[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                  THE STATE OF U.S. COINS AND CURRENCY 

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                        DOMESTIC MONETARY POLICY

                             AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 20, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-145

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61-849 PDF                       WASHINGTON : 2010 

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
        Subcommittee on Domestic Monetary Policy and Technology

                MELVIN L. WATT, North Carolina, Chairman

CAROLYN B. MALONEY, New York         RON PAUL, Texas
GREGORY W. MEEKS, New York           MICHAEL N. CASTLE, Delaware
WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California             JIM GERLACH, Pennsylvania
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            BILL POSEY, Florida
KEITH ELLISON, Minnesota             LEONARD LANCE, New Jersey
JOHN ADLER, New Jersey
SUZANNE KOSMAS, Florida



























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 20, 2010................................................     1
Appendix:
    July 20, 2010................................................    39

                               WITNESSES
                         Tuesday, July 20, 2010

Clark, Michael B., President, Diamond State Depository...........    27
Felix, Larry R., Director, Bureau of Engraving and Printing (BEP)     8
Hesch, Craig A., Chairman, National Automatic Merchandising 
  Association....................................................    26
Jenkins, Kenneth, Deputy Special Agent in Charge, Criminal 
  Investigative Division, U.S. Secret Service....................    11
Marks, Gary, Chairman, Citizens Coinage Advisory Committee.......    29
Moy, Hon. Edmund C., Director, United States Mint................     6
Roseman, Louise L., Director, Division of Reserve Bank Operations 
  and Payment Systems, Board of Governors of the Federal Reserve 
  System.........................................................     9

                                APPENDIX

Prepared statements:
    Watt, Hon. Melvin............................................    40
    Castle, Hon. Michael.........................................    44
    Paul, Hon. Ron...............................................    46
    Clark, Michael B.............................................    47
    Felix, Larry R...............................................    53
    Hesch, Craig A...............................................    61
    Jenkins, Kenneth.............................................    69
    Marks, Gary..................................................    76
    Moy, Hon. Edmund C...........................................    84
    Roseman, Louise L............................................    98

              Additional Material Submitted for the Record

Watt, Hon. Melvin:
    Written responses to questions submitted to Craig Hesch......   117
    Written responses to questions submitted to Kenneth Jenkins..   118
    Written statement of James Mulroney, Coin Director, Brink's 
      Inc........................................................   119
    Written responses to questions submitted to Louise Roseman...   128
    Written statement of Mark Weller, Americans for Common Cents.   132


