and Federal Reserve officials, a new 

production facility would offer greater efficiency gains than a renovated 

facility. According to BEP officials, maintaining production on one floor in 

an open space improves production efficiency. They added that a 

renovation of the D.C. facility could include tearing down some walls and 

raising ceilings, steps that could improve some production processes. 

However, they also noted that because the D.C. facility qualifies for a 

historic designation, according to BEP officials, a renovation could not 

alter the building's shape. As a result, production would still occur on 

multiple levels and in separate wings if the facility were renovated. We 

have reported in the past that agencies faced challenges in rehabilitating 

and modernizing historic buildings for contemporary use because of their 

age, specific design characteristics, and their particular historical 

features. 19 

According to its Strategic Plan, BEP is committed to providing a safe and 

positive work environment for its employees. However, BEP officials said 

that manufacturing employees at the D.C. facility face greater injury risk 

than at the Fort Worth facility. According to BEP workers' compensation 

claim data, approved workers' compensation claims at the D.C. facility 

accounted for approximately 67 percent of BEP's approved claims from 

19GAO, Federal Real Property: fmproved Data Needed to Strategicaily Manage Historic 

Buildings, Address Mulliple Challenges, GA0-13-35 (Washington, D.C .. Dec. 11, 2012). 

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Flexibility 

fiscal year 2013 through fiscal year 2016, or 200 of 297 approved claims. 

BEP officials attributed the higher number of workers' compensation 

claims in the D.C. facility to the relatively high number of employees 

needed to produce fewer notes (see table 3) and the increased 

opportunity for employee injury because production material must be 

transported farther and between floors. BEP officials estimated that 

approximately 65 to 70 percent of all worker injuries are related to 

materials handling. 

BEP officials noted that there is an estimated $196-million deferredmaintenance backlog at the D.C. facility. This backlog includes 

maintenance to the facility's electrical and architectural systems. Even if 

BEP had taken care of these maintenance issues in the past, it would not 

negate the need for a renovation or a new facility. BEP officials noted that 

a renovation would reduce some safety concerns, such as upgrading the 

facility's electrical systems and adding rnore fire-rated exits as required by 

Occupational Safety and Health Administration regulations;" however, a 

renovation would not be able to address the multi-floor production 

process that BEP officials attributed to employee injuries. 

According to BEP officials, it is important for BEP to maintain flexible 

currency production to respond to production needs that may change 

over time. Specifically, BEP officials said that a production facility should 

have the ability to adapt to changes in production equipment Both BEP 

and Federal Reserve officials told us that the new equipment likely will be 

larger than current machinery. According to a representative from a 

leading currency printing equipment manufacturer from which BEP buys 

its printing equipment, future equipment is unlikely to decrease in size. 

BEP officials said that, while the D.C. facility could be renovated to 

accommodate larger equipment, it would not be possible to replicate the 

large, open production floor of the Fort Worth facility, which allows for 

simple installation of equipment. BEP officials told us that, unlike the 

current D.C. facility, a new production facility would be able to easily 

2029 C.F.R § 1910.36. The Occupational Safety and Health Administration (OSHA} within 

the Department of Labor sets and enforces workplace standards to assure safe and 

healthful worldng conditions. 

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accommodate the printing equipment necessary for security features that 

BEP is currently developing for the next currency redesign. 21 

Flexibility is also an important factor when considering the future demand 

for currency. The demand for currency fluctuates, and recent changes in 

how the public makes purchases could affect the demand for currency. 

Some observers have noted that the increased use of new payment 

technologies-such as online banking and phone applications-as well 

as the rise in online purchases may lead to a substantially reduced 

demand for currency. In a few countries, such as Sweden, noncash 

transactions have become common and the demand for currency has 

fallen substantially. 

In the United States, there are several indications that currency demand 

will not substantially decline within the next decade. For example, the 

yearly number of U.S. currency notes in circulation increased by 43 

percent from 2008 to 2016. In addition, the number of ATMs in the United 

States continues to grow, and a 2016 Federal Reserve study of consumer 

payment choice found that cash still accounted for 32 percent of all 

transactions, and more than 50 percent of transactions under $25. 22 This 

continued strength in the demand of cash has several sources. 23 Cash 

can be seen as a hedge against uncertainties, such as natural disasters 

or political or economic turmoil, and also has advantages related to 

privacy, anonymity, and personal data security. Moreover. according to 

the Federal Deposit Insurance Corporation, approximately 25 percent of 

U.S. households have limited access to the products and services of the 

banking industry, and therefore, these "unbanked" and "underbanked" 

21Add!tionaHy, a court order requires Treasury to ~take such steps as may be required to 

provide meaningful access to United States currency for blind and other visually impaired 

persons ... not later than the date when a redesign of that denomination is next approved 

by the Secretary of the Treasury." Am. Council of the Blind v. Paulson, 581 F. Supp. 2d 1 

(D.O. C. 2008). BEP recommended pursuing a tactile feature as a potential means of 

identifying each denomination by way of touch. See 75 Fed. Reg. 28331 {May 20, 2010). 

As we previously reported, the Secretary of the Treasury approved BEP's approach on 

May 31, 2011. See GAO, US. Currency: Reader Program Should Be Evaluated While 

Other Accessibility Features for Visually Impaired Persons Are Developed, GA0-14~823 

(Washington, D.C.: Sept 26, 2014). 

22 The State of Cash, Cash Produce Office Federal Reserve System, November 2016. 

230ne source of U.S. currency demand is from people in other countries. About half of the 

outstanding value of U.S. currency is held outside the United States, largely in the form of 

$100 denominated notes. Foreign demand for U.S. currency derives from its role as a 

global reserve currency and reliable store of value 

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BEP Generally 

Followed Leading 

Capital-Planning 

Practices, and Its 

2017 Cost Estimate 

Partially Met the 

Characteristics of a 

Reliable Cost 

Estimate 

BEP Generally Followed 

Applicable Leading 

Capital-Planning Practices 

populations, who may not have many alternative means of payment, rely 

largely on cash. 

Federal Reserve and Treasury officials we spoke with do not believe that 

the use of cash in the U.S. will decline in any significant way over the next 

decade. In particular, the Federal Reserve predicts a continued rise in 

demand for cash over the next 10 years, despite the increased availability 

of noncash payment options, indicating that a new or renovated facility 

will still be required for currency production. According to BEP officials, a 

new production facility would better manage the ebbs and flows in the 

future demand for currency than a renovation of the current facility. 

Specifically, should production demand increase, a new production facility 

could be designed to easily scale to meet new production requirements. 

Conversely, should the demand for currency decline in the coming years 

or substantially decline in the future, unused space in a new facility could 

be partitioned off and be used for other purposes or by another Treasury 

agency. 

Capital investments in infrastructure can require significant resources to 

construct, operate, and maintain over the course of their life-cycle. 

Leading capital-planning practices can help agencies determine the 

resources needed to meet their mission, goals, and objectives and how to 

efficiently and effectively satisfy those needs throughout the capital 

decision-making process. As shown in table 4, we found that BEP's 

capital investment decision-making process that resulted in its decision to 

pursue a new currency-production facility (as part of the previously 

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described hybrid option) followed three applicable capital-planning 

leading practices and substantially followed the fourth. 24 

Table 4: GAO's Assessment of the Bureau of Engraving and Printing's Adherence to Leading CapitalwPianning Practices for 

Its Proposed New Currency Production Facility 

Alternatives 

evaluation 

Strategic linkage 

invest in 

Identifies the resources needed to fulfil! both immediate requirements and anticipated 

future needs 

Determine how best to bridge performance gaps by identifying and evaluating Substantially 

alternative approaches fo!lowedb 

Before choosing to purchase or construct a capital asset or facility, leading 

organizations carefully consider a wide range of alternatives and funding options, such 

as using existing assets, leasing, or privatizing the activity 

Provide a long~range plan for the cap1tal asset portfolio 1n order to meet the goals and Fo!!oweda 

objectives in the agency's strategic plans 

Agency strategic plans should identify capital assets and define how they will help the 

agency achieve its goals and objectives. 

-:L-o-ng--:-te-rm--ca-pc:it-cai:---~Trih:::e-clo::n:::g•-te::r=-m capttal p"la=n-=s.::ho::u-:o:ld"b::e=<t"'he:c.fin::a:.-1 a::n:::dc:p:ori:onc=ip::a:cl "pr=o"duc:c•t =re=su:;;lt"-in=g"t=ro=m"th"'"e;:--;F~o"llo_w_e-cd"''-

plan agency's capital-planning process. The capital plan should cover 5 years or more, 

updated annually or biennially, and should reflect decision makers' priorities for the 

future 

Capital plans should include a statement of the agency mission, strategic goals and 

objectives; and a description of the agency's planning process. 

Source GAO analysis of Suraau of Engrav1ng and Pnnbng·s Gapltal plannmg process 1 GA0-18·338 

aFollowed: BEP provided evidence that it fully followed the activtties associated with the practice 

bSubstantia!!y followed: BEP provided evidence that it followed most of the activities associated with 

the practice. 

Needs assessment: BEP followed this leading practice, which calls for 

comprehensively assessing the resources needed as a basis for 

investment decisions. BEP conducted a facility condition assessment in 

2004 that contributed to BEP's effort to seek a new production facility, 

resulting in the studies from 2010-2017 discussed above. The 

assessment identified the current condition of the facility and the facility's 

capabilities, including production inefficiencies that led BEP to begin a 

multi-year effort to determine its immediate and future infrastructure 

24GAO, Executive Guide: Leading Practices in Capital Decision-Making. GAO/A!M0-99-32 

(Washington, D.C .. December 1998); and OMB, Capital Programming Guide, Supplement 

to Office of Management and Budget Circular A-11: Planning, Budgeting, and Acquisition 

of Capital Assefs (2017). 

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needs. BEP also determined in 2004 that the agency had almost $200 

million in deferred maintenance needs. BEP officials told us that they 

consulted with Federal Reserve officials" and concluded that it would not 

be prudent to spend substantial funds to address this deferred 

maintenance. For example, officials determined that it would not be 

prudent to replace the heating and plumbing systems while pursuing a 

new production facility. As a result, BEP deferred some maintenance 

items, such as replacing heating systems, which would not compromise 

safety and production. However, BEP officials said that they prioritized 

and maintained critical items, such as its cleaning and recycling systems, 

and implemented energy conservation initiatives to help reduce costs. As 

of October 2017, BEP's deferred maintenance backlog was about $196 

million. 

Alternatives evaluation: BEP substantially followed this leading practice, 

which calls for a determination of how best to bridge performance gaps by 

identifying and evaluating alternative approaches. As noted above, BEP 

first considered multiple alternatives on how to achieve its mission to 

efficiently produce banknotes. Further, BEP considered different methods 

to fund and obtain land and a shell for a new production facility (see table 

5). To evaluate alternatives for the location of a new facility, a contractor 

identified, in 2015, potential construction sites in the D.C. area and 

compared each site to a set of criteria. However, BEP officials told us that 

they discounted locations outside the metropolitan D.C. area because 

they believed it would be costly to relocate employees or hire and train 

new manufacturing personnel to replace employees who do not relocate. 

BEP officials said that the few employees who relocated from the D.C. 

facility to the Fort Worth facility when it first opened were paid $50,000 

each for their move. Based on these factors, BEP focused on a D.C-area 

location and did not conduct an analysis of the financial implications of 

building a new facility outside the D.C. area, where construction or other 

costs could be less expensive. 

25The Federal Reserve is required to pay all costs incurred by BEP for the production of 

currency notes. 12 U.S. C.§ 420. According to Federal Reserve officials, for expenses 

greater than $1 million, BEP notifies the Federal Reserve in accordance with an 

agreement codified in a Memorandum of Understanding between Treasury and the 

Federal Reserve. Federal Reserve officials told us this is not approval authority, but it 

gives the Federal Reserve the ability to ask questions before such large purchases are 

made. Federal Reserve officials told us that they have no document related to the 

maintenance needs and deferral of key maintenance activities; however, BEP may have 

informed Federal Reserve staff of its decision to defer such costs in light of Treasury's 

pursuit of a new facility 

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Table 5: Alternative Methods BEP Considered to Fund and Obtain Land and a Building for a New Production Facility 

Method considered Justification given for not selecting an alternative 

Donated land and According to BEP officials, given the high value of land in the D.C. area, it is unlikely that a private entity or 

building shell municipal government would donate land and a building shell. 

Swap-construct BEP officials explored the idea of entering into a uswap-construce exchange in whlch a private developer 

exchange would build a new facility for BEP in exchange for title to BEP's current building(s). However, GSA 

determined that a "swap-construct" exchange would not be feasible in this case because of the long timeline 

required to migrate the existing production equipment to a new production facility. In addition, GSA has 

limited experiences with swap-construct projects and recent attempts have been cancelled.a 

Congressional BEP officials inquired about receiving congressional appropriations to fund the land purchase and 

appropriations construction, but Treasury, OMB, and GSA officials said that since the purpose of a new production facility 

would be to produce currency notes, the funds should originate from the Federal Reserve 

Federal Buildings Fund BEP and GSA officials discussed using funds appropriated from the Federal Buildings Fund to purchase 

!and and construct a building; however officials believed that Congress would be unlikely to appropriate such 

funds since BEP does not pay rent into the Federal Buildings Fund. 

Source GAO analysis ! GA0-18-338 

aGAO, Federal Real Property: Observations on GSA's Canceled Swap Exchange Involving Buildings 

in the Federal Triangle South Area, GA0-16-571R (Washington, D.C.: June 16, 2016) 

Strategic linkage: BEP followed this leading practice, which stresses the 

importance of linking plans for capital asset investments both to an 

organization's overall mission and to its strategic goals. In the 2014-2018 

Strategic Plan, BEP noted that it would seek approval to proceed with the 

2013 study's recommendation to construct a new production facility. 

According to the strategic plan, a new production facility would help 

achieve BEP's long-articulated strategic goal of being a printer of worldclass currency notes, providing its customers and the public with superior 

products through excellence in manufacturing and technological 

innovation. Furthermore, Treasury concurred with BEP's assessment and 

added its request for legal authority to purchase land and build a new 

facility in the fiscal year 2018 President's Budget proposal. 

Long-term capital plan: BEP followed this leading practice, which calls for 

a capital plan that documents an agency's decisions and describes its 

mission, planning process, and risk management, among other things. 

BEP completed all of the key activities associated with this practice. For 

example, in its fiscal year 2018 capital investment plan, BEP lays out the 

purpose, goals, and benefits of a new currency production facility. It also 

notes the implications of exposing currency production to vulnerabilities 

relating to potential facility systems failures and inefficiencies. 

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BEP's 2017 Cost Estimate 

Partially Met the Four 

Characteristics of a HighQuality, Reliable Estimate 

A reliable cost estimate-a summation of individual cost elements-is 

critical to support the capital planning process by providing the basis for 

informed investment decision-making, realistic budget formulation and 

program resourcing, and accountability for results. BEP's 2017 cost 

estimate includes a contractor-developed estimate of the cost for the 

construction of a new production plant and the repurposing of the Main 

Building for BEP's administrative offices (the hybrid alternative) and a 

REP-developed estimate of additional project costs, such as additional 

production equipment and real estate acquisition. We found this estimate 

partially met the four characteristics of a high-quality, reliable cost 

estimate (see table 6). In developing this estimate, BEP relied on GSA 

guidance that was available at the time. 26 That guidance did not refer to 

leading practices for cost estimates that are identified in GAO's Cost 

Guide. GSA has recently updated its guidance to refer to the leading 

practices in GAO's Cost Guide, and BEP officials told us that they will 

follow this updated GSA guidance when developing any future cost 

estimates. 

Table 6: GAO'S Assessment of the Extent to Which the Bureau of Engraving and Printing's (BEP) 2017 Cost Estimate Meets 

the Characteristics of a High .Quality, Reliable Cost Estimate. 

Characteristic 

Comprehensive 

Leading practice Overall 

assessment 

The Cost estimate includes aU hfe~cycle costs Substantially 

The cost estimate completely defines the program, reflects the current schedule, and is meta 

technically reasonable. 

The cost estimate work breakdown structure is product-oriented, traceable to the 

statement of workfobjective, and at an appropriate level of detail to ensure that cost 

elements are neither omitted nor doub!e~counted. 

The cost estimate documents atl cost-influencing ground rules and assumptions. 

26The guidance is GSA, P-120: Project Estimating Requirements for the Public Buildings 

Service. GSA Office of the Chief Architect {Washington, D.C.: January 2007). According to 

GSA officials, GSA updated its guidance to include GAO's best practices in August 2016, 

after BEP had begun the cost estimating process 

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Accurate 

Credible 

assessment 

The documentation should capture the source data used, the reliability of the data, and Partially met6 

how the data were normalized. 

The documentation describes in sufficient detail the calculations performed and the 

estimating methodology used to derive each element's cost 

The documentation describes step-by-step how the estimate was developed so that a 

cost analyst unfamiliar with the program could understand what was done and replicate 

it. 

The documentation discusses the technical baseline description and the data in the 

baseline is consistent with the estimate. 