                  THE STATE OF U.S. COINS AND CURRENCY

                              ----------                              


                         Tuesday, July 20, 2010

             U.S. House of Representatives,
                  Subcommittee on Domestic Monetary
                             Policy and Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:33 p.m., in 
room 2128, Rayburn House Office Building, Hon. Melvin L. Watt 
[chairman of the subcommittee] presiding.
    Members present: Representatives Watt, Sherman, Green, 
Cleaver; Paul, Castle, Lucas, and Lance.
    Chairman Watt. I will convene this hearing of the 
Subcommittee on Domestic Monetary Policy and Technology of the 
Financial Services Committee, and the hearing will come to 
order. We will start by having 10 minutes per side of opening 
statements, or up to 10 minutes per side, and I will recognize 
myself for the first opening statement.
    In general, the purpose of this hearing is to examine the 
current state of coins and currency in the United States. The 
U.S. Mint, the Bureau of Engraving and Printing, the Federal 
Reserve, and the U.S. Secret Service are jointly responsible 
for the circulation of all U.S. coins and currency and 
anticounterfeiting measures to protect the U.S. money supply.
    There are several specific issues we would like to explore 
in some detail in this hearing. First, how effective are the 
government's anticounterfeiting measures? Some have estimated 
that in 2009, the amount of counterfeit notes passed was 
approximately $70 million, an amount that has been increasing 
in recent years. There have also been reports from the United 
Kingdom that 1 and 2 British pound coins are being 
counterfeited at an increasing rate. So, we need to know what 
steps are being taken by the U.S. Mint to prevent 
counterfeiting of U.S. dollar coins, and what is the 
government's plan going forward to combat the increasing 
counterfeiting of notes that cost taxpayers millions of dollars 
per year.
    Second, what is the government's response to the worldwide 
rise in the price of metals used to manufacture coins? Some 
reports suggest that it actually costs more to manufacture the 
penny and the nickel than these coins are now worth. The 
Administration has proposed legislation to amend 31 U.S.C. 
Section 5112 to allow the Treasury Secretary to prescribe the 
metal composition of all circulating coins, including the 
penny, nickel, dime, quarter, half dollar, and $1 coin. 
However, some have raised concerns about this proposal because, 
by statute, only Congress has the authority to prescribe the 
metal content of circulated coins.
    We need to evaluate alternatives, such as perhaps granting 
the U.S. Mint research and development authority to research 
alternative metals and report these researched findings back to 
Congress, while perhaps retaining the authority of Congress to 
determine the metal content of coins.
    Third, is there an oversupply of certain coin 
denominations? Some reports suggest that there are up to $1 
billion in dollar coins and other low-denomination coins being 
stored in large quantities by the Federal Reserve and partner 
companies. We need the Fed to either confirm or refute these 
reports; and if the reports are confirmed, we need to know what 
efforts the Fed is taking to reduce these coin surpluses and 
more efficiently manage the Nation's money supply.
    Fourth, some dealers and collectors of numismatic coins 
have indicated that the U.S. Mint is not keeping up with the 
demand for numismatic coin products. Current statutes require 
that all refined gold and silver must be used first to meet 
bullion demand. We need to evaluate whether it would be a good 
idea to divert refined gold and silver from the bullion program 
to meet demand for numismatic products and what impact this 
would likely have on the supply of bullion products.
    While there are many other important issues related to the 
state of U.S. coins and currency, the four issues I have 
outlined above should allow for a robust exchange.
    While we are not attempting to address this issue today, 
one other important topic that we need to explore in the future 
is the issue of equal access to U.S. currency by the visually 
impaired. The Bureau of Engraving and Printing has issued a 
proposed rule that is open for public comment until mid-August, 
and the Bureau expects to issue a final rule in the fall of 
2010. While I thought it would be inappropriate to put the BEP 
in the awkward position of commenting on a proposed rule while 
the rule is in the comment period and before the rule is 
finalized, when the final rule is issued, it would certainly be 
appropriate to have a hearing on this and related issues. Of 
course, it is important for the visually impaired to have equal 
access to U.S. currency and for the Congress to ensure that the 
Bureau's final rule accomplishes that result.
    With that, I will now recognize the ranking member, the 
gentleman from Texas, Mr. Paul, for up to 5 minutes.
    Dr. Paul. Thank you, Mr. Chairman. And I welcome the panel.
    I remain opposed to the Mint's current effort to gain 
greater power in determining the composition of circulating 
coinage. It is unconstitutional to delegate a determination of 
the metal content of our coinage to the Secretary of the 
Treasury. Under Article I, Section 8, of the Constitution, the 
Congress is given the power to coin money and regulate the 