The documentation provides evidence that the cost estimate was reviewed and accepted 

by management 

The cost estimate results are unbiased, not overly conservative or optimistic, and based Partially met5 

on an assessment of most likely costs. 

The estimate has been adjusted properly for inflation. 

The estimate contains few, if any, minor mistakes. 

The cost estimate is regularly updated to reflect significant changes in the program so 

that it is always reflecting current status. 

Variances between planned and actual costs are documented, explained, and reviewed 

The estimate is based on a historical record of cost estimating and actual experiences 

from other comparable programs. 

The estimating technique for each cost element was used appropriately. 

The cost estimate includes a sensitivity analysis that identifies a range of possible costs Partially met5 

based on varying major assumptions, parameters, and data input. 

A risk and uncertainty analysis was conducted that quantified the imperfectly understood 

risks and identified the effects of changing key cost driver assumptions and factors 

Major cost elements were cross-checked to see whether results were similar. 

An independent cost estimate was conducted by a group outside the acquiring 

organization to determine whether other estimating methods produce similar results. 

Source GAO analySIS of Bureau of Engrav1ng W'd Prmtlng's cosl estimates I GAQ.18-338 

aSubstantially met BEP provided evidence that it fo!lo"vVed most of the practices associated with the 

characteristic. 

bPartia!ly met: BEP provided evidence that it fo!!o"vVed about half of the practices associated with the 

characteristic. 

Comprehensive: BEP's 2017 cost estimate substantially met the 

comprehensive characteristic. For example, the estimate included most 

life-cycle cost components, defined the program and its current schedule 

and included a consistent work breakdown structure. However, the 

estimate did not include operating and sustainment costs or information 

regarding the ground rules and assumptions used to develop the costs. 

Well documented: BEP's 2017 cost estimate partially met the welldocumented characteristic. For example, the estimate documented the 

source data and the technical assumptions used for the construction 

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costs, which were reviewed by GSA and BEP personnel. However, 

documentation for the contractor's estimate and its sources for the factors 

used in the estimate did not include details to enable an outside cost 

analyst to replicate the work. According to BEP officials, the cost data are 

the contractor's proprietary data. BEP officials also told us that sources 

for the factors used were based on subject matter expert opinion. 

Accurate: BEP's cost estimate partially met the accurate characteristic. 

While we found minor rounding errors and no errors in the model build-up 

calculations and did not find any calculation or adjustment errors in the 

estimate, the estimate nonetheless did not provide information regarding 

the bias of the costs and the appropriateness of the estimating technique 

used. However, BEP did follow industry standards to develop contingency 

costs for a pre-design estimate for a program that has not yet been 

authorized. We also found that $515 million of the internal estimate (37 

percent of the program's total cost estimate) was based on 

undocumented subject matter opinion or escalated incorrectly from the 

2013 study estimate. Further, BEP's estimate did not use the same 

construction year mid-point as its contractor for the inflation assumptions. 

According to BEP officials, that lack is because BEP's costs were 

projected based upon the contractor's estimate of fiscal year 2022, while 

the production equipment was escalated to fiscal year 2021 because this 

is the projected year for purchasing equipment. The officials also 

acknowledged that this rationale, however, was not documented in the 

cost estimate. BEP clarified that the estimates did not explicitly state a 

confidence level because the estimate is in the pre-planning stage. They 

added that it is common in the design and construction industry that 

contingencies are applied to the estimate based on the completeness of 

design, and as the design progresses, these contingencies are reduced 

as more becomes known about the project. As there have not been actual 

costs yet, variances between planned and actual costs have not been 

documented, explained, and reviewed. 

Credible: BEP's 2017 cost estimate partially met the credible 

characteristic. For example, BEP provided documentation showing that 

both BEP and GSA reviewed the contractor's construction estimate and 

its technical assumptions. However, the estimate did not include a 

sensitivity analysis for the construction costs, a risk and uncertainty 

analysis, or cross-checks to see whether similar results could be 

obtained. A cross-check could include an independent cost estimate 

conducted by an outside group to determine whether other estimating 

methods would produce similar results, but BEP officials told us that no 

independent cost estimate was developed because this was too early in 

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Ability to Sell or 

Repurpose Potentially 

Vacant Space Could 

Affect the Total Cost 

to the Federal 

Government 

the project to do such a comparison and that the construction estimate 

was developed in response to a government contract statement of work 

to prepare a preliminary budget forecast for BEP. Rather, BEP relied on 

what it characterized as an extensive review by BEP management and 

GSA officials. 

The alternative that BEP pursues could have a financial effect on the 

federal government and ultimately taxpayers. Below, we discuss potential 

costs and potential savings associated with the disposition of the three 

buildings under the different scenarios based on our review of BEP 

documents and interviews with Treasury and GSA officials (see fig. 2). 

For example, Treasury, which has custody and control over the Main 

Building and the Annex, could experience costs if it needs to spend 

money to upgrade these buildings, but could also experience savings if it 

can repurpose the buildings or consolidate its employees into fewer 

buildings. GSA, which serves as the federal government's primary real 

property and disposal agent, could incur costs for the marketing and 

disposal process, but could create savings for the government if it could 

repurpose or sell any vacated buildings. Proceeds from sales of Treasurycontrolled facilities would benefit the federal government. 

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Figure 2: Potential Disposition and Funding of BEP's Washington, D.C., Facility and Related Potential Costs or Savings 

Source: GAO analysis of BEP, Treasuty, and GSA data. I GA0-18-338 

8

A ''warm lit shelt is a commercial or residential building with a minimally finished interior, usually with 

ceilings, lighting, plumbing, heating and cooling (HVAC), interior walls (painted or unpainted), 

electrical outlets, elevators, res! rooms, and a concrete floor. A warm lit shell is considered ready to 

lease and ready for tenant improvements. 

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Note: The Federal Resetve deposits payments for currency production, including BEP's operational 

expenses, into BEP's revolving fund. BEP uses its revolving fund to pay for all of its operational costs. 

While it is possible to identify some potential costs and benefits, it is too 

early to determine which costs or benefits may be realized or to attempt 

to quantify them. GSA and Treasury officials told us that the actions of 

other agencies or interested third parties (e.g., those potentially interested 

in purchasing the Annex) would affect the costs and cost-savings of any 

alternative. In addition, there are factors outside of the government's 

control, such as timing and market conditions, that could affect costs and 

cost-savings. For example, changes in the Washington, D.C., real estate 

market could affect the opportunity to sell the Annex. Based on interviews 

with officials at GSA, Treasury, the Federal Reserve, and BEP, we have 

identified the following potential costs and savings for each building. 

Potential costs and savings associated with the Main Building: Both BEP 

and Treasury officials told us that the Main Building will remain under 

Treasury's custody and control, regardless of which alternative BEP 

undertakes. 

Renovation: BEP would use its revolving fund to replace existing 

heating/cooling systems and windows in the Main Building with higher 

efficiency ones. Ideally, there would be some long-term cost savings 

because the new systems would be less costly to operate. However, 

BEP officials told us that a renovation may be more expensive than 

currently estimated because the Main Building is over 1 00 years old 

and there could be unforeseen expenses depending on what is found 

once walls and ceilings are removed. 

New build: Treasury would likely pay to renovate the Main Building 

once BEP vacates it because the Main building would remain under 

Treasury's custody and control. The cost of this renovation could be 

partially offset by savings associated with co-locating other Treasury 

offices in the Main Building after the renovation is complete. For 

example, Treasury bureaus currently have 15 leased facilities with 

about 1.9-million square feet in the downtown D.C. area. The annual 

cost of these facilities is $91.7 million. While, not all of the employees 

currently in leased space could move into a renovated Main Building, 

the Main Building's 530,000 square feet could provide opportunities to 

reduce leasing costs. However, because these potential renovations 

and staff moves are not likely to occur for several years, Treasury 

officials told us that they are not able to determine either the costs or 

benefits of moving Treasury staff to the Main Building. 

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Hybrid: BEP's revolving fund would pay for the renovation of onethird of the Main Building that would serve as BEP's administrative 

office and a future visitors' center. This step would leave the 

remaining two-thirds to be renovated to a "warm lit shell" 27 to allow 

others to occupy the building. At this time, Treasury does not know 

what entity or account would pay for the renovation of the remaining 

two-thirds because, according to Treasury officials, they have not 

determined what the use of the balance of the Main Building would 

be, including what entity would fund any modifications needed for new 

occupants. If Treasury decided to use the Main Building for its own 

staff, then Treasury could fund the cost to convert to offices for other 

Treasury agencies. Under this scenario, there is both a cost to 

Treasury to renovate the space it plans to use as well as a savings in 

having Treasury staff vacate other leased space and move to a 

Treasury-controlled building. 

Potential costs and savings associated with Treasury's Annex: The Annex 

could either remain for BEP's administrative offices or could be declared 

excess and transferred to GSA for disposal. 

Renovation: BEP's revolving fund would cover the cost of renovating 

the entire Annex as a "warm lit shell" and a more extensive renovation 

of the portion of the Annex that BEP would use first as temporary 

space for its currency printing equipment and then permanently for its 

administrative office. According to BEP officials, the Annex would be 

renovated to accommodate currency-printing lines that would be 

relocated from the Main Building in order for the Main Building to be 

renovated. Once the Main Building is renovated, the Annex would 

then be renovated to become administrative space for BEP. This 

process could be quite costly and take more time as the Annex would 

be renovated twice for different purposes. However, if the unused part 

of the Annex could be used by Treasury for other Treasury offices, 

there could be some cost savings to Treasury. According to BEP 

officials, while BEP would use its revolving fund to renovate the Annex 

to a "warm lit shell," the agency that ultimately occupies the unused 

space would be responsible for the costs associated with repurposing 

that space for its own purposes. 

27 A uwarm lit shell" is a commercial or residential building with a minimally finished interior, 

usually with ceilings, lighting, plumbing, heating and cooling (HVAC), interior walls 

(painted or unpainted), electrical outlets, elevators, rest rooms, and a concrete floor. A 

warm lit she!! is considered ready to lease and ready for tenant improvements. 

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New build and Hybrid: BEP's revolving fund would pay for any 

necessary environmental clean-up needed in order for the Annex to 

be declared as excess and transferred to GSA for disposal. GSA, as 

part of its mission, would incur costs such as marketing, conducting 

the disposition process, and concluding the property transfer. GSA's 

disposal process can result in the building being transferred for use by 

another Federal agency, being sold to a local or state government via 

a negotiated sale, being conveyed to a public entity or eligible nonprofit for public uses (e.g. homeless use), or being sold to a private 

party via a public sale. As the Annex is centrally located in 

Washington, D.C., the building could be attractive to potential 

developers. 2

' GSA recently sold another federal building near the 

Annex for over $30 million. GSA officials believe that there would be 

significant market interest in the Annex due to the Annex's location 

and recent private development in the area. Treasury and GSA 

officials stated that proceeds from the sale of the Annex would be 

deposited into the Land and Water Conservation Fund to benefit the 

federal government. 29 

On the other hand, there is no guarantee that GSA would be able to 

sell the Annex: our previous work found that the most frequent 

method of disposal for federal buildings from fiscal years 2011 

through 2015 was demolition (57 percent) rather than sale (14 

percent). Federal buildings identified for disposal may not be suitable 

for sale for reasons such as their age, location, and condition, factors 

that often make demolition the preferred disposal method. The unique 

configuration of the Annex with its five wings, its age and condition, 

and historic-designation eligibility could deter some potential buyers. 

The future demand for the building, interest from private-sector 

buyers, and the general economic and real estate market are 

28Part of the Annex is a small building known as the "Railroad Siding Building." The 

building sits on a larger tract of land owned by a private developer. According to BEP 

officials, the land was transferred by the District of Columbia Redevelopment Land Agency 

to the developer subject to an easement that preserves BEP's property interest in the 

building. BEP officials are uncertain as to what would happen to this property interest if 

Treasury declares the Annex as excess. 

29According to Treasury officials, Treasury does not have the authority to retain proceeds 

from sales of its buildings. According to Treasury and GSA officials, the proceeds from the 

sale of the Annex would be deposited into the land and Water Conservation Fund. See 

54 U.S. C.§ 200302. Amounts in the fund must be appropriated before they can be used. 

Once appropriated, amounts in the fund are generally available for purposes related to 

land and water acquisitions for national parks, national forests, and national wildlife 

refuges, or as otherwise permitted in the appropriation act making them available. 

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Agency Comments 

uncertain and can change quickly. If the Annex is not sold and 

remains on the government's real property inventory, generally BEP 

or Treasury would be responsible for any annual maintenance costs 

for the building. 30 Alternatively, the unsold Annex could be donated to 

a state or local government that would then be responsible for 

maintenance costs. 

Potential costs and savings associated with the leased warehouse: The 

warehouse is a GSA-leased property. 

Renovation: BEP would continue its annual leasing of the 

warehouse, which would still be needed to accommodate large trucks 

that cannot access the D.C. facility. The current lease costs 

approximately $3.4 million each year, and BEP recovers about 

$500,000 per year of these costs by permitting other Treasury 

components to use the building through interagency agreements. 

New build and Hybrid: If BEP discontinued its lease after a new 

facility is completed, it would save approximately $2.9 million per year. 

If BEP ended its lease prior to the end of the lease term, GSA would 

need to find another entity to occupy the warehouse for the remainder 

of the lease term. 

We provided copies of the draft report to the BEP, GSA, the Federal 

Reserve, and Treasury for review and comment. BEP coordinated with 

Treasury in providing comments. In these comments, reproduced in 

Appendix I, BEP emphasized the factors that led BEP to determine that a 

new facility is the preferred alternative for its currency production process 

and acknowledged our findings on those factors. BEP and the Federal 

Reserve also provided technical comments, which we incorporated as 

appropriate. GSA did not provide comments. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Director of the Bureau 

of Engraving and Printing, the Secretary of the Treasury, the Chair of the 

Federal Reserve Board, and the Administrator of the General Services 

30Genera!ly, the landholding agency is responsible for the cost of protection and 

maintenance of excess or surplus property until the property is transferred or disposed, 

but generally not for more than 15 months. 41 C.F.R. § 102-75.970. 

Page 27 GA0~18...J38 Currency Production Facility 
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Administration. In addition, the report will be available at no charge on the 

GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-2834 or Rectanusl@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix II. 

Sincerely yours, 

Lori Rectanus 

Director, Physical Infrastructure Issues 

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Appendix 1: Comments from the Department 

of the Treasury 

March 9, 2018 

MEMORANDUM FOR: 

DEPARTMENT OF THE TREASURY 

BURI':AU OF ENGRAVING AND PRINTING 

WASHINGTON, D.C. l0:228 

Lori Rectanus, Director- Physical Infrastructure Team 

U.S. Government Accountability Office 

1 l 0 OJ..:i/7. Leo;{trrl, brijar, Diro&to; 

Bureau of Engraving and Printing 

Department of the Treasury 

Bureau of Engraving and Printing Fadlity Planning 

Draft Report Agency Comments 

GAO Engagement Code: 10!990/GAO~l8-338 

The Bureau of Engnwing and Printing (BEP) thanks the members of the U.S. Government Accountability 

Office (GAO} review team for their professionalism while reviewing the options for and federal costs of a 

future production faCJlity to manufacture Uni!ed States Federal Reserve notes (FRNs). The BEP preferred 

option- to build a new production facility in the Washington, D.C . .area and renovate some administrative 

space in il'i current DC facility- would; ( 1) s.ave federal costs; (2) allow for a secure perimeter that meets 

federal building security standards; and (3), improve production efficiencies by enabling the BEP to 

manufacture FRNs on a single production floor utilizing modem processes and equipment. 

The GAO fmmd the BEP generally followed leading capital planning practices relevant at the time, and its 

2017 cost estimme of a nev. production facility partially met the characteristics of a reliable cost estimate. 

As acknowledged in the GAO report, the BEP relied on the General Service Administration guidance that 

was available at the time, which did not refer to the leadmg practices for cost estimates identified by GAO 

in its col>l guide. In addition, GAO verified the reliability of the BEP data gathered from multiple facility 

s1Udies conducted over the past three decades that all concluded the agency would be best served by 

construction of a new production facility. 

ln order to stay ahead of worldwide counterfeiting trends and threats amplified by ever-improving 

commercial and non-commercial printing capabilities., the BEP must recapitalize its production t.>quipment 

and Washington, DC facility. The current production environment in the facility is inadequate to meet the 

challenges of counterfeit deterrence and complete the robust armua! ctnrency order from the Board of 

Governors of the Federal Reserve System (Board), all while maintaining or surpassing world-dass quality 

currency note ~tandards, For this reason, the Depanment of the Treasury, the Office of Management and 

Budget, and the White House included a legislative proposal in both the Fiscal Year (FY) 20 !S and 2019 

Presidential Budget Submissions to Congress thiH would enable the BEP to lower federal costs by building 

a new facility in the Washington. DC area. 

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Appendix 1: Comments from the Department of 

the Treasury 

The BEP agrees with GAO's analysis that a new production facility and some renovated administrative 

space in its current Washington, DC facility would accommodate modem, more efficient equipment, and 

based upon the FY 2019 Presidential Budget Submission to Congress would save the federal government 

$579 million dollars Jn comparison to the alternative of renovating the BEP's 100-year-o!d, multi-story 

buildings in downtown Washington, D.C. As a result of this notable savings, the Congressional Budget 

Office scored the legislation requested by the BEP to authorize construction of a new production facility as 

a cost-neuiral proposal. Of course, all construction prngram estimates are a snapshot in time and are 

subject to change with the passage of time due to inflationary pressures. 

During its review, GAO also heard from Board officials who concur a new facility is warranted, because 

multiple studies have indicated renovation of the exbting facility would be more costly and would not 

provide the same degree of production efficiency_ Board officials indicated they prefer the new building 

alternative because it is the lea.~t expensive option. These officiaL~ also told GAO the Board will be 

financially responsible for funding a new facility. 

The BEP would be able to continue its manufacturing operations, but will not gam any significant 

production efficiencies by renovating its antiquated, multi-floor facilities in Washington, DC. In addition, 

high operating costs that would be eliminated in a modern, warehouse-like production facility would 

continue, as would the exorbitan£ maintenance costs that result from force-fitting manufacturing operations 

in a downtown office building. While U.S. currency dates back to the 1800s, it must be considered a 

contemporary product requiring a twenty-first century production facility. If not, the Government of the 

United States will cominue to bear unnecessary cosl~. as well as unnecessary risks associated with process 

inefficiencies. 

To satisfy the manufacturing needs of the next genemtion of state ,of-the-art currency note design, as we!! 

a.~ the BEP's commitment to quality, the agency will need to initiate large-scale renovalions of its existing 

facilities if it does not obtain the requisite statutory authority to con.'>truct a new production facility in the 

Washington, DC area in a timely manner. Renova\ing existing facilities, which can be done without 

congressional action. would forgo the manufacturing efficiencies that would be realized by creating a new. 

streamlined facility. It also would eliminate the anticipated reduction of approximately 25 percent of the 

BEP's rea! estate ponfolio, and the estimated $579 million in cost savings that would result from 

constructing a new facility. 

The BEP is not an ordinary government agency requiring an ordinary government building. The BEP is a 

manufacturing facility .. a printing plant -which produces an iconic commodity trusted worldwide, GAO 

is aware the BEP has studied the issue of recapitalizing its DC-based equipment and facilities for decades. 

The studies show clear and justified reasoning for a new production facility. 

The BEP's mission requires a near-term decision: to proceed with a new facility; or embark on costly 

renovations of the e11:isting Washington, DC facility. It is the BEP's hope that GAO's thorough review of 

the BEP facility recapitalization progr.un will provide Congress the nece~sary data to consider and approve 

the legislation the BEP needs to construct a new facility. 

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Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(101990) 

Lori Rectanus, (202) 512-2834 or RectanusL@gao.gov 

In addition to the individual named above, John W. Shumann (Assistant 

Director); Martha Chow (Analyst in Charge); Amy Abramowitz; Lacey 

Coppage; Delwen Jones; Jennifer Leotta; Josh Ormond; and Tomas 

Wind made key contributions to this report. 

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EXECUTIVE OFFICE OF THE PRESIDENT 

OFFICE OF MANAGEMENT AND BUDGET 

WASHINGTON, D.C. 2.0503 

The Honorable Richard Shelby 

Chairman 

Committee on Appropriations 

United States Senate 

Washington, DC 20510 

Dear Mr. Chairman: 

July 9, 2018 

ATTACHMENT B 

On June 21,2018, the Appropriations Committee considered lhe fiscal year (FY) 2019 

Financial Services and General Government Appropriations bilL Overall, according to 

preliminary OMB estimates, the bill appears to increase funding by about $0.2 billion, or nearly 

1 percent above the FY 2019 Budget request. The Administration appreciates the opportunity to 

weigh in on this bill. 

The President's FY 2019 Budget request, as amended, accounts for the Bipartisan Budget 

Act of2018 (BBA's) new Defense and non-Defense discretionary spending caps for 

FY 2019. As we have noted in previous letters as well as the FY 2019 Budget, the 

Administration strongly supports the overall defense levels included in the BBA. However, 

given the Nation's long-term fiscal constraints and the need to right-size the Federal 

Government, the Administration does not support spending at the BBA's non-Defense caps. 

The Administration appreciates that the Committee bill includes funding for critical 

priorities, including: 

• Internal Revenue Service (IRS). The bill provides the IRS a total of $11.3 billion, 

$128 million above the FY 2019 Budget request. This an1ount includes $77 million 

in dedicated funding tor tax reform implementation. The Administration appreciates 

the Committee's support for tax reform and the amounts provided in the bill fully 

fund the Administration's two-year proposal requested in FY 2018. 

• Office ofTerrorism and Financial Intelligence (TFI). The bill provides $159 million 

for the Department of the Treasury's TFI, equal to the FY 2019 Budget request. The 

Administration appreciates the Committee's support for TFI to continue its critical 

work safeguarding the financial system from abuse and combatting other national 

security threats using non-kinetic economic tools. 

• Bureau of Engraving and Printing (BEP). The bill includes a provision that would 

allow BEP to acquire land and construct a replacement for its currency production 

facility in the National Capital Region using its existing resources. The 

Administration appreciates the Committee's support for this proposal which would 

allow BEP to avoid a costly renovation of its current facility and ultimately lower the 

operating costs of producing the Nation's paper currency. 
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• Treasury Departmental Offices. The bill provides $209 million tor the Department of 

the Treasury's Departmental Offices, which is $7 million above the FY 2019 Budget 

request. These additional funds could be used to strengthen review of foreign 

investment in the United States and address other emerging priorities. The 

Administration looks forward to working with the Congress to provide adequate 

resources to support anticipated increases in the caseload for review by the 

Committee on Foreign Investment in the United States. 

• Commodity Futures Trading Commission (CFTC). The bill provides CFTC with 

$282 million, in line with the resources requested in the FY 2019 Budget, to expand 

examination and analysis capabilities and address financial teclmology ilmovation. 

The Administration urges the Congress to support legislation authorizing user fees to 

fund certain CFTC activities, as proposed in the FY 2019 Budget. 

• Environmental Review Improvement Fund. The Administration appreciates that the 

Committee has fully funded the requested levels for the Federal Pem1itting 

Improvement Steering Council, which is administratively supported by the General 

Services Administration (GSA). The Federal infrastructure permitting process is 

fragmented, unpredictable, and mefficient, causing delays in approvals needed to start 

project construction. Fully funding the Environmental Review Improvement Fund 

will allow the Council to create a more standardized, coordinated, and predictable 

permitting process that protects public health, safety, and the environment. 

However, the bill underfunds key investments in critical areas supported in the FY 2019 

Budget request and/or includes funding that the Administration believes is not in line Vvith the 

overall restraint in non-Defense spending reflected in the FY 2019 Budget request, including: 

• Executive Office of the President. While the Administration appreciates the 

Committee's support for the Executive Office of the President, includmg an increase 

for the Office of Management and Budget, the bill does not fully fund the Information 

Technology Oversight and Reform (ITOR) account. Inadequate funding for ITOR 

would necessitate significant staff reductions and severely hinder OMB's ability to 

perform statutorily required IT oversight functions. Furthermore, the U.S. Digital 

Service would be less able to respond to significant security breaches or recover 

failed systems, placing the Nation's critical systems at undue risk. The 

Administration urges the Congress to fund ITOR and the GSA Office of Governmentwide Policy at the levels requested ill the FY 2019 Budget, which would facilitate the 

transition of certain ITOR activities to GSA. The Administration is also concerned 

that $2 million ofOMB's appropriation is directed to the Office ofinfommtion and 

Regulatory Affairs (OlRA). OIRA plays a key role in the Administration's 

deregulatory agenda and will continue to receive the resonrces it needs to execute its 

critical mission within OMB's budget. Directing a specific funding level impinges on 

the President's flexibility to adjust statiresources as mission needs change. 

2 
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• Community Development Financial Institutions (CDFI) Fund. The bill provides 

$250 million, $236 million above the FY 2019 Budget request, for the CDFI Fund 

within the Department of the Treasury. The $14 million requested for administrative 

expenses in the FY 2019 Budget is sufficient to support all ongoing CDFI Fund 

activities, including the New Markets Tax Credit and the zero-subsidy Bond 

Guarantee Program. 

• Federal Buildings Fund. While the Administration appreciates that the bill provides 

nearly $2 billion in capital funding, including the necessary fm1ds to purchase the 

Department of Transportation headquarters building, the Administration is 

disappointed that the bill diverts nearly $500 million in GSA rent receipts intended to 

fund GSA capital projects to other non-GSA congressional priorities. The diversion 

of receipts fails to provide Federal agencies with the commercial equivalent space and 

services that agencies pay for in rent payments. In addition, the bill only partially 

funds the construction of the Land Port of Entry in Calexico, CA and the next phase 

of the consolidated headquarters for the Department of Homeland Security; neither 

project can be initiated until full funding is secured. 

• Workforce Fund. The Administration looks forward to working with the Congress to 

enact authorizing legislation to establish the President's Management Council 

Workforce Fund housed within GSA and urges the Congress to provide 

appropriations upon its enactment. The Congressional Budget Office has reported 

that many types of Federal workers are significantly underpaid or overpaid relative to 

labor market wages and across-the-board increases applied to the existing pay 

structure exacerbate this situation. The Administration believes it is essential to 

develop and fund innovative solutions aimed at recruiting, retaining, and rewarding 

high-performing Federal employees and those with critical skills sets. 

• Technology Modernization Fund (TMF). The Administration appreciates the 

Congress's prior attention to modernizing vulnerable and inefficient legacy IT 

systems with initial funding provided to the TMF in FY 20 I 8, and urges continued 

support for the TMF in FY 2019 as a means to address these pressing challenges. 

The bill provides no funding for the TMF, which would halt the Technology 

Modernization Board's ongoing work to tackle impactful, Government-wide IT 

modernization efforts. The Administration believes that any additional funding 

would be well utilized and will continue working with the Congress to demonstrate 

the taxpayer value generated by the TMF. 

• Small Business Administration (SBA) Disaster Loans Program Account. The 

Administration is concerned that the bill does not provide funding for SBA disaster 

loan administrative expenses, despite the $186 million included in the FY 2019 

Budget request. The bill assumes that SBA would rely on balances from 

appropriations enacted in the Further Additional Supplemental Appropriations for 

Disaster Relief Requirements Act, 2018 (Public Law 115-123, division B, subdivision 

1), which would not adequately support typical annual disaster lending levels. 

3 
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• SBA Entrepreneurial Development Programs. The bill provides $242 million for 

SBA's Entrepreneurial Development Programs, $50 million above the FY 2019 

Budget request The Administration is concerned that the bill does not include 

proposed reforms to the Small Business Development Centers program to create a 

competitive set-aside and allow for data sharing, which would enable the program to 

better measure and evaluate effectiveness. 

The Administration is concerned that the bill does not include language necessary to 

enable SBA to establish and operate a Working Capital Fund for IT-related expenses, pursuant to 

the authorities granted in the Modernizing Govenm1ent Technology Act. The Administration is 

also concerned that certain language in the bill seeks to infringe on the President's prerogative to 

make budgetary recommendations concerning the Army Corps of Engineers, which helps ensure 

careful stewardship of taxpayer funds. 

In addition, while a fully-funded GSA Federal Buildings Fund is ctitical to making smart 

real property decisions, the Administration also recognizes that larger, more complex capital 

transactions would still be difficult to achieve, given competing priorities, particularly for aruma! 

operating needs. That is why the Administration has proposed a new budgetary mechanism for 

large civilian real property projects, the Federal Capital Revolving Fund (FCRF), which would 

allow the appropriations committees to receive upfront full mandatory funding from the FCRF, 

in return for committing to repaying those an1ounts with discretionary budget authority over 

15 years. The Administration transmitted legislative language on June 12,2018 and looks 

forward to working with the Congress to enact the FCRF proposal. 

In addition, the FY 2019 Budget request ret1ects the Administration's desire to bring 

more Federal spending under the caps reached in the 2018 BBA by limiting the use of changes in 

mandatory programs, or CHIMPs, that generate no net outlay savings to oft:~et real increases in 

discretionary spending. While there are programmatic reasons for some CHIMPs, most of them 

simply push the availability of funding from one year to the next, or rescind money from a 

program that no one actually expected wonld be spent. The Administration encourages the 

Committee to achieve its discretionary topline while minimizing the use of CHIMPs. 

As the Senate takes up the Financial Services and General Government Appropriations 

bill, the Administration looks forward to working with you to address these concems. 

cc: The Honorable James Lankford 

The Honorable Christopher Coons 

;;· 

Mick Mulvaney 

Director 

Identical Letter Sent to The Honorable Patrick Leal!y 

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STATEMENT OF DAVID J. RYDER 

DIRECTOR 

UNITED STATES MINT 

UNITED STATES DEPARTMENT OF THE TREASURY 

BEFORE THE 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE: 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

"The Future of Money: Coins and Banknotes" 

September 5, 2018 

Chairman Barr, Ranking Member Moore, and Members of the Subcommittee, it is my honor to 

appear before you, and I thank you for the opportunity to testify during this hearing. 

I look forward to updating you on the United States Mint's progress as a first class manufacturer 

and an organization driven by the commitment to outstanding products and customer service. 

Today, my goal is to share the vision of the Mint's operations and programs, discuss our 

circulating coins, alternative metals, bullion, and commemorative coin programs, and update you 

on our future endeavors. 

During my nomination hearing, I discussed financial awareness education for our youth to 

improve our customer base, various technologies that will be analyzed as a way to improve the 

security of our coinage, and technologies to improve our operations. I plan to update you today 

on these initiatives, as well. 

Mint Overview 

It is my honor to lead one of our Nation's oldest and most venerable public institutions. In 

1792, Congress established the first United States Mint facility in Philadelphia. We now have six 

locations and are the largest coin manufacturer in the world. We are privileged to connect 

America through coins and medals, which reflect the remarkable history and culture of our 

Nation. 
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Congress has given the Mint three primary missions: producing coins at sufficient levels to meet 

the daily needs of commerce, manufacturing of numismatic and bullion products, and managing 

and protecting the assets of the American people stored at Ft. Knox, Kentucky. 

The United States Mint operates as a matrix organization with multiple lines of operations. Our 

headquarters are located in Washington, D.C., and there are four production facilities across the 

country---Philadelphia, West Point, Denver, and San Francisco. Fort Knox is home to the U.S. 

Bullion Depository. 

The Mint's operations are sustained through the sale of circulating coins to the Federal Reserve, 

numismatic products to the public, and bullion coins to authorized purchasers. 

I have visited all four United States Mint production facilities and held town-hall meetings to 

engage with employees across the organization. This workforce is well-equipped, enthusiastic, 

engaged, and committed. Our employees have embraced the core values of service, quality and 

integrity. At any one of these facilities, you'll find safety statistics and a level of morale that rival 

the best in private industry. This team is committed to quality and efficiency. We have multiple 

process improvements in manufacturing that have been developed by Lean Six Sigma teams and 

individual employees. 

The Mint employs cutting-edge technology across its three key production phases: design, 

manufacturing, and packaging. Sculptor engravers use advanced digital tools to transcribe the 

flat line art of coin designs into 3-dimensional renderings. Robotic technology has reduced the 

time required for die polishing and grinding from more than two days to just over a half day. A 

series of robotic arms boosted proof coin packaging from a rate of 600 units per hour to l ,800 

units per hour. 

By law, the United States Mint operates two fiscally separate programs- a circulating coin 

program and a numismatic products program that includes collectible coin and medal products in 

addition to precious metal bullion coins. These programs drive three business lines--circulating 

coins, numismatic items, and bullion coins-in which each of the Mint's four production 

facilities plays a distinct role. Denver and Philadelphia produce all of the Nation's circulating 

coins and together they will account for more than !3.9 billion coins by the close of the fiscal 

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year. San Francisco leads in numismatics, producing more than 1.5 million items annually. More 

than 98 percent of American gold and silver bullion coins are produced at the West Point facility. 

The U.S. Bullion Depository at Fort Knox-perhaps the most well-known Mint facility-has the 

mission of storing and securing most of America's gold reserves. 

Coin Efficiencies 

The Federal Reserve's demand for circulating coins and the market's demand for bullion coins 

will continue to fluctuate due to economic cycles. To manage market uncertainty and commodity 

risk, the Mint has identified and executed on opportunities for advancing manufacturing 

processes. Over the last five years, the Mint has implemented operating cost reductions, 

strategies and systems to generate cost savings. In fiscal year (FY) 2017, cost of goods sold 

decreased by $1.8 billion, as compared to FY 2013. 

In FY 2017, the total per unit cost decreased for all denominations compared to FY 2013. The 

unit cost for the penny decreased I%, the nickel decreased 30%, the dime decreased 27%, and 

the quarter decreased 22%. In contrast, FY 2017 unit costs increased for all denominations when 

compared to FY 2016. The unit cost for both pennies and nickels remain above face value for 

the twelfth consecutive fiscal year. The Mint is collaborating with the Federal Reserve to 

explore cost reduction strategies for the penny. As of July 2018, the unaudited unit cost of 

producing and distributing the penny is $0.0200, the nickel $0.0738, the dime $0.0361 and the 

quarter $0.0863. 