value thereof. It is a shame that Congress has already 
unconstitutionally delegated its coinage authority to the 
Treasury Department, but that is no reason to further delegate 
our power and essentially abdicate congressional oversight.
    While I sympathize with the aim of saving taxpayer dollars 
by reducing the cost of coinage, it is disappointing that our 
currency has been so greatly devalued as to make this step 
necessary. At the time of the penny's introduction, it actually 
had some purchasing power. Based on the price of gold, that one 
penny would have purchased in 1910 what requires 57 cents 
today. It is no wonder that few people nowadays would stoop to 
pick up any coin smaller than a quarter.
    One of the witnesses on our second panel mentions the 
importance of the Mint's production of bullion coinage and the 
danger of counterfeit collector coins that may or may not be 
minted from silver or gold. It is a shame that instead of 
protecting the value of the dollar to ensure that precious 
metals coins could still circulate as money, or enforcing 
counterfeiting laws to stop the flow of clearly fraudulent 
coins, the Federal Government insists on printing trillions of 
dollars out of thin air and prosecuting individuals who attempt 
to create precious metal currencies to compete with the 
devalued U.S. dollar.
    The topics discussed in today's hearing exemplify how far 
we have fallen not just since the days of the Founders, but 
only in the last 75 to 100 years. We could not maintain the 
gold standard or the silver standard. We could not maintain the 
copper standard, and now we cannot even maintain the zinc 
standard. Paper money inevitably breeds inflation and destroys 
the value of the currency, which harms all Americans. I wait 
for the day that we have a committee hearing when we talk about 
once again reinstituting sound money for our people.
    I yield back.
    Chairman Watt. I thank the gentleman for his opening 
statement. I will just remind him, I am one of those people who 
still picks up pennies, especially when the head is up. That is 
supposed to be lucky.
    Mr. Sherman from California is recognized for 3 minutes.
    Mr. Sherman. Commenting on the Executive Branch's desire to 
control what is in the metal that is used to make coins, I 
would think if you had a good proposal, we could pass it. It 
would be a delightful break from renaming post offices; and the 
fair deal ought to be we will let you guys rename a couple of 
post offices, and we will keep control of what metal is in the 
coinage, unless there is a real agenda you have here to move to 
another metal and you figure Congress wouldn't pass it if we 
actually knew what you were going to use the power for.
    As to counterfeiting, my whimsical suggestion is that we 
retaliate against North Korea by counterfeiting some of their 
currency. I realize this would not fully compensate us for what 
they are doing to ours, but it would be nice for us to be on 
offense for a change.
    There are two major issues in this area: should we phase 
out the paper dollar; and should we eliminate the penny? There 
are those who think that the amount of value in a dollar should 
be represented by a piece of paper. When I was growing up, that 
amount of value was a quarter or less, and you had a metal coin 
called a quarter that was sufficient in value to buy a quarter 
pounder and a drink. And so I don't see why we need to have the 
Federal Government go through the expense of making and 
replacing paper money for an amount of value that has 
traditionally in this country been represented by a coin.
    This would help dramatically reduce costs for our transit 
systems and our vending machine operators. As long as there is 
a paper dollar, the metal dollar will not take hold. And we 
could reduce dramatically the costs of a lot of transactions if 
we had a coin dollar that was in wide circulation. We could 
also save a lot of paper and a lot of ink because these coins 
last a lot longer.
    That might go hand-in-hand with abolishing the penny. I am 
sure that we could figure out other ways to honor President 
Lincoln and President Washington, who appears on the paper 
dollar, perhaps by including these folks in some of the dollar 
coins that we create. Abolishing the penny would mean every 
cash register would have a place where you could put a coin 
dollar; that is to say, in the tray. We would save a lot of 
zinc. We would save a little copper. We would save some money.
    But there are consumers who think that, when I buy 
something for 99 cents, I want to be able to pay just 99 cents. 
The fact is every transaction--I say this as in my former life, 
I used to have the largest sales tax agency in the country--is 
actually rounded up or down. If you buy something for 99 cents 
in a State with a sales tax of 5 percent, then you are actually 
paying at the cash register $1.03.95, which is rounded up to 
$1.04. So you already have all the rounding. And if you want, 
you can buy a certain amount of 99-cent items so the merchant 
will have to round down, rather than up; and if that is 
important to you, you would now round down to the nearest 
nickel and save almost 2\1/2\ cents.
    So I would hope that we could abolish the penny, which is 
really not a unit of value anymore. Mel will pick one up, not 
for the value, only for the luck, and I assure you, those 
nickels will be just as lucky.