Lean practices and management controls, zero-based budgeting and cash management, have 

helped the Mint return $269 million to the Treasury general fund in FY 2017. 

Commemorative Coin Programs 

Commemorative coin programs play a key role in our ability to connect America through coins. 

Therefore, it is especially critical that the Mint work closely with the Congress during the 

legislative development of these coin and medal programs-together we can identify program 

themes that both resonate with the public and address the preferences of collectors. Since 1982 

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Congress has authorized 71 commemorative coin programs; the United States Mint is proud to 

be the administrator of these programs. 

Surcharges from the sales of these coins are authorized to help fund a variety of organizations 

and projects that benefit the public at large. These coin programs have generated more than 

$522.7 million in surcharges for the designated recipient organizations through June of 2018. 

I am pleased to say there is much excitement surrounding the 2019 Apollo ll 50th Anniversary 

commemorative coin program. We believe this program-a tribute to an event that propelled 

America to the front of the Space Race and captured the imagination of the world-will be 

particularly popular with both seasoned collectors and new customers because of the subject 

matter and the innovative curved coin design. We are also excited about next year's American 

Legion 1 OOth Anniversary commemorative coin program. 

We are eager to engage in discussions regarding commemorative coin programs for 2020 and 

beyond. We also look forward to opening a dialogue about a successor to the circulating 

commemorative quarter program, as the current America the Beautiful Quarters Program® ends 

in 2021. 

Numismatic Customer Base 

Over the past ten years the Mint's numismatic customer base has been declining-from 1.2 

million unique customers in 2007 to approximately 500,000 today. The Mint is developing an 

outreach strategy aimed at increasing general awareness and promoting specific numismatic 

products. Our revised strategy will strive to reverse negative customer and numismatic unit sales 

trends. 

Bullion Coins 

One of our core priorities is minting and issuing gold and silver bullion coins to meet the needs 

of precious metal investors. We are the largest producer of gold and silver bullion coins in the 

world. We also mint and issue platinum bullion coins, and last year, we brought to market our 

first ever palladium bullion coin. 

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Our American Eagle Gold and Silver Bullion Coins are the coins of choice for investors around 

the world. Over the years, we have seen demand for our silver bullion coins increase from 8 

million coins in FY 2007 to approximately 47 million in FY 2015. This dramatic increase led to 

shortages of silver blanks from our suppliers during some periods, which forced the allocation of 

silver bullion coins. We have successfully worked with our blank suppliers to increase their 

capacity and supply of blanks to the United States Mint. 

Beginning in early calendar 2017, however, demand for both gold and silver bullion coins 

worldwide, including our American Eagle coins, slumped dramatically, as investors apparently 

focused more on other competing investment classes. In the last couple of months, demand has 

shown signs of stabilizing, but it seems unlikely that we will return to pre-20171evels of demand 

anytime soon. We have adjusted our production levels to be in line with market demand. 

We produce all our bullion coins at the United States Mint in West Point, New York, except for 

America the Beautiful 5-ounce silver bullion coins, which are minted in Philadelphia. Our 

bullion coin program is a manufacturing success story, and we thank our suppliers, our network 

of authorized distributors, and, most importantly, our manufacturing team, for their contributions 

to this important progmm. 

The Future of Money 

The pace of technological change, market uncertainty, and the increasing sophistication of 

criminals arc key external factors that will influence the future. 

The growth of Blockchain use in the e-commerce space and other monetary factors such as the 

reduction of coin transactions and the consolidation of settlement outlets will affect Mint 

operations. The Mint is gathering and analyzing data in order to make informed operational 

decisions. We will continue to track the pace of technological change and work to gain an 

understanding of how, where, what, and when emerging platforms will impact our mission and 

operations. 

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The Federal Reserve's demand for circulating coins and the market's demand for bullion coins 

will continue to fluctuate with economic cycles-to which we must remain attuned in order to 

better forecast and project impacts on Mint operations. 

Technological advancements will lead to more sophisticated criminals in the form of cybcrattacks and counterfeit goods. As these threats evolve, the Mint must continue to enhance its 

capabilities to respond effectively to them. The Mint has implemented hardware, software, and 

vulnerability management capabilities that provide visibility into the cyber environment and 

strengthen our resilience to an attack. We are also developing anti-counterfeiting measures, 

focusing particularly on safeguarding our bullion products. I have assembled a team within the 

Mint who will develop a multi-level approach including consumer awareness information 

campaigns, new secure product packaging features, as well as product-integrated protections. 

The use of coinage is not in immediate danger of being usurped by any of these factors. I believe 

that for the foreseeable future, coins will remain important instruments for settling financial 

transactions. However, with expanded cryptocurrency options on the horizon, the importance of 

their serious study cannot be underestimated. Full understanding of their potential impact on the 

Mint and commerce across the globe is wholly necessary. 

In view of these external factors, my vision for the Mint is an organization that is more agile in 

responses to changing conditions ·able to nimbly adapt to challenges while working in unison 

as "One Mint." The future state outlook can be understood in three areas of focus: workforce, 

process, and technology infrastructure. To prepare for future human capital needs, the Mint will 

foster a workforce capable of responding to evolving technology, security, and customer needs. 

The Mint will continue to operate as a cross-functional organization, focused on collaborating 

across all business lines. While the Mint will continue to serve its external customers, Mint 

employees will also serve each other as internal "customers" of other offices and directorates. 

The Mint will increasingly integrate information technology into all of its lines of operation. 

Capital investments, as well as research and development programs, will be prioritized to drive 

innovation and seamless operations. Employees will remain vigilant and prepared to address 

threats to physical and eyber security. 

6 
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Alternative Metals 

The Mint has completed three biennial reports (2012, 2014 and 2016) on research and 

development (R&D) efforts conducted to examine alternative metallic materials. As you know 

the reports are authorized by the Coin Modernization, Oversight, and Continuity Act of2010 

(Public Law lll-302). 

We have identified two potential compositions for the nickel, dime, and quarter. One project 

involves reducing the amount of nickel in the 5, I 0 and 25-cent coins and projects a cost savings 

of $4.1 million annually. The other project is exploring the development of a suitable 

replacement alloy that could offset the production costs of the 5-cent coin. Its projected cost 

savings is $16.6 million annually. 

We realize that changing the metallic composition of the coin denominations commonly used in 

vending will impact a variety of stakeholders in both large and small businesses and in different 

ways. Therefore the Mint is actively seeking feedback from those industry stakeholders who 

may be impacted in vending areas such as parking meters, coin-operated laundry, amusement, 

public transportation, banking, and supermarkets. Our plan is to actively seek input from these 

groups and the public at large with multiple surveys and requests for public comment and other 

outreach efforts. 

We will also be soliciting comments on the public's use of coins in financial transactions and 

views on altcmativc coin options. We will usc this input in our analysis of determining an 

alternative metal and cost-saving options for all denominations. 

Youth Financial Awareness 

In today' s electronic and digital environment, younger generations are most likely to know 

money through their parents' debit or credit cards. However, coins and paper bills are still the 

most tangible way to lay the foundation for learning about the importance of money. 

7 
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Helping our youth understand the role of coins can be a gateway for financial awareness. 

Helping our youth understand the importance of saving their hard-earned money will better 

enable them to take control of their personal economics and empower their future. 

Mr. Chairman, I thank you for your interest in the mission of the United States Mint. I am 

pleased to answer any questions that you may have. 

8 
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The Economics of Eliminating or Retaining the U.S. Penny 

Robert J. Shapiro 

August2017 

SONECON. 
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Table of Contents 

Executive Sunzmary ............................................................................... 2 

!. Introduction and Sununary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 4 

II. Background: The Character of American Money ............................................ 7 

Ill. Measuring the Costs and Value of Coins in a Modem Currency System ................. 8 

IV. The Debate Over the Metal Composition of U.S. Coins ................................... 14 

V. The Impact of Eliminating the Penny on Coin Recirculation through the Economy ... 18 

VL The Costs to Consumers of Rounding Cash Transactions to the Nearest Nickel ......... 2I 

VIL The Value of the Penny in the American Economy. .... 22 

Vlll. The Costs to U.S. Investors of Eliminating the Penny as a Pricing Unit . . . . . .... .25 

IX. Conclusions . . . . . . . . . . . . . . . . . . . . ..................... 28 

References . 

About the Author 

. ...... 30 

35 
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Executive Summary 

In recent years, some commentators have urged the U.S. government to eliminate the penny, 

based on the costs to produce and distribute the coin and claims that pennies are "more trouble 

than they're worth." This study lound that eliminating the penny would generate large additional 

costs far greater than the costs to produce it, and that American consumers and businesses value 

their ability to conduct cash exchanges in pennies, as well as in nickels, dimes and qum1ers. 

• At 2015 metal prices, it cost 1.4 cents to produce a new penny and 7.3 cents to produce a 

new nickeL At those prices, eliminating the penny and producing more nickels with the 

same combined face value would raise production costs by $5.3 million per year. 

• Global metal prices fluctuate, so we used the low, average and high metal prices for the 

last decade to estimate the cost or savings from eliminating the penny and producing 

nickels with comparable total face value. This shift produced net costs in all cases. 

o Applying the lowest metal prices of the last decade, the shift would produce net 

costs of $1.3 million per year; using the average metal prices of the last decade, 

the shift would produce net costs of $25.1 million per year; and using the highest 

metal prices of the last decade, the shift would produce net costs of $54.4 million 

per year. 

A coin's economic value in a modem cash economy is based not on the price of the metals used 

to produce it, as it was when coins were made of gold and silver, but on its use as a medium of 

exchange. 

Based on the number of consumer cash transactions, the 25-year lifespan of an average 

penny, the average number of pennies received or used in cash transactions and the 

number of pennies in active circulation, we estimate that an average penny turns over 

2.18 times per year or 54.5 times over its useful lifespan. Therefore, the penny's 

economic value as a medium of exchange is 55 cents, compared to its current production 

cost of 1.4 cents. 

At the direction of Congress, the U.S. Mint has assessed how changes in the metal composition 

of American coins might reduce their production costs. 

• The Mint found that there were no alternative metal compositions that could lower the 

cost of producing the pe1my while preserving its usefulness as a medium of exchange. 

• The Mint further found only one alternative composition that could lower the costs of 

producing nickels, dimes and quarters, but the net savings would be very modest 

Most coins exchanged in the United States are used coins recirculating through the economy. 

Coin-counting services that accept and collate excess coins from businesses and consumers and 

sell them to the Federal Reserve account lor 66 percent of all coins recirculated through the 

Federal Reserve and financial institutions. 
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• Pennies play a key role in this process, as they comprise a majority of the coins 

recirculated through coin-counting services. When Canada phased out its penny in 2013, 

the volume of Canadian nickels and dimes recirculated through these services fell 35 

percent 

If the U.S. penny were eliminated, the Mint would have to offset some of any comparable 

net decline in the recirculation of coins by producing and distributing more new coins. 

o At current metal prices, if the Mint offset 25 percent of the reduced volume of 

recirculated coins with new nickels, dimes and quarters, it would cost an 

additional $77 million per year; if the Mint offset 50 percent of that reduced 

volume, it would cost an additional $154 million per year; and if the Mint offset 

75 percent of that reduced volume, it would cost an additional $230 million per 

year. 

o Applying the lowest metal prices of the last decade, offsetting the reduced volume 

of recirculated coins to the same extent as above would still cost tbe Mint an 

additional $60 million to $181 million per year; using average metal prices over 

the last decade, the Mint's additional costs would range from $85 million to $256 

million per year; and using tbe highest metal prices of the last decade, the Mint's 

additional costs would range from $111 million to $334 million per year. 

Eliminating the penny while retaining its use as a pricing unit also would impose new costs on 

consumers, as billions of cash transactions would be rounded up or down to the nearest nickel. 

Based on studies of consumer cash transactions, between 60 percent and 93 percent of 

transactions would involve rounding up the final charge. 

• The rounding up or down of cash transactions to the nearest nickel would cost consumers 

an estimated $438 million to $1.13 billion per year and even more if merchants adopt 

strategic pricing practices to ensure that more transactions are rounded up. 

If the U.S penny were eliminated and its role as a pricing unit also ended, it would impose new 

costs on U.S. retail investors. In 2001, the Securities and Exchange Commission (SEC) directed 

U.S. stock exchanges to quote all prices in pennies rather than in sixteenths of a dollar. 

Researchers fOund that this change lowered investors' trading costs. 

Based on these studies, moving from penny-based pricing of stocks to nickel-based 

pricing would increase the ttading cosL' of retail investors by at least $410 million per 

year. 

Eliminating the penny could cost Americans $909 million to $1.93 billion per year: $1.3 million 

to $54.4 million for nickels to replace the face value of pennies, depending on metal prices; $60 

million to $334 million for the additional nickels, dimes and quarters needed to maintain current 

levels of coin recirculation, depending on metal prices; $438 million to $1.13 billion for the 

rounding up of cash charges to the nearest nickel; and $410 million in new costs for retail 

investors. 
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Finally, American consumers and businesses continue to prove the penny's value as a medium of 

exchange by using it. Based on their demand, the Mint produced I 03 billion new pennies from 

200 l to 2015, and pennies account for the majority of all coins in circulation. 

The Economics of Eliminating or Retaining the U.S. Penny1 

Robert J. Shapiro 

I. Introduction and Summary 

For more than a decade, some commentators have called on Congress to revamp 

American coinage by eliminating the U.S. penny. These advocates note that the penny costs 

more than one cent to produce, claim it has little value in modem commerce, and conclude that 

the United States could save millions of dollars by phasing out its use. This case against the 

penny is based ultimately on the 1 8"'- and 1 9"' -century view of coins as stores of value, because 

coins in those years contained gold and silver, and a government could claim "seigniorage" 

profits by minting coins with face values less than the cost of their precious metals. In modem 

currency systems in the United States and every other nation, conswners and businesses use 

coins (as well as paper currency) purely as mediums of exchange, not as stores of value. 

Moreover, as we will see, economic analysis shows that eliminating the penny as a medium of 

exchange would result in substantial net costs for the government, the economy, consumers and 

investors totaling an estimated $909 million to $1.9 billion per year. 

The circulation of new coins- pennies, nickels, dimes and quarters- is a core function of 

goverrunent. The U.S. Mint estimates the annual demand for new coins and produces and sells 

them at face value to the Federal Reserve. The Federal Reserve resells those new coins to 

commercial banks and thrifts through its 12 regional banks, and those banks and thrifts distribute 

them to businesses and consumers. Most of the coins circulating through the economy, however, 

arc used coins, and the process for recirculating them depends on private entities as well as 

government. Coin-counting services operate at the center of this process. Coin-counting 

technologies throughout the United States accept and separate customers' change and provide 

cash vouchers or gift cards in exchange; they then sell the coins to the Federal Reserve through 

its 12 regional banks or through more than 175 "sanctioned coin terminals" operated by armored 

vehicle companies. (These companies also transport coins to and from commercial banks and 

thrifts for recirculation.) In 2015, the leading firm providing coin-counting services (Coinstar) 

processed some 37 billion coins for recirculation, or more than twice the volume of new coins 

produced by the Mint in that year. The coins recirculated through this process accounted for 66 

percent of all non-new coins handled by the Federal Reserve in 2015 and 51 percent of all coins, 

new and old, received by the Federal Reserve for circulation and recirculation. 

The penny's critics arc correct in one respect: the face value of the penny is less than the 

cost to produce and distribute it. Similarly, the nickel, which would have to replace the penny as 

the smallest-denomination coin, also costs more to produce than its face value. In 20!5, it cost 

1 I want to acknowledge the superb research assistance of Siddhartha Aneja of Sonecon and the support fOr that 

research provided by OuterwalL The views and analyses expressed here are solely those of the author. 

4 
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$130.1 million to produce and slllp new pennies with a combined face value of$93.7 million and 

$109.7 million to produce and ship new nickels with a face value of$80 million. At 2015 metal 

prices, the production of new pennies resulted in net costs of $36.4 million, compared to net 

costs of $29.7 million for new nickels. As noted, the Federal Reserve buys these new coins at 

face value from the Mint, and the Treasury pays or pockets the difference between the price paid 

by the Federal Reserve and the Mint's production costs. Therefore, the production of new 

pennies and nickels in 2015 involved merely transfers of $36.4 million and $29.7 million, 

respectively, in net costs for the Mint to net gains for the Federal Reserve. Moreover, as we will 

see, shifting the production of new pennies to new nickels of comparable face value would also 

produce net losses. 

Since pennies and nickels, along with dimes and quarters, are purely mediums of 

exchange, a coin's economic value is based not on its production costs, but on its face value 

times the number of times it is used or turns over, relative to its costs of production and 

distribution. An average coin lasts 25 years, until it is withdrawn from circulation due to wear 

and tear. There are no studies of how often an average penny is used, so we L'Stimated the 

average turnover of a penny using data on cash transactions, the change that consumers use or 

receive, and the number of pennies in active circulation. On that basis, we estimate that an 

average penny is used in cash transactions 2.18 times per year, or 54.5 times over its useful life. 