    I yield back.
    Chairman Watt. The gentleman's time has expired.
    I recognize the gentleman, Mr. Lucas, for 3 minutes.
    Mr. Lucas. Thank you, Mr. Chairman. I appreciate the 
opportunity to be a part of this panel discussion today, and I 
look forward to the comments from our witnesses, too. It is an 
esteemed and very knowledgeable group.
    The comment has been made about the obsolete coins, the 1-
cent pieces. How many dollar coins are piled in a vault 
somewhere? I would look forward to the comments from the Fed as 
to just how many dollar coins we have stacked up in the vaults, 
and do they anticipate ever again in my lifetime actually 
ordering half dollars from the Mint for circulation? Does the 
half dollar fall in the same category as the 1-cent piece? 
Something I look forward to comments, too, here, and also 
representatives from the law enforcement side of the equation.
    Counterfeiting is a very sensitive issue not only for the 
integrity of the American economy on large notes and other 
kinds of coins, but also from the perspective of counterfeiting 
numismatic-type items, coins of more than just face value, more 
than just metal content. Many of us have read public accounts 
how in the 1950's and 1960's and 1970's, in certain parts of 
the Middle East, there was an ongoing business of producing 
counterfeit U.S. gold coins, most often full weight, full metal 
content, but nonetheless stamped out in a way to harvest that 
numismatic value to coin collectors. Many, many reports appear 
from some of the most prominent press in both numismatic 
circles and nonnumismatic circles about literally what seems to 
be one of the biggest growth industries in places like China, 
where it is not just counterfeiting low-value coins just to 
sell to tourists nice shiny pieces of eight, so to speak, but 
also using the very best technology, the very best techniques 
to sell coins that are of great sometimes numismatic value to 
unsuspecting collectors and even counterfeiting the packages 
that the certification services produce to try and protect the 
consumer from counterfeiters. I would like to hear a little bit 
of a discussion about that, about how aggressive we are and how 
aggressive we need to be to protect collectors and consumers in 
general.
    With that, thank you, Mr. Chairman, for this opportunity.
    Chairman Watt. I thank the gentleman.
    The gentleman from Texas, Mr. Green, is recognized for 2 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I am concerned about one aspect of the state of U.S. coins 
and currency that deals with its very existence. As we move 
into this age of technology and plastic, I am curious as to 
what the prognostication is for the distant future in terms of 
whether we will actually have coins and currency. Is it 
something that we absolutely will have here, or is it something 
that the rest of the world needs when it deals in dollars and 
in the currency of the United States of America?
    I would be interested in hearing your views on how coins 
and currency will actually impact the economic order in the 
not-too-distant future. But I can see that with the technology 
being what it is, we are moving away from coins and currency to 
plastic, it seems.
    I yield back.
    Chairman Watt. I thank the gentleman for his comments.
    The gentleman from New Jersey, Mr. Lance, is recognized for 
1 minute or more, unless Mr. Castle comes in.
    Mr. Lance. Thank you, Mr. Chairman.
    And good afternoon to the panel. I look forward to your 
testimony. I will review your testimony carefully.
    Initially, my viewpoint is that the Congress should not 
delegate further authority to Executive Branch agencies based 
upon the constitutional clause cited by Ranking Member Paul. I 
certainly want to listen to your testimony, but I would much 
prefer that any suggestions you have come to us in Congress, 
where we might review them and enact them into statutory law.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Watt. I think that exhausts our requests for time 
for opening statements from those who are present. And I would 
just say that, without objection, all members' opening 
statements will be made a part of the record. So if any other 
members come in and wish to submit opening statements, we will 
certainly put them in the record.
    I will now briefly introduce the panel of witnesses. 
Without objection, their written statements in their entirety 
will be made a part of the record and each of them will be 
recognized for a 5-minute summary of their testimony. Of 
course, the lighting system is there in front of you. It goes 
green for 4 minutes, yellow for 1 minute, and red at the end of 
5 minutes. So while we won't be absolutely stringent on that, 
we would ask you to comply with that as best you can.
    Our first witness today on panel one will be the Honorable 
Edmund C. Moy, who is the Director of the United States Mint. 
Our second witness will be Mr. Larry Felix, the Director of the 
Bureau of Engraving and Printing. Our third witness will be Ms. 
Louise Roseman, the Director of the Division of Reserve Bank 
Operations and Payment Systems at the Board of Governors of the 
Federal Reserve System. And our final witness on the first 
panel will be Mr. Ken Jenkins, Deputy Special Agent in Charge 
of the Criminal Investigative Division at the U.S. Secret 
Service.
    Mr. Moy, you are recognized for 5 minutes.