A penny's economic value over its lifespan, therefore, is $0.55, compared to the $0.014 it cost in 

2015 to produce a new penny. Adjusting for inflation over the last 25 years, the economic value 

of a penny as a medium of exchange is $0.303, compared to its inflation-adjusted production cost 

of less than eight-tenths of one cent ($0.0077). 

The costs to produce new coins are determined in part by global commodity metal prices. 

fu 20!0, Congress directed the Mint to assess how changes in the metal composition of U.S. 

coins could reduce those production costs. The Mint concluded that there were no alternative 

metal compositions that would reduce the penny's production costs while preserving its 

usefulness as a medium of exchange based on criteria such as hardness, recyclability, toxicity, 

"wear and tear" and its usability in coin-operated technologies. The Mint further found that only 

one alternative met those criteria for nickels, dimes and quarters: an 80120 copper/nickel 

composition. The Mint also found that the annual net savings from adopting the new 

composition would be very small: $3.2 million for nickels, $800,000 for dimes and $1.3 million 

for quarters. 

Global metal commodity prices fluctuate. Since eliminating the penny would make the 

nickel the smallest U.S. coin, we also estimated the costs of shifting from pennies to nickels 

using the lowest, average and highest metal prices from the last decade. Assuming the Mint 

would replace new pennies with increased production of new nickels with the same combined 

face value, we estimate that this shift would produce net losses for the government, ranging from 

$1.3 million (at the lowest metal prices) to $25.1 million (at average metal prices) to $54.4 

million (at the highest metal prices). The only way to reduce total production costs would be to 

shift the production of new pennies to new dimes- but such a shift also would produce shortages 

of nickels for cash transactions and additional costs for consumers as merchants round cash 

charges up or down to the nearest nickel or dime. 
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Eliminating the penny would generate other significant costs. Pennies are the most 

common and frequently used coin, and they account for the largest share of coins recirculated 

through the economy by coin-counting services. Eliminating the penny, therefore, could reduce 

the frequency and volume with which consumers and businesses use those services to recirculate 

other coins. In 2013, Canada phased out the Canadian penny, and this policy reduced the volume 

of five- and 1 0-cent Canadian coins recirculated through coin-counting services by about 35 

percent each. It also reduced the recirculation of25-cent Canadian coins by some 25 percent. 

If the United States eliminated the U.S. penny and the same dynamic occurred here, the 

Mint would have to increase its production of nickels, dimes and quarters in order to maintain 

the current availability of those coins. The Mint might not have to offset all of the reductions in 

the coins recirculating through coin-counting services, since businesses and consumers might 

recirculate some of the "'missing" coins by using more coins in their cash transactions. 

Businesses and consumers also might increase the number of nickels, dimes and quarters 

recirculated each time they used coin-counting services. To account for these responses, we 

estimated the costs if 25 percent, 50 percent or 75 percent of the re-duced volume of coins 

processed by coin-counting services were held back from recirculation at any moment and the 

Mint offset those shortfalls by producing more new nickels, dimes and quarters. At current metal 

prices, the Mint would have to spend $77 million to $230 million per year to offset these 

reductions. Applying the lowest, average and highest metal prices from the last decade, the Mint 

would have to spend, respectively, an additional $60 million to $181 million per year, $85 

million to $256 million per year and $111 million to $334 million per year, respectively. 

Eliminating the penny also would produce large-scale rounding up or rounding down to 

the nearest nickel in billions of cash transactions. In one prominent study, a researcher examined 

the pricing of many thousands of consumer transactions involving one, two or three items to 

determine the distribution of transactions that could be rounded up or down. The author lound 

that 60 percent to 93 percent of those transactions would involve rounding up the final charge to 

the nearest niekel 2 All told, we estimate that this rounding up or down of cash transactions to the 

nearest nickel would cost consumers $438 million to $!.13 billion per year (in 2015 dollars). 

These costs to consumers could be much larger if, as expected, merchants engage in strategic 

pricing to ensure that even more transactions would be rounded up. 

Rounding charges up or down assumes that we could eliminate the penny from 

circulation while retaining its use as a pricing unit. However, history suggests that once a coin is 

withdrawn from circulation, its use in pricing usually declines and finally ends, a.-; seen in the 

1980s when Great Britain withdrew its halfPence from circulation. ln that case, phasing out the 

U.S. penny's use in pricing would impose additional costs on investors in American equity 

markets. In 1997, U.S. stock markets moved from quoting prices in units of one-eighth of a 

dollar to units of one-sixteenth of a dollar; and in 200 l, the Securities and Exchange Commission 

(SEC) directed all U.S. exchanges to adopt "decimalization" and quote all stock prices in 

pennies. Numerous researchers studied the effects and found that this change reduced the spread 

between the prices sellers ask and the prices buyers bid, thereby lowering investors' trading 

costs3 Based on these studies, we estimate that moving to nickel-based pricing for U.S. stocks 

'Lombra (2001). 3 See, for example, Chakravarty, Wood and Van Ness (2004); Fufine (2003); Hillman (2005); Oppenheimer and 

Sabherwal (2003); Bessembinder and Vankataraman (2010); and Angel, Harris and Spatt (2013). 
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would increase the trading costs horne by American retail investors by at least $4 I 0 million per 

year. 

All told, we found that eliminating the penny could cost between $909 million and $1.93 

billion per year: $1.3 million to $54.4 million to produce additional nickels to replace the face 

value of pennies, depending on metal commodity prices; $60 million to $334 million to produce 

the additional nickels, dimes and quarters required to maintain current levels of recirculating 

coins, depending on metal commodity prices; $438 million to $1.13 billion per year for the net 

rounding up of consumer charges to the nearest nickel; and $4 I 0 million per year in additional 

transaction costs for retail investors. 

Finally, the most reliable economic evidence for the value of the penny as a medium of 

exchange comes from how American consumers and businesses use the coin every day. Based 

on actual demand, the Mint produced 103 billion new pennies over the last 15 years, or 56.7 

percent of all new U.S. coins. Given the steady production of an average of 6.87 billion new 

pennies per year from 2001 to 2015, pennies also account for a majority of recirculating used 

coins, and therefore for a majority of all U.S. coins in circulation. This evidence refutes any 

claim that pennies are "worthless" or "more trouble than they're worth" and demonstrates that 

American consumers and businesses value the penny and the ability to conduct their exchanges 

in pennies. 

II. Background: The Character of American Money 

Economists and governments have long debated the character of money and national 

currencies, and whether coins and notes are stores of value or simply mediums of exchange. In 

the 18"' and 19th centuries, this debate involved not only the character of coins and notes, but also 

the nature of economic value itself: is the value of a good or service determined by the costs of 

its inputs and production, or do markets determine value? This larger debate continues today, but 

the character of money is more settled. Since gold and silver coinage ended in the 19th century 

and governments stopped backing up currency with precious metals in the 20th century, coins and 

paper money have been recognized as purely mediums of exchange, rather than repositories of 

value. So today, American coins and the dollar are backed by the full faith and credit of the 

United States government, and nothing else. 

As this brief summary suggests, precious metals comprised or backed up U.S. coins and 

notes for many years. The Coinage Act of 1792 created the U.S. Mint and the legal requirement 

that every U.S. dollar coin contain 371.25 grains of silver4 The Coinage Act also set the value of 

gold at 15 times the value of silver; the $10 eagle coin, for example, had to contain 24.75 grains 

of gold. 5 Coins of lower denominations, including the half dollar, quarter dollar, dime and half 

dime, contained the amount of silver corresponding to their face values under the Coinage Act. 

Similarly, the cent and half-cent coins contained II pennyweights of copper and 5.5 

pennyweights of copper, respectively. In most cases, the government claimed "seigniorage," a 

profit based on the face value of the coins compared to the costs to produce them. 

'U.S. Congress (1792). 5 371.25*]()-3712.5/15-247.5 
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For the first 75 years of the United States, private banks and the Bank of the United 

States issued paper currency. By law, these notes could be converted to gold or silver at an 

exchange rate of 371.25 grains of silver or 247.5 grains of gold !or each U.S. dollar. In practice, 

people could convert their bank notes to gold or silver only at designated places, such as the bank 

that issued the note, and most banks hired agents to distribute their "dollars'' in remote places 

that made redemptions unlikely. In 1862, Congress formally designated the U.S. dollar as legal 

tender in the United States for all debts, to meet financing pressures from the Civil War. This 

move meant that lenders would no longer demand gold or silver, and that the first U.S. paper 

money issued in 1862 was not backed up or convertible to gold or silver. After the Civil War, 

Congress returned the United States to coins and notes composed of or backed by precious 

metals, and the millions of greenbacks issued to help finance the war were withdrawn gradually6 

The United States remained on a gold standard for the next 55 years, with full currency 

convertibility or exchangeability, and all coins above the five-cent piece contained the requisite 

silver. Over much of this period, the banking system was subject to periodic bank runs. In 1913, 

Congress created the Federal Reserve System to serve as a lender of last resort to banks during 

such runs, and to issue Federal Reserve notes as the currency of the United States.7 These notes 

remained redeemable for gold until 1933, when President Roosevelt suspended the gold 

convertibility of American currency by private individuals or entities. For the next 40 years, the 

United States remained on this "quasi-gold standard" under which the value of gold was pegged 

to the dollar, but no person or firm could exchange U.S. dollars for gold8 In practice, U.S. paper 

currency lost any character as a store of value and became purely a medium of exchange. 

The 1933 measures did not address the dollar's convertibility to gold by governments, but 

the 1944 Bretton Woods Agreement recognized the rigbt of foreign governments to convert 

dollars to gold at a fixed exchange rate. For 28 years, the Federal Reserve used gold sales and 

purchases to maintain the established exchange rate or peg. As the rest of the world recovered 

from World War II over those decades, however, the official price of gold became increasingly 

expensive to maintain. Finally, President Richard Nixon halted dollar-gold convertibility by 

foreign governments in 1972. ending the last vestigial role of precious metals in the U.S. 

currency system. 

III. Measuring the Costs and Value of Coins in a Modern Currency System 

Since the supply of new U.S. coins and notes is no longer determined in any way by the 

government's stores of gold and silver, supply decisions fall to the Federal Reserve System and 

the U.S. Mint. The Federal Reserve analyzes the demand for faper bills and submits those 

estimates as print orders to the Bureau of Engraving and Printing. The U.S. Mint detennines the 

supply of new coins based on 12-month forecasts from the Federal Reserve, economic indicators 

and seasonal trends that affect coin demand. The Mint then produces the coins at facilities in 

Philadelphia and Denver, and the Federal Reserve purchases them at face value and distributes 

6 Elwell (2011). 7 Ibid. 

8 Ibid. 

9 Federal Reserve Bank of San Francisco (2013). 

8 
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them to its 12 regional banks. The Federal Reserve's regional banks then circulate the coins to 

financial depository institutions (banks and thrifts). 10 

Most businesses that use substantial amounts of coins and paper currency in their daily 

operations depend on banks and thrifts, which provide circulating coins and notes for their 

customers and accept their excess coins and notes. When financial institutions need more coins 

or currency, they can order them from a regional Federal Reserve Bank; similarly, when these 

institutions hold excess coins or notes, they can deposit their excess inventory at a regional 

Federal Reserve Bank. These regional banks check every coin and note for counterfeits and 

excessive wear and tear, and authentic coins and notes fit for use are returned through the orders 

from financial institutions. Badly wom coins and notes are deemed "uncurrent," shipped to the 

Mint and replaced with new coins and notcs. 11 In 2015, the Federal Reserve's regional banks 

circulated 16.2 billion new coins and recirculated 55.2 billion coins, for a total of 71.4 billion 

coins. The regional banks also collected 55.9 billion coins in 2015 !rom sources such as banks, 

thrifts and coin-counting services; based on a 25-year average lifespan of coins, some 1.68 

billion of these coins were deemed "uncurrcnt" and withdrawn from circulation. 12 

These arrangements represent only part of a larger system for the circulation and 

recirculation of U.S. coins. The Federal Reserve also authorizes more than 175 ''sanctioned coin 

terminals" operated by armored vehicle carrier companies to receive and process orders for coins 

from financial institutions and receive coins from independent coin-counting services. The firms 

that operate the coin terminals also transport the coins, lowering recirculating costs. In a given 

year, some 60 percent of coins handled by the Federal Reserve have been held in coin 

terminals. 13 

As suggested above, the independent coin-counting industry plays a critical role in 

recirculating coins through the U.S. economy. For a small fee, coin-counting services separate 

and count a customer's change and provide a cash voucher or gift card in exchange for the coins. 

For many years, coin-counting companies have been responsible for recirculating more coins 

than the Mint issues in any given year. Moreover, coin-counting services are responsible for a 

majority of the coins recirculated every year through the Federal Reserve. The leading firm in the 

industry (Coinstar) processed and returned for recirculation 37 billion coins with a face value of 

$2.55 billion in 2015, while the Mint circulated 16.2 billion coins worth $1.1 billion. The coins 

recirculated by the largest coin-counting company in 2015, therefore, accounted for 66.2 percent 

ofthe 55.9 billion non-new coins that the Federal Reserve's regional banks received in that year 

from all sources, and for 47.2 percent of their $5.4 billion combined face value (Figure 1, 

below). As noted previously, the Federal Reserve also circulated 16.2 billion new coins in 2015, 

so the leading coin-counting company accounted for 51.3 percent of all coins, new and old, 

received by the Federal Reserve for circulation to the U.S. economy in that year. 

Figure 1: The Volume of Non-New Coins Received and Recirculated 

By the Federal Reserve from Coin-Counting Services and Others (in billions) 

10 Board of Governors of the Federal Reserve System (2016). 11 United States Department of Treasury (2016). 12 Board of Governors of the Federal Reserve System (2016-A). 13 U.S. Government Accountability Office (2008). 
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$45 

$40 

$35 

$30 

$25 

$20 

SIS 

$10 

$5 

$0 

20ll 2012 2013 2014 2015 

•Coinstar 

•Other 

These arrangements for recirculating U.S. coins sharply reduce the need to produce new 

coins. Coins that otherwise might have remained stored in boxes and jars gain additional useful 

life through the exchanges conducted by independent coin-counting companies. More generally, 

the coins recirculated by those companies, as well as by financial institotions and the Federal 

Reserve, preclude the need for the Mint to produce more new coins. Some of the coins processed 

by coin-counting services would make their way back into circulation without those services, and 

some of the coins processed by them, once transferred to the Federal Reserve, are worn too badly 

to remain in circulation. Nevertheless, along with the Federal Reserve, independent coincounting services have come to play a dominant role in the American economy's system for 

circulating cash. It is, as the president of the Royal Canadian Mint recently described it, "a costeffective and efficient way to provide coins to the marketplace." 14 

The Government's Costs to Produce New Coins 

In 2015, the U.S. Mint produced nearly 17 billion new coins, including 9.4 billion 

pennies, 1.6 billion nickels, 3 billion dimes and 2.9 billion quarters, most of which were put into 

circulation through the Federal Reserve (Figure 2, below). The Mint also produced three other 

coins for circulation that have much lower consumer demand - 4.6 million half dollars, 5 million 

Native American dollars, and 40.3 million presidential dollars. 

Figure 2: New Coins Introduced into Circulation, 1991-2015 (in millions)15 

14 Aquino, Christine (2007). 15 U.S. Mint (20!6). 
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~-Penny 

--Nickel 

Dime 

--Quarter 

Over the past 25 years, the production of each of the four common U.S. coins has risen 

and fallen based on fluctuating demand. In 1991, for instance, the Mint circulated 9.9 billion new 

pennies, 1.1 billion new nickels, 1.6 billion new dimes and 1.3 billion new quarters. By 2000, the 

Mint had increased the production and circulation of new pennies by some 38 percent to 13.7 

billion, while the number of new nickels rose 1 1 8 percent to 2.4 billion; the number of new 

dimes more than doubled to 3.9 billion; and the number of new quarters increased nearly fivefold to 6.2 billion. By 2015, the number of new coins circulated had fallen to 9.2 billion pem1ies, 

1.5 billion nickels, 2.9 billion dimes and 2.6 billion qumters. The Mint also produces gold, silver 

and platinum bullion coins for investors, which arc not circulating tender, as well as specialty 

products for collectors such as commemorative coins and medals. 16 

In recent years, the government's costs to produce and distribute new pennies and nickels 

have exceeded their face values, while the costs to produce and distribute new dimes and 

qum1ers have remained less than their face values. In 2015, it cost the U.S. Mint $130.1 million 

to produce new pennies with a total face value of$9!.6 million and $109.7 million to produce 

new nickels with a total face value of$73.8 million. The face value of new pennies equaled 70.4 

percent of their total cost of production and shipment, and the face value of new nickels equaled 

67.2 percent of their total costs. In contrast, the cost of new dimes with a total face value of 

$287.3 million came to $101.6 million, and the cost of new quarters with a total face value of 

$661.3 million came to $223.2 million. Most of these costs represent materials and production 

(Table 1, below). 