  STATEMENT OF THE HONORABLE EDMUND C. MOY, DIRECTOR, UNITED 
                          STATES MINT

    Mr. Moy. Thank you, Mr. Chairman. And I would also like to 
greet Ranking Member Paul and the members of the subcommittee. 
I appreciate being invited to be here today. I welcome the 
opportunity to discuss operational results and demonstrate the 
need for immediate passage of the Coinage Materials 
Modernization Act, which is the Administration's proposal 
offering a potential savings of billions of dollars.
    First, I would like to provide a short summary of our 
operations and programs. At the end of Fiscal Year 2009, the 
United States Mint transferred $440 million to the Treasury 
General Fund, which has been the lowest seigniorage in the most 
recent 5 years. This is attributable to higher metal costs that 
have caused this decrease. We have also minted and issued 5.2 
billion circulating coins, which is a 45-year low. This low 
production was due to low coin demand and high inventories at 
the Federal Reserve Banks. We also minted and issued 27 million 
ounces of gold, silver, and platinum bullion coins, which is 
triple the amount of recent years.
    Regarding the 2010 circulating coin programs, we have 
complied with our statutory obligations to identify, analyze, 
and overcome obstacles to the robust circulation of the $1 
coin; however, despite our considerable efforts, we have had 
limited success while the Federal Reserve Banks have 
accumulated an inventory of approximately 1 billion $1 coins, 
which is a level that is of great concern to us. We believe 
that the key to robust circulation is greater use of this coin 
at the cash register, but are unsure as to whether or not we 
can cost-effectively achieve significant and sustainable 
increases in $1 coin circulation.
    High existing Federal Reserve Bank inventories are also 
affecting production levels of the new 12-year America the 
Beautiful Quarters Program. Thus far, production levels are a 
fraction of those of the 50 State Quarters Program.
    Turning to our gold, silver, and platinum bullion coin 
programs from Fiscal Year 2009, bullion coin sales approached 
$1.7 billion, which is an all-time high and nearly 80 percent 
above previous year's sales. We have increased both planchet 
acquisition and production to meet rising demand.
    Consequences from increased worldwide bullion demand were 
threefold. Orders for bullion from authorized purchasers 
exceeded supply for all of Fiscal Year 2009. Planchet diversion 
to meet public demand for bullion coins meant that we could not 
mint and issue the very popular American Eagle 1-ounce gold and 
silver proof coins in 2009. Annual purchasers of these products 
were very disappointed.
    I am encouraged that the subcommittee is exploring the 
possibility of an amendment that would afford the Secretary the 
authority to approve the minting and issuance of the American 
Eagle Silver Proof and uncirculated coins even when we are 
unable to meet the public's demand for the bullion versions of 
these coins. Our many customers would welcome such a change. We 
can mint 200,000 coins per month; and if we begin production by 
September, we can meet collector demand for the remaining 
months of 2010.
    Finally, I would like to address the Coinage Materials 
Modernization Act. Per-unit cost for the penny and nickel have 
exceeded their face values in 2009 as they have since 2006. The 
expense of current coinage metals is a needless waste of 
hundreds of millions of dollars. We know how to stop this 
waste.
    The government has acted twice before in the last 50 years 
to protect taxpayers from bearing the increased costs of 
coinage materials. In 1965, Congress changed the composition of 
the dime, quarter, and half dollar from silver to cupro-nickel 
clad. In 1974, Congress granted the authority to the Secretary 
of the Treasury to vary the copper-zinc alloy of the penny. 
Thirteen years ago, Congress passed the $1 Coin Act of 1997, 
granting the Secretary of the Treasury sole discretion to 
select materials for the $1 coin.
    Our proposal builds on these precedents. Support and 
encouragement from Congress to save billions has resulted in 
the Administration's proposal, which is called the Coinage 
Materials Modernization Act. This proposal provides the 
Secretary of the Treasury the flexibility to respond quickly to 
changing market conditions. It ensures fair and efficient 
management of highly technical evaluations and selection of 
alternate coinage materials. We would, of course, use a 
competitive, transparent, open, deliberative, and market-driven 
process that will consider the views of the public and 
commercial interests.
    So in conclusion, delegating the authority to evaluate and 
select alternative materials to the Secretary of the Treasury 
is a proven approach. Since 1982, taxpayers have realized 
savings of more than $71 billion from the change from silver to 
clad. Today, we can pass the Coinage Materials Modernization 
Act and achieve similar savings.
    Thank you, Mr. Chairman. I look forward to answering the 
committee's questions.
    [The prepared statement of Director Moy can be found on 
page 84 of the appendix.]
    Chairman Watt. I thank you for your testimony.
    Mr. Felix, you are recognized for 5 minutes.

STATEMENT OF LARRY R. FELIX, DIRECTOR, BUREAU OF ENGRAVING AND 
                         PRINTING (BEP)

    Mr. Felix. Thank you, Mr. Chairman. Thank you, Ranking 
Member Paul, and members of the subcommittee. Thank you for 
inviting me to testify about ongoing initiatives at the Bureau 
of Engraving and Printing.
    The mission of the Bureau of Engraving and Printing is to 
design and manufacture high-quality security documents that 
meet customer requirements for quality, quantity, and 
performance, including counterfeit deterrence. The BEP is the 
government's security printer, and it provides technical 
assistance and advice to other Federal agencies in the design 
and production of security documents, which, because of their 
inherent value or other characteristics, require counterfeit 
deterrence. The BEP also reviews the cash destruction and unfit 
currency operations of Federal Reserve Banks.
    Although the BEP produces security documents on behalf of 
Federal agencies, our primary product is the Federal Reserve 
note. Our operations are financed by means of an industrial 
revolving fund, and on average, the BEP produces approximately 
7 billion notes per year.
    The BEP works collaboratively with the Board of Governors 
at the Federal Reserve, the United States Secret Service, and 
the Department of the Treasury to improve the security of 
Federal Reserve notes. In 1982, by charter, the Advanced 
Counterfeit Deterrence Steering Committee was established to 
recommend designs to the Secretary of the Treasury for Federal 
Reserve notes. And as a general guideline, the Committee 
recommended that the government redesign notes every 7 to 10 
years to deter counterfeiting and anticipate advances in 
reprographic technologies.
    Consequently, in the mid-1990's, the U.S. Government 
introduced the first major redesign to U.S. currency in 65 
years. The design changes were needed to combat the emergence 
of a new category of counterfeiters who were increasingly 
relying on computers, scanners, color copiers, and other 
emerging technologies to replicate notes.
    The goal of staying ahead of technological threats to 
currency rather than simply responding to existing threats 
requires that the U.S. Government plan ahead in its development 
of new currency. This means that a new currency must be in 
development for several years before the counterfeiting threat 
is projected to materialize.
    In April of this year, the U.S. Government unveiled the 
last banknote in the most recent currency design series. The 
redesigned $100 will enter circulation in February of next 
year. This latest redesign series contains an array of 
counterfeit-deterrence security features, some of which are 
visible and easily recognizable to the public, and some of 
which are covert and machine-readable.
    Overall, counterfeiting U.S. currency remains at a low 
level, primarily due to a combination of improvements in the 
notes' security designs, aggressive law enforcement, and an 
effective public education effort. According to the U.S. Secret 
Service, less than 1/100 of 1 percent of all the value of 
circulating U.S. notes is a counterfeit.
    The BEP began implementing its strategic plan that will 
significantly change its currency manufacturing process; and 
over the next few years, the BEP will continue to retool and 
retrofit its production by purchasing new equipment that will 
allow the agency to migrate to a higher capacity and capability 
manufacturing environment. Updating this equipment is 
essential. The aging manufacturing equipment at the BEP no 
longer meets the performance requirements demanded in today's 
dynamic currency manufacturing environment. The new equipment 
will provide a rapid response and the flexibility, 
productivity, and technology necessary to support the 
manufacture of the increasingly complex currency