Table 1: Numbers and Costs of New Pennies, Nickels, Dimes and Quarters, 2015 (in millions) 17 

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The gaps between the face value and the costs of producing coins recall traditional 

notions of '"seigniorage," under which governments secured "'gains" when the face value of a 

coin exceeded the value of its precious metal content and ''losses'· when a coin's precious metal 

content was worth more than its face value. In those antiquated terms, the current gaps imply that 

the U.S. government "loses·· $0.0043 per penny and $0.0244 per nickel and "gains" $0.0654 per 

dime and $0.!669 per quarter. In practice, the Federal Reserve buys the new coins at their face 

value from the Mint and circulates them, and the Treasury Department pays or pockets the 

difference between the price the Federal Reserve pays lor the coins and the costs the Mint bears 

to produce them. So, the cost and price differences tor pe1mies and nickels do not represent 

seigniorage "losses" for the Mint and seigniorage "gains" for the Federal Reserve; nor do the 

costs and price diffCrences for dimes and quarters represent seigniorage "gains" for the Mint and 

''losses" for the Federal Reserve. Rather, in modem currency systems, here and in every country 

in the world, these gains and losses are simply matters of government transfers and accounting. 

As such, they demonstrate that a seigniorage-based perspective focused on the costs to produce a 

coin compared to its face value is irrelevant to issues involving modem coins and notes. 

111e Value Proposition of U.S. Coins as 1\fediums of EXchange 

U.S. coins, properly understood, are purely mediums of exchange. As such, their 

economic value is based not on the ratio of their face values to their costs of production and 

circulation. but rather on their !Uce values times the number of times each coin is used, relative to 

their costs of production and distribution. Coins circulate between consumers and retailers, and 

coin-counting services and other institutions with excess coins return them to a regional Federal 

Reserve Bank or sanctioned coin terminal, which then recirculates them to financial institutions 

or. if they're badly damaged, returns them to the Mint. Each time a coin is used, it offsets the 

need for a new coin; and as noted previously, U.S. coins are used for an average of about 25 

years before being melted down. 18 At the same time, the Mint has to produce large numbers of 

new coins every year, because the economy grows larger, and because substantial percentages of 

all ''circulating" coins at any given time are held in Federal Reserve regional banks and 

commercial banks, as well as in private caches in households and business establishments, and 

are thus unavailable for cash transactions. 

The economic value of a penny as a medium of exchange depends on how many times it 

is used in cash transactions over the coin's lifespan. There are no economic studies on how many 

times each year an average coin is used or, in economic terms, the ''monetary velocity'' of 

coins. However. we can estimate the number of times an average penny is used by dividing the 

total number of pennies spent in cash transactions over one year by the number of pennies in 

"u.s. Mint(2016) 

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active circulation, multiplied by the average penny's lifespan of 25 years. The Federal Reserve 

reports that in 2012, consumers participated in 122.4 billion non-cash transactions (paying by 

credit card, debit card, checks and electronic transfers), 19 and that cash transactions accounted for 

40 percent of all transactions20 Therefore, there were 204 billion consumer transactions in 2012, 

including 81.6 billion cash transactions.21 ln any given cash transaction, consumers could use or 

receive in change zero permies, one penny, two pennies, three pennies or four pennies; therefore, 

the average cash transaction involves two pennies. Consequently, we estimate that the 81.6 

billion cash transactions in 2012 involved the exchange of 163.2 billion pennies. 

As noted above, a majority of pennies and other coins at any given time are held by 

Federal Reserve regional banks, commercial banks and thrifts, sanctioned coin terminals, cashcounting services and the private caches of individuals and businesses. The Director of the U.S. 

Mint estimated in 1999 that just one-third of all pennies in use at that time were in active 

circulation at any moment.22 The Mint produced 224.7 billion pennies in the 25 years leading up 

to 2012,23 and based on the Director's estimate, we calculate that at any given time in2012, 74.9 

billion pennies were in active circulation. Since we found that cash transactions in 2012 involved 

the exchange of 163.2 billion pennies, we can estimate that the average penny in circulation in 

2012 was used 2.18 times in that year, and 54.5 times over its useful lifespan. The economic 

value of an average penny as a medium of exchange, therefore, is about $0.55, or more than 38 

times the current cost to produce and distribute a petmy. Adjusting lor inflation over 25 years 

(1990-2015), the economic value of each penny produced by the U.S. Mint, as a medium of 

exchange, is $0.303, compared to its inflation-adjusted production and distribution costs in 1990 

ofless than eight-tenths of one cent ($0.0077). 

Contrary to a seigniorage framework, this analysis, based on the current character of 

coins as mediums of exchange, shows that the U.S. economy gains substantially from the 

production of pennies and all other common coins. Table 2, below, presents these calculations 

for the penny, again assuming 2.18 turnovers per year and a 25-year lifespan. 

Table 2: The Economic Value ofthe U.S. Penny as a Medium of Exchange Over 25 Years 

Value Per Unit Cost Per Unit Adjusted 

Adjusted for Inflation for Inflation 

The 25-year useful lifespan of U.S. coins also produces large savings for the U.S. 

government and economy, compared to the roughly six-year useful lifespan of a U.S. one-dollar 

bill. If coins had the durability of the one-dollar bill, the Mint would have to replace each coin 

more than four times over 25 years. Using the production costs of new coins in 2015, we can 

19 Gerdes, Liu, Berkenpas, Chen eta!. (2013). 20 Bennett, Conover. O'Brien, and Advincula (20 14). 21 This is consistent with an academic estimate of between 54 billion and 88 billion cash transactions in 2000. 

Lombra, Raymond (2007). 12 Tierney, John (1999). 23 The public data on penny production begin in 1990, so we impute penny production in 1989 and 1988 based on 

the average from 1990 to 2012. 

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calculate the savings derived from the 25-year useful lifespan of coins, compared to fhe costs if 

each coin had fhc six-year useful lifespan of the U.S. dollar. Table 3, below, presents those 

calculations. 

Table 3: Savings from the 25-Year Useful Lifespan of U.S. Coins, 

Compared to the Six-Year Useful Lifespan of U.S. Paper Currency 

Number of 

Coins over 25 

Years (billions) 

Total Costs 

Over 25 Years 

(millions) 

Costs Over 25 

Years if Coins 

Lasted Six Years 

millions) 

Savings Over 25 

Years (billions) 

$10,184.85 

$7,244.96 

Annual 

Savings 

(millions) 

.:$407.39 

$289.80 

As noted above, in 2015 it cost the U.S. Mint $130.1 million to produce and distribute 

new pennies, $109.7 million to produce and distribute new nickels, $101.6 million to produce 

and distribute new dimes and $223.2 million to produce and distribute new quarters. Therefore, 

the annual production and distribution savings from the 25-year useful lifespan of pennies, 

compared to the six-year useful lifespan of paper currency, is $407.4 million, or 3.1 times the 

cost to produce and distribute all new pennies in 2015. The ratios for the three other common 

coins arc somewhat smaller. The annual savings from the long useful lifespan of nickels is 

$289.8 million, nearly 2.6 times the cost of new nickels in 2015; the annual savings for dimes is 

$239.3 million, or 2.4 times fhe cost to produce dimes in 2015; and the annual savings for 

quarters is $583 million, or 2.6 times the cost to produce new quarters in 2015. 

This analysis is consistent with studies by the Congressional Budget Office (CBO), fhe 

General Accountability Oftice (GAO) and the Federal Reserve on the potential savings from 

shifting from the dollar note to a dollar coin. 24 All three studies concluded that the longevity of 

coins produced large savings. Our turnover analyses and fhe government studies also all establish 

that seigniorage is an outdated metric for measuring the value of and gains or losses from 

producing and using modern forms of money that are not stores of value but purely mediums of 

exchange. 

IV. The Debate Over the Metal Composition of U.S. Coins 

Total coin production costs are based on metal prices, production costs, overhead costs 

and production volume. In 2010, Congress enacted the "Coin Modernization, Oversight, and 

Continuity Act," which directed the U.S. Mint to evaluate the costs to produce U.S. coins, based 

24 The three government studies produced varying conclusions, based on differing assumptions. The GAO and CBO 

analyses concluded that shifting to a one~dollar coin would produce significant while the Federal Reserve 

study took a broader view of economic costs and found that shifting to a dollar could increase costs to the 

economy. See Blum, James (2011); Lambert, Ferrar, and Wajert (2013); and U.S. Government Accountability 

Office (2014). 

14 I 

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on commodity metal prices and the costs and benefits of shifting to alternative metals.25 

Currently, the penny is composed of97.5 percent zinc and 2.5 percent copper, while the nickel is 

composed of 75 percent copper and 25 percent nickel; the dime and quarter are both claddcd 

coins that contain about 92 percent copper and 8 percent nickel. In response to the 2010 Act, the 

Mint established first tbat there is no alternative metal composition that would significantly 

reduce the costs of producing the penny while preserving its usefulness as a medium of 

exchange. The Mint also considered 29 different metal compositions for nickels, dimes and 

quarters (Phase I) and identified six of these new metal compositions for further analysis (Phase 

II). The new metal compositions for Phase II tests were evaluated on various criteria including 

hardness, conductivity, recyclability, toxicity, ability to handle "wear and tear'' and ability to be 

used efficiently by coin sorters26 

The Mint found that six new metal compositions could reduce the costs of producing 

dimes, nickels and quarters, but tbat none of them represented practical alternatives. Only one of 

the tested new compositions, the 80/20 copper-nickel alternative, was found to be a "seamless 

material" that would have little impact on industries that rely on coin-operated technologies, such 

as vending machines. The other five new compositions \vcre "co-circulate materials," which, 

while possibly suitable as circulating mediums of exchange, had different weights and/or 

electromagnetic signatures (EMS) from current coins. As such, they could not be used in currently 

configured coin-operated equipment that validates the unique weight and EMS of coins to 

determine whether they are authentic or counterfeit. (TI1e Mint estimated that shifting to tbe cocirculate materials would cost industries that rely on coin-accepting technologies $2.4 billion to 

$6 billion. )

27 Finally, the Mint found that the only seamless alternative would produce very small 

annual production savings of just $3.2 million for nickels, less than $800,000 for dimes and less 

than $1.3 million for quarters. In 2015, the GAO published a report that raised some questions 

about the Mint's estimates. The GAO noted that all vending machines might not have to be 

updated if only the metal composition of nickels and dimes changed, and questioned the Mint's 

estimates of the number of coin-operated technologies. The GAO did not dispute the small 

savings from changing the composition of the coins to the only seamless alternative.'" 

11ze Impact of Commodity Prices on the Costs of Producing U.S. Coins 

Given the Mint's findings, it seems certain that the metal composition of the penny will 

not change and highly unlikely fhat tbe composition of the other three common coins will 

change. Nevertheless, a number of commentators continue to argue that continuation of the 

penny, given its composition, imposes unacceptable costs on U.S. taxpayers. In practice, the 

costs to produce the penny and the three other common coins fluctuate substantially, based 

primarily on the prices of metals set by global commodity markets. 

Mint (2014), Appendix A. 

The Mint further found that two of the co-circulate materials failed other Phase IT tests. The remaining three cocirculate materials (nickel-plated steel, multi-ply plated steel and stainless steel) produced annual savings equal to 

less than one percent of the costs to industries using coin-based technologies. Ibid. 8 U.S. Government Accountability Office (2015). 

15 
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The cost of producing a penny has varied from about $0.014 per unit in 2006 to $0.025 

per unit in 2011. However, a decision to phase out the use of pennies would also involve 

increased production of nickels, and the cost to produce nickels has varied from $0.067 in 2009 

to $0.118 in 2011 (Figure 3, below). Meanwhile, the cost of producing the dime has varied from 

$0.062 in 2009 to $0.035 in 2015, and the cost of producing the quarter has varied from $0.139 

in 2010 to $0.084 in 2015. Based on production costs, therefore, the approach used by critics of 

the penny implies that the United States should abandon both nickels and pem1ies and move to 

cash transactions based solely on dimes, quarters and paper currency. 

Figure 3: Unit Costs to Produce Common U.S. Coins, 2006-2015 

2008 2009 2010 2011 2012 2013 2014 2015 

~~Penny 

--Nickel 

Dime 

If we consider proposals to eliminate only the penny, that change also would impose 

substantial costs on the government and the economy. For example, the production of nickels, 

and perhaps dimes and quarters as well, would have to increase, and the cost of cash transactions 

would have to be set or rounded up or down to the nearest nickel. To evaluate these costs, we 

begin with the rising and falling of global commodity prices for the metals used to produce U.S. 

coins. (The costs to produce and distribute U.S. coins, apart from the prices of their constituent 

metals, are unlikely to change significantly in the foreseeable future.) Figure 4, below, graphs the 

costs to produce the four common U.S. coins based on the lowest, average and highest 

commodity prices for the metals comprising those coins over the last 10 years. 

Figure 4: Lowest, Average and Highest Unit Costs to Produce U.S. Coins, 

Based on Global Commodity Metal Prices, 2006-201529 

29 The World Bank (2016); and U.S. Mint (2016). 

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$0.14 

$0.12 

$0.10 

$0.08 

$0.06 

$0.04 

$0.02 

$0.00 

Penny Nickel Dime Quarter 

iW Low A'\'cragc \®High 

Based on the lowest, average and highest metal prices over the last decade, and assuming 

that other production and distribution costs remain the same as in 2015, the cost to produce a 

penny in the future would range from $0.011 (lowest) to $0.014 (average) to $0.02 (highest), a 

range of 81.8 percent. The cost to produce the nickel in the future would range from $0.058 

(lowest) to $0.085 (average) to $0.128 (highest), a range of 120.7 percent. Dimes and quarters 

have the same metal composition, so their ranges are comparable: the cost to produce a dime in 

the future would range from $0.028 (lowest) to $0.038 (average) to $0.046 (highest), or a range 

of 64.3 percent, while the cost to produce a quarter in the future would range from $0.066 

(lowest) to $0.092 (average) to $0.111 (highest), or a range of68.2 percent. 

Based on these ranges, the production costs for new coins can and do vary substantially. 

Using the quantity of new pennies, nickels, dimes and quarters produced in 2015, the costs to 

produce pennies in the future could range from $107 million to $184.5 million (Table 4, below). 

Similarly, the costs to produce new nickels in the future could range from $92.5 million to 

$205.1 million. As expected, the range is less for producing new dimes and quarters in the future, 

from $85.6 million to $139.3 million for dimes, and from $198.9 million to $330.7 million for 

quarters. 

Table 4: Range of Total Production Costs for New Coins, Based on 

Varying Global Metal Commodity Prices and 2015 Production Levels (in millions)30 

30 The World Bank (2016); and U.S, Mint (2016). 

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The Net Cost'> and Savings qf Eliminating the Penny, Based on .Metal Prices 

As noted above, commentators who call for elimination of the penny~ writing in outlets 

from the Wall Street Journal to the website Slate, argue that since the Treasury "loses" money on 

producing pennies, the government should eliminate the coin. 31 To begin, eliminating the penny, 

as noted earlier, will require increased production costs for other coins, especially nickels. To 

analyze the net costs, we begin with 2015 commodity metal prices and the coin's production 

costs. In 2015, tbe Mint produced 91,550,000,000 pennies with a combined face value of$91.55 

million. If the Mint eliminated new pennies and replaced their combined face value with nickels 

-an additional 1,831,000,000 nickels with a combined face value of$91.55 million- it would 

save $130.92 million in penny production costs but cost an additional $136.23 million in 

expanded nickel production costs. This shift, therefore, would produce a net loss of$5.31 million 

(Table 5, below). 

To generate a net gain while eliminating the penny, the Mint would have to shift 

production of pennies to dimes. The production of an additional 915,500,000 dimes with a total 

face value of $91.55 million would save $130.92 million in penny production costs, while the 

production of the additional dimes would cost $32.41 million, resulting in a net gain of $98.5 

million. However, this shift also would lead to a shortage of nickels for change in cash 

transactions, forcing the Mint to produce more nickels at an additional cost, and imposing 

signiiicant consumer costs from rounding up to the nearest dime. 

Table 5: Annual Costs or Savings from Elimin~~ing the Penny, 

Based on 2015 Production Costs· 

We also applied the lowest, average and highest metal prices over the last decade to the 

analysis of the costs of eliminating the penny. Under a scenario in which the production of 

31 McGinty (2014); and Yglesias (2012). 3

:! Ibid. 

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pennies is replaced by increased production of nickels with the same combined face value, the 

net costs range from $1.3 million at the lowest metal prices, to $25.1 million at average metal 

prices and $54.4 million at the highest metal prices (Table 6 below). In short, all reasonable 

scenarios for replacing pennies with nickels would cost the Mint more than it would to retain the 

pc'llny. Again, the only way to save production costs would be to shift the total face value of all 

new pennies to new dimes. The net gains in that case would range from $78.8 million (at the 

lowest metal prices) to $97 million (at average metal prices) and $138.5 million (at the highest 

metal prices). However, as noted above, a shift from pennies to dimes would produce a nickel 

shortage for cash transactions and substantial consumer costs from rounding up or down to the 

nearest dime. 

Table 6: Annual Costs or Savings from Eliminating the Penny, 

Based on Lowest, A vcrage and Highest Metal Commodity Prices, 2006-201533 

V. The Impact of Eliminating the Penny on Coin Recirculation through the Economy 

The analysis above does not consider how the elimination of the penny would affect the 

rate at which nickels, dimes and quarters recirculate through the economy. As noted earlier, coincounting services play a major role in the recirculation of U.S. coins. Coins channeled through 

the leading coin-counting service alone account fbr nearly two-thirds of all non-new coins and 

more than half of all coins, new and old, circulated and recirculated by the Federal Reserve 

System. Measures that adversely affect these arrangements for the recirculation of coins through 

the U.S. economy would also generate additional costs, by requiring the minting of more new 

coins. 

The elimination of pennies would almost certainly impair the current system for 

recirculating coins through its impact on coin-counting services. As the most common U.S. coin, 

pennies account for the largest share of the coins recirculated through independent coin-counting 

companies. Consider the individuals and businesses that use coin-counting services to carry out 

exchanges when their receptacles for spare coins reach a certain level. Since that process is 

driven by pt.'nnies as the most common coin, withdrawing the penny from circulation would 

likely reduce the frequency with which individuals and businesses recirculate their coins through 

coin-counting services, which in tun1 would reduce the volume of coins recirculating through the 

cash economy. 

The potential dimensions of this effect were demonstrated when the Royal Canadian Mint 

ended production of the Canadian penny in 2013 and began the process of removing them from 

the economy. As expected, the volwne of coins handled by independent coin-counting services 

fell substantially, including the volume of nickels, dimes and quarters, as well as pennies. Based 

on the Canadian experience, the elimination of the U.S. penny could reduce the volume of 

"The World Bank (2016); U.S. Mint (2016). 
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nickels and dimes recirculated through coin-counting services by 35 percent each, and the 

volume of quarters handled by those services by 25 percent. 34 To maintain the current 

availability of coins, such large reductions in the coins recirculated through coin-counting 

arrangements would have to be off,et by increased coin production by the Mint. 

The Mint would not have to offset all of the coins held back if the penny were eliminated 

and people and businesses turned in their accumulated change less frequently. Some of those 

"missing" coins would be used in other cash transactions, and the volume of nickels, dimes and 

quarters returned in each less-frequent coin-counting exercise would likely increase. On balance, 

however, eliminating the penny would increase the volume of coins held back at any given time 

and hence make them unavailable for recirculation; and ultimately, tbe Mint would have to 

respond to these implied shortages of nickels, dimes and quarters. Table 7, below, presents 

estimates of the volume of nickels, dimes and quarters beld back from circulation by a slowdown 

in coin-counting associated with the elimination of the penny. These estimates are based on the 

impact of the elimination of the Canadian penny on the volume of other coins handled by 

independent coin-counting services, and the assumption that 75 percent, 50 percent or 25 percent 

of these reduced volumes of coins are held back from circulation at any given moment. 

Table 7: Estimated Number of Nickels, Dimes and Quarters Held Back from Circulation 

By a Slowdown in Coin-Counting Arising from the Elimination of the U.S. Penny (in millions} 

This analysis shows that eliminating the U.S. penny would likely affect the recirculation 

of nickels, dimes and quarters through the economy by reducing the use of independent coincounting services. The estimated reductions in the volume of coins recirculated from coin~ 

counting services to the Federal Reserve and then through to the economy range from 357 

million to 1.07 billion nickels, 538 million to 1.61 billion dimes and 370 million to 1.11 billion 

quarters (Table 7 above). 

These substantial reductions in recirculating coins would force the Mint to produce 

additional coins at additional costs. At current metal prices, the Mint would have to spend $230 

million to produce additional new coins if 75 percent of the reduction in coins recirculated 

through independent coin-counting services remained out of circulation at any given time. 

Similarly, the Mint would have to spend $154 million if 50 percent of this reduced recirculation 

of coins remained out of circulation and $77 million if 25 percent of this reduced recirculation of 

coins remained out of circulation (Figme 5, below). The impact of eliminating the penny on the 

volume of coins recirculating through the economy, therefore, would impose large additional 

costs. 

-'4 Coinstar (20 15), 

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Figure 5: Costs for the U.S. Mint to Produce Additional Coins Ifthe Elimination of the Penny 

Slows the Recirculation of Coins by Reducing the Use of Independent Coin-Counting Services 

$400 

$350 

$300 

$250 

$200 

$150 

$100 

$50 

$0 

Current prict>s 10-year low 10-ycar average 

We also conducted this analysis using the lowest, average and highest global metal 

commodity prices from the last decade. Table 8, below, depicts the range of costs to produce the 

additional coins needed if, a'i expected, the elinllnation of the penny reduces coin recirculation 

through the coin-counting industry. For each price point, we present the range of estimated costs 

for the Mint, based on whether 75 percent, 50 percent or 25 percent of the expected reduction in 

coin recirculation by coin-counting services remained out of circulation. These costs range from 

$60 million (25 percent of the reduced recirculation remains out of circulation, based on the 

lowest metal prices of the last decade) to $334million (75 percent of the reduced recirculation 

remains out of circulation, based on the highest metal prices of the last decade). There is no 

scenario in which eliminating the penny produces net savings. 

Table 8: Costs to the Mint to Produce Additional Coins to Offset the Impact 

On Coin Recirculation ~·rom the Reduced Use of Coin-Counting Services (in millions) 

VI. The Costs to Consumers of Rounding Cash Transactions to the Nearest Nickel 

Wben Congressman Jim Kolbe proposed the "Currency Overhaul for an Industrious 

Nation (COIN) Act" in 2006, it directed not only that the Mint stop producing new pennies, but 

also that all cash transactions would be rounded up or down to the nearest nickel. 35 This 

approach was also adopted in the program enacted in Canada in 2012. Under The Canadian 

35 Zappone (2006). 

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Economic Action Plan, the Royal Canadian Mint stopped the production and distribution of new 

pennies on February 4, 20!3. While the Canadian penny remained legal tender, merchants were 

encouraged to round all fmal cash transactions up or down to the nearest $0.05. 36 This approach 

was based on the view that Canada could reduce its coin production costs by eliminating new 

pennies and, since the penny would remain a pricing unit, there would be no negative effects on 

consumers or the economy. In practice, this approach entails significant, unintended costs. 

Congressman Kolbe and the authors of Canada's program were correct in one respect: 

retaining the penny for pricing purposes while eliminating it from circulation involves largescale rounding up or rounding down to the nearest nickel on billions of cash transactions. 

Economists have analyzed the likely distribution of such rounding adjustments, between those 

rounded up and those rounded down. The leading study examined pricing by a major 

convenience store chain in 1999 and 2000. Using actual prices, the researcher simulated l ,000, 

5,000 and l 0,000 different transactions involving purchases of one, two or three items, and found 

that between 60 percent and 93 percent of those transactions would involve rounding up to the 

next nickeL 37 As a result, the author concluded that the rounding up and rounding down of all 

cash transactions to the nearest nickel would create additional costs for U.S. consumers totaling 

$318 million to $818 million in 2000, or in 2015 dollars, consumer losses of $438 million to 

$1.!3 billion. Even the low estimate of $438 million is more than three times the total cost of 

producing all new pennies in 2015 ($130.1 million) and more than four times the theoretical 

production savings from eliminating the penny and shifting the equivalent total face value to 

dimes.38 

Moreover, this analysis almost certainly emderstates the additional costs to American 

consumers from eliminating the penny, because many firms would engage in strategic pricing to 

increase their revenues by ensuring that more transactions would be rounded up. Economic 

theory and evidence establish that firnas set prices to maximize their profits, aud we should 

expect that merchants dealing with large volumes of cash transactions would approach the 

elimination of the penny as an opportunity to do that, especially in high-volume, low-margin 

industries. For example, gasoline stations often price their products in denominations of fractions 

of one cent and round up the final charge; one study estimated that gasoline providers earn an 

additional $200 million to $400 million per year from this process. 39 

These consumer costs !Tom rounding up to the nearest nickel would also fall 

disproportionately on lower-income households. When Canada eliminated its penny, electronic 

payments with credit cards, debit cards and checks continued to be denominated in pennies, 

without rounding to the nearest nickel. A study from the Federal Reserve Bank of San Francisco 

found that 55 percent of people living in households with annual incomes of less than $25,000 

prefer cash to other fom1s of payment, compared to 10 percent of those living in households with 

36 Royal Canadian Mint (2012). 37 Lombra (200 1 ). 38 One researcher criticized Lombra's study for failing to take account of sales taxes and argued that his own 

analysis of transactions in seven states with sales taxes found little evidence of net rounding up or rounding down 

(Whaples 2007). In Lombra's response, he noted that many states, including the ten largest states, do not charge 

sales tax on food, the most common cao;h item. Lombra further found that after applying sales taxes of 3 percent, 5 

percent and 7 percent, consumers were still subject to a rounding tax (Lombra 2007). 

'

9 Gephard (2015). 

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annual incomes of more than $200,00040 The study further found that lower-income people use 

cash for about 57 percent of their purchases, compared to 33 percent of transactions by highincome people. The cost of rounding up is at most $0.02 per transaction, hut those costs would 

accumulate much faster among lower-income people least able to afford it 

This dynamic would also disproportionately affect younger people, as they are more 

likely to use cash for their purchases as welL The San Francisco Federal Reserve Bank study 

found that 40 percent of people ages 18 to 24 prefer using cash to other payment methods, 

compared to 25 percent of those ages 55 to 64 and 65 and older. Furthermore, people ages 18 to 

24 use cash for about 48 percent of their purchases, compared to 40 percent of the purchases 

made by people ages 55 to 64 and 36 percent of purchases made by people ages 65 and older. 41 

Given these dynamics, it is also likely that some merchants would restrict electronic 

payments, especially in high-volume, low-margin businesses. Under current law and regulation, 

merchants can set a $10 minimum for credit card transactions, but minimums arc not permitted 

lor debit card transactions. In practice, many merchants do apply minimums to debit card 

purchases: a survey by the Federal Reserve Bank of Richmond of 420 merchants across 26 

different sectors found that 29 percent of them used debit card minimums42 Since eliminating 

the penny would increase the potential profits from cash transactions, it also would likely 

increase merchants' use of restrictions on electronic payments to avoid cash, and thereby reduce 

the economic benefits associated with such payrnents.43 

VII. The Value of the Penny in the American Economy 

Apart from cost issues, advocates of eliminating the penny often claim that the coin is 

virtually worthless as a unit of exchange. The home page of "Citizens to Retire the Penny,., an 

organization devoted to "educating the public on the advantages of retiring the penny from 

general circulation," is entitled, "What can you buy with a penny""44 The best evidence for the 

value of the penny as a medium of exchange comes from its actual use. To begin, surveys find 

that most Americans value the penny. A 2012 poll by the Opinion Research Corporation found 

that 67 percent of respondents favored keeping the penny in circulation and 66 percent opposed 

eliminating it and establishing a price rounding system. 45 These lindings echoed those from a 

2006 Gallup survey, which also found broad support for the penny especially among lower- and 

moderate-income Americans: 65 percent of those earning less than $30,000 per year saw the 

penny as useful, compared to 44 percent of those earning more than $75,000 per year.46 Since 

access to electronic forms of payment such as credit and debit cards increases with income, the 

survey showed that those who depend most on the cash economy also view the penny as most 

useful and valuable47 

4

° Federal Reserve Dank of San Francisco (2014), 41 Ibid. 42 Wang, Schwartz, and Mitchell {2014). 43 Chakravarti, Sujit (2003). 44 Citizens to Reti~e the Penny (2016). 45 Americans for Common Cents (2012). 46 Gallup Organization (2006). 47 The value of pennies also is evident in the practices of many charities. For example, Habitat for Humanity 

branches throughout the United States usc penny drives to raise funds for affordable housing, as do many schools 

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More compelling evidence for the value of the penny as a medium of exchange comes 

from how frequently consumers and businesses use the coin. Earlier, we estimated that an 

average penny is used in cash transactions some 55 times over its lifespan. Furthermore, the U.S. 

continues to produce billions of new pennies year after year, even as most monetary transactions 

have migrated to electronic fonns. In fact, the Mint produces far more pennies than any other 

coin. From 2001 to 2015, the Mint produced 6.4 times as many pennies as nickels, 3.4 times as 

many pennies as dimes and 3.2 times as many pennies as quarters (Table 9, below). As a result, 

56.7 percent of all new coins produced by tbe Mint in this period were pennies, compared to 

nickels (8.9 percent), dimes (16.8 percent) and quarters (17.7 percent). If businesses and 

consumers did not lind pennies useful, the Mint would not have produced nearly I 03 billion of 

them over the last 15 years. 

Table 9: Annual Production of New Coins by the U.S. Mint, 2001-2015 (in millions) 

The Federal Reserve System does not publish comparable data on the distribution of 

coins, by type of coin, recirculated every year through Federal Reserve regional banks, coincounting services, sanctioned coin terminals and commercial banks and thrifts. Given the steady 

production of the penny, averaging 6.87 billion new pennies per year from 2001 to 2015, it is 

certain that pennies also account for a majority of the coins recirculated, and therefore a majority 

of all coins in circulation through the U.S. economy at any given time. If American businesses 

and consumers found pennies to be "worthless" or simply "more trouble than they're worth," the 

penny would gradually decline as a circulatiog medium of exchange. The evidence, however, 

refutes that claim and demonstrates that within the U.S. cash economy, consumers and 

trying to fund their extracurricular activities (Habitat for Humanity (2012). Similarly, the Leukemia and Lymphoma 

Society ha'> collected more than $150 million in pennies (15 billion) through its "Pennies for Patients" campaign 

(Americans for Common Cents (2016), and Panda International's efforts to ensure the survival of giant pandas 

includes a "Pennies 4 Pandas" program to enlist the participation of children (Pandas International 2016). 

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businesses find value in the U.S. penny and their ahility to conduct exchanges in units of a 

hundredth of a dollar. 

A Response to the Latest Call to Phase-Out the Penny 

In March 2017, the "Coin Dollar Alliance" a coalition of trade associations and other 

groups, issued a study claiming that taxpayers could save billions of dollars (over 30 years) by 

switching ffom the dollar note to the dollar coin, ending the production of the pelllly, and 

changing the metal composition of the nickel 48 The authors' arguments, especially regarding 

the pelllly, seem skewed and methodologically flawed. For example, the authors use 

international comparisons only when it serves their conclusions: They note that other major 

countries have replaced or supplemented their lowest denomination paper note with a 

corresponding coin; yet they fail to mention that the same countries continue to usc small 

denomination coins akin to our penny-- from the Euro·s one-cent piece worth about one U.S. 

penny. and Japan's one Yen coin worth about nine-tenths of our penny, to China's one-Fen coin 

worth one-tenth of the Chinese one-Jiao coin, which in turn is worth about 1.6 U.S. cents. Every 

major economy continues to find economic value in producing and using small denomination 

coins. 

When the study's authors turn to the penny, they note that the U.S. Mint increased its 

production of pennies by 58 percent from 2012 to 2016 and ask, incredulously, "Do you, or 

anyone you know, want 58% more pennies than four years agoT' The authors know the answer 

but chose not to share it: The U.S. Mint produces the numhers of pennies, nickels, dimes, 

quarters and paper notes it docs, based on demand from financial institutions tracked by the 

Federal Reserve. 

The study's most glaring methodological flaws involve its curious treatment of costs and 

inflation. "It is important to remember," the authors assert, that "the cost of [producing and 

distributing] money increases over time, but the value of that money stays constant.'' That is 

simply false. The costs of producing pennies, nickels, dimes and quarters are very sensitive to 

shifts in the prices of the metals used to produce them; and the price of zinc, the main component 

of pennies, varied over the last 10 years from a high of $1.61 per pound to a low of 50.5-cents 

per pound, and ended June 2017 at $1.17 per pound. 49 Despite the regular and substantial 

fluctuations in zinc prices, the study pumps up its undocumented estimate of $1 billion in "losses 

to taxpayers" from producing pennies over the next decade by starting with a per-penny cost of 

1.64-cents that reflected high zinc prices, rather than the latest cost reported hy the Mint of 1.4-

cent. The authors compound that error by assuming that those costs will only go higher, year 

after year-- to be precise, by 3 percent per-year for a decade. In fact, an analysis of the monthly 

changes in actual spot zinc prices from June 2007 to June 2017 finds that the average monthly 

change was not an average increase of 0.25 percent (3 percent I 12 months) hut an average 

decline ofO.ll percent50 

They further compound their mistakes by ignoring the fact that if the Mint ends penny 

production, demand will increase for nickels as the smallest denomination coin widely available 

48 Klein and Hoagland (20 17). 49 Index Mundi (2017). "Zinc Prices." 50 Ibid 

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- and so they omit the additional cost of producing more nickels. As we saw, replacing pennies 

with nickels with the same combined face value - so the Mint would produce one additional 

nickel for every five pennies it no longer produced- yields a net loss whether we use the low, 

average or high metal commodity prices of the last decade. The ten-year net cost would range 

from $13.3 million (low) to $250.7 million (average) to $544.2 million (high). (Sec Table 6. 

above) 

To be sure, the authors also embrace an option discussed by the Mint to reduce the cost of 

producing new nickels by changing its metal composition to 80 percent copper and 20 percent 

nickel alloy. 51 The Mint also noted that this change would produce very marginal gains 

estimated at $3.2 million per-year, based on the nickel's current production levels. However, the 

authors still fail to acknowledge that their plan require substantia additional costs from 

increasing the numbers of new nickels produced. 

The study also fails to acknowledge or discuss how ending the production of pennies 

would lead to large-scale rounding-up or rounding-down to the nearest nickel tbe prices that 

consumers pay retailers. As noted earlier, researchers have found that retailers already price 60 

percent to 93 percent of all goods sold at a penny price-point in the top half of a ten-cent rangethat is, at prices ending in 6, 7, 8 or 9-cents. The Coin Dollar Alliance study omits this issue 

entirely, because the expected rounding-up and rounding-down process would cost U.S. 

consumers a net $200 million to $400 million per-year, most of that borne by lower and 

moderate-income households. Moreover, if the penny were phased out. ''strategic pricing'' by 

retailers would only increase the share of purchases rounded up to the nearest nickel, rather than 

rounded down, and the consequent costs to consumers. 

The study suffers from other conceptual problems. It casts the difference between the 

cost of producing a penny and its face value as a "seigniorage'' loss to taxpayers, when it is a 

government accounting issue registering as a Joss for the Mint and a corresponding gain for the 

Federal Reserve. The study ignores the penny's economic value, as a medium of exchange. We 

calculated that each penny is usc"CC an average of some 55 times during its time in circulation: so 

on an inflation-adjusted basis over 25 years, it costs less than eight-tenths of a cent to produce a 

penny that provides 30-cents in transactional value as a medium of exchange. Finally, the 

authors ignore the most basic economic evidence that consumers and businesses demonstrate the 

value of the penny by using it. The simple fact that Americans use more pennies, per-year, than 

any other coin is dispositive evidence of its economic value. When people and businesses stop 

using pennies, we will know that its value as a medium of exchange has ended. 

VIII, The Costs to U.S. Investors of Eliminating the Penny as a Pricing Unit 

Finally, phasing out the U.S. penny also would have a substantial adverse impact on U.S. 

financial markets and individual or retail investors. As noted earlier, when Canada recently 

withdrew its penny from circulation, it preserved the coin's use as a pricing unit. Some Canadian 

commentators have urged Ottawa to eliminate the penny from pricing, and historical precedent 

favors ending a coin's use in pricing once it is withdrawn from circulation. When the United 

States withdrew the half cent from circulation in 1857, U.S. prices moved quickly to a penny 

51 It is only fil.ir to note that the Coin Dollar Alliance, which financed the study, is itself supported financially by the 

Copper and Brass Fabricators Council, the Copper Development Association, Global Brass and Copper, the Arizona 

Mining Association, and lhe National Mining Association. 

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basis. More recently, Great Britain created a half-penny coin when it moved to the 

decimalization of the British pound in 1971 and then withdrew the half penny from circulation 

starting in 1984 and British prices quickly adopted the British penny as the base, despite the 

wide use of electronic payments. 52 Some current advocates of eliminating the U.S. penny would 

retain its use in pricing, while others would end it. If American consumers react negatively when 

merchants routinely round up their charges to the nearest nickel, economy-wide pricing based on 

the nickel could be the natural response. 

U.S. financial markets adopted penny-based pricing only recently, but the benefit, 

suggest that moving to nickel-based pricing would reverse those benefits. From 1817 to 1997, 

the New York Stock Exchange (NYSE) and other U.S. equity markets used a system based on 

Spanish base-eight pricing, such that all stock prices were quoted in increments of $0.125 (oneeighth of a dollar). Economists long argued that a system based on a smaller denomination would 

enhance the liquidity of equity markets and narrow the spreads between asks and bids, saving 

investors money. Accordingly, U.S. stock markets moved to a basc-16 system in 1997, with 

prices set in increments of $0.0625; and in April2001, the SEC directed all U.S. equity markets 

to quote their prices in pennies, the smallest available denomination. 

This shift to a more refined, penny-based pricing structure for stocks was a test of the 

claimed advantages of decimalization, especially regarding liquidity and spreads in financial 

markets. Liquidity here refers to a stock's availability in a market or how easily an investor can 

buy or sell it without affecting its price. One study found that the new decimalization for pricing 

stocks reduced the spread between the highest price a buyer will pay (the "bid") and the lowest 

price a seller will accept (the "ask") by an average of $0.022, thereby reducing investors' 

transaction costs. 53 The researchers also found, however, that decimalization appeared to reduce 

another aspect of liquidity: the number of "buy" and "sell"' orders for a stock, or its "depth.'' 

Another study of decimalization from the Federal Reserve Bank of Chicago examined 1,339 

NYSE stocks, based on how frequently they were traded. 54 Like the other researchers, the study 

found that after decimalization, spreads narrowed, but depth decreased. Its author also created an 

overall measure for liquidity using both spreads and depth and concluded that liquidity increased 

substantially after decimalization. 55 

Similarly, a study by the GAO found that decimalization reduced bid-ask spreads, trading 

costs and the average volatility of stock returns across both the NYSE and NASDAQ 

exchanges;56 and other researchers confirmed the GAO's findings on trading costs and 

volatility. 57 Decimalization also aligned American equity markets with those in other financial 

centers, as U.S. stock markets had been alone among the world's top 20 financial centers in not 

using a base-ten system. This alignment also enhanced liquidity in U.S. equity markets: a study 

of stocks cross-listed on U.S. and Canadian exchanges found that after decimalization, the 

trading and dollar volume of Canadian stocks on U.S. exchanges increased more than the trading 

52 Barford (2014). 53 Chakravarty, Wood and Van Ness (2004). 54 Furfine (2003). 55 Ibid. 56 Hillman (2005). 57 Bessembinder, Hendrik (2003). 

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and dollar volume of other stocks on those exchanges, without reducing trading or dollar volume 

on the Canadian exchange. 5

8 

Based on all of these studies, if the United States eliminated the penny and moved to 

nickel-based arrangements for pricing, it would adversely affect U.S. equity markets and their 

investors. To estimate the dimensions of those effects, we return to the GAO study. Its author 

found that after dc'Cimalization, quoted spreads narrowed by 73 percent for NYSE stocks (from 

$0.154 to $0.042) and by 68 percent for NASDAQ stocks (from $0.17 to $0.054). Further, 

••effective spreads" based on actual transaction prices rather than the ~uoted best prices declined 

62 percent for NYSE stocks and 59 percent for NASDAQ stocks5 To be sure, a number of 

factors in addition to decimalization contributed to these cost reductions, including the spread of 

electronic trading, algorithmic trading and SEC reforms to improve the operations of equity 

exchanges. 

To estimate the potential effects for American retail or individual investors if the United 

States moved from decimalization to nickel-based equity trading, we l(>cus first on the volume of 

shares traded by those investors. A 20 l 0 study estimated that retail investors account for ll 

percent of all shares traded, compared to institutional investors (e.g. pension funds, hedge funds, 

insurance companies, etc.). Based on current daily trading volumes of 3.5 billion shares on the 

NYSE and 1.8 billion shares on the NASDAQ, individual investors trade an average of 385 

million shares per day on the NYSE and 198 million shares per day on the NASDAQ. 

Economists estimate that the execution costs of a stock trade arc equal to half the bid-ask 

spread.60 A recent study found that from 2008 to 2013, effective spreads averaged between $0.01 

and $0.02 per share for stocks traded on the NYSE (for an average of$0.015) and between $0.02 

and $0.03 per share for stocks traded on the NASDAQ (for an average of $0.025)61 Based on 

these fmdings, we estimate that under the current decimal-based arrangements, trading by retail 

investors in NYSE stocks involves execution costs of approximately $2.9 million per day, and 

trading by retail investors in NASDAQ stocks involves execution costs of nearly $2.5 million per 

day (Table 9, below). 

The issue here is this: how would the elimination of the penny for pricing stocks affect 

the execution costs of retail investors? Again, we know that spreads became smaller as a result of 

not only decimalization but also the advent of electronic trading, algorithmic trading, and new 

SEC rules. However, the SEC conducted a pilot program that tracked trading costs before and 

after the 2001 shift to decimalization, and analysis of that data indicates that decimalization 

alone reduced trading costs for retail investors by 24.2 percent. 62 This implies that moving to a 

nickel-based system, or one close to the 16-base system preceding decimalization, would 

increase spreads by 31.9 percent (1/1-0.242 ~ 1.3!93). Based on the finding that effective 

58 Oppenheimer and Sabherwal (2003 ). 59 Hillman (2005). 60 Bessembinder and Venkataraman (2010). 61 Angel, Harris, and Spatt (2013). 62 Chakravarty, Wood, and Van Ness (2004). The authors estimated that decimalization reduced effective spreads by 

27.4 percent for trades of less than 500 shares, by 24.2 percent for trades of 500 to 999 shares, by 24.3 percent for 

trades of l,OOO to 4,999 shares, by 23.5 percent for trades of 5,000 to 9,999 shares and by 05 percent for trades of 

10,000 shares or more. According to a 2008 study, the executed orders of retail investors average 770.9 shares. 

Kanie!, Sarr, and Titman (2008). 

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spreads today average about $0.015 per share for NYSE trades and $0.025 per share for 

NASDAQ trades,"3 a shift from penny-based arrangements to nickel-based arrangements would 

increase those spreads to $0.019 and $0.033, respectively. This analysis suggests that a shift to 

nickel-based pricing for stocks would increase the trading costs of retail investors by more than 

$1.7 million per day, or $410 million per year (Table 9, below). Moreover, these estimates are 

conservative, because they do not take into account how shifting from decimal-based trading to 

nickel-based trading might interact with other factors that also lowered spreads. 64 

Table 10: Execution Costs for Retail Equity Trades, With and Without Decimalization 

IX. Conclusions 

Calls to eliminate the U.S. penny are commonplace, and proposals to do so invariably 

claim that the government and taxpayers would save substantial sums. This study analyzed the 

actual fiscal and economic effects of eliminating the penny. We found that the most common 

approach, shifting from penny-based transactions to a nickel-based system, would impose large 

costs on American consumers and taxpayers. Eliminating the penny and producing additional 

nickels with the equivalent combined face value would cost the government, on a net basis, an 

additional $5.3 million per year at 2015 prices. Since much of the cost of producing new coins 

depends on global commodity metal prices, we also analyzed the losses and gains from this shift, 

using the lowest, average and highest metal prices from the last decade. This analysis found that 

the shift would produce net costs of$1.3 million per year using the lowest metal prices, net costs 

of$25.1 million per year using average metal prices and net costs of$54.4 million per year using 

the highest metal prices. 

Moreover, the economic value of the penny and other coins is not based on the metals 

used to produce it, as it was in the 18th and 19th centuries, when coins were made of silver and 

gold, but rather on its use as a medium of exchange. As such, the value of a coin is expressed 

every time it is exchanged, and we fOund that the average penny turns over 2.18 times per year. 

Since the penny's average lifespan is 25 years, its economic value as a medium of exchange is 

$0.55, compared to its 2015 cost of production of$0.014. Adjusting for 25 years ofinflatiou 

63 Angel, Harris, and Spatt (2013). 64 The impact for institutional investors is more ambiguous, based on studies showing that decimalization was 

followed by a decline in the depth of trades by institutional investors. Nevertheless, the empirical evidence suggests 

that transaction costs for institutional investors also declined following decimalization. The GAO reported that data 

from three equity analytics firms indicated that after decimalization, the transaction costs of institutional investors 

fell by 30 percent, 40 percent and 53 percent for NYSE stocks and by 44 percent, 46 percent and 53 percent for 

NASDAQ stocks (Hilman, 2005). Academic studies confinn the direction of the effect reported by GAO. One 

analysis used data for 80,000 orders for NYSE stocks by institutional investors and found that their trading costs 

declined by about 11 percent Another study found that transaction costs for institutional invc~'tors on NASDAQ 

trades declined 49 percent on orders of more than 10,000 shares (Werner 2003). 

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(1990-2015), the economic value of an average penny as a medium of exchange is $0.303, 

compared to the inflation-adjusted cost of$0.008 to produce it. 

There is also no acceptable way to reduce those costs of production. The Mint reports that 

there are no alternative metal combinations that could lower the costs of producing pennies while 

preserving their usefulness as a medium of exchange. The Mint did identify one acceptable 

alternative for nickels, dimes and quarters, but the projected savings were minimal. 

Most coins in usc in the United States are not new coins from the Mint but used coins 

recirculating through the economy. lndepcndent coin-counting services arc a principal force in 

the recirculation process, since two-thirds of all coins recirculated through the Federal Reserve 

System and commercial banks and thrifts come from coin-counting services. Since pennies 

comprise a majority of the coins recirculated through this process, eliminating the penny could 

disrupt the current system for recirculating all coins. When Canada eliminated its penny in 2013, 

the volume of Canadian nickels and dimes recirculated through these services fell by 35 percent. 

So if the U.S. penny were eliminated, and the Mint off,etjust 25 percent of the reduced volume 

of recirculated coins with new nickels, dimes and quarters, produced at 2015 metal prices, it 

would cost the Mint an additional $77 million. The net costs rise or fall with metal prices. Using 

the lowest metal prices over the last decade, the Mint would have to spend an additional $60 

million per year to maintain adequate coin recirculation; applying the highest metals price of the 

last decade, the Mint would have to spend an additional $181 million per year to maintain 

adequate coin recirculation. The net costs would also rise if the Mint has to offset 50 percent or 

75 percent of the reduced volume of recirculated coins. 

Eliminating the penny while retaining its use as a pricing unit would also impose new 

costs on American consumers, since billions of cash transactions would have to be rounded up or 

down to the nearest nickel. Based on studies of consumer cash transactions, 60 percent to 93 

percent of cash transactions would involve rounding up the final charges, and we found that this 

process would cost consumers $438 million to $1.13 billion per year. 

Furthermore, if pennies were eliminated and their role in pricing ended as well, U.S. 

investors would also bear additional costs. Since 2001, all U.S. stock prices have been quoted in 

pennies, and the change from the former regime of selling and buying stocks for prices quoted in 

eighths or sixteenths of a dollar lowered trading costs for individual or retail investors. W c found 

that reversing course by shifting to nickel-based stock quotes would raise those trading costs by 

at least $410 million per year. 

Based on public demand, the U.S. Mint produces almost 6.9 billion new pennies eve!)' 

year, and pennies account for a majority of all U.S. coins circulating through the economy. 

However loudly the penny's critics complain, it is clear from the use of the coin by consumers 

and businesses that Americans value the penny as a medium of exchange. All told, our analysis 

found that eliminating the penny as a medium of exchange would result in substantial net costs 

totaling some $909 million to $1.9 billion per year for the government, the economy, businesses, 

consumers and investors. Ultimately, the campaign to phase out the U.S. penny lacks any 

economic foundation or justification. 

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About the Author 

Robert J. Shapiro is the chairman and founder of Sonecon, LLC, a private firm that advises 

U.S. and foreign businesses, governments and non-profit organizations on economic and 

security-related matters. Dr. Shapiro has advised, among others, U.S. President Bill Clinton, 

British Prime Minister Tony Blair, Treasury Secretaries Timothy Geithner and Robert Rubin, 

UK Foreign Minister David Miliband, numerous officials of the Obama Administration and 

members of the U.S. Congress. He and Sonecon also have advised senior executives of many 

private companies including Amgen, AT&T, Elliot Management, Exxon-Mobil, Gilead Sciences, 

Google, Liberty Mutual, Overstock, Nordstjernan of Sweden, and Fujitsu of Japan; as well as 

non-profit organizations including the International Monetary Fund, the Center for Ame1ican 

Progress, and PhRMA. Dr. Shapiro also is a Senior Policy Fellow of the Georgetown University 

McDonough School of Business, the chairman of the Globalization Initiative at NDN, an advisor 

to Cote Capital and Reyc Partners, and the chief strategist lor BrandTransact. From 1997 to 

2001, he was Under Secretary of Conunercc for Economic Affairs. Prior to that, he was cofounder and Vice President of the Progressive Policy Institute, and Legislative Director and 

Economic Counsel for Senator Daniel P. Moynihan. He also served as the principal economic 

adv1sor to Bill Clinton in his 1991-1992 presidential campai!,'Il and as an economic advisor to the 

campaigns of Al Gore, Jr., John Kerry and Barack Obama. Dr. Shapiro has been a Fellow of 

Harvard University, the Brookings Institution, and the National Bureau of Economic Research. 

He holds a Ph.D. and M.A. from Harvard University, an A.B. from the University of Chicago 

and a M.Sc. from the London School of Economics and Political Science. 

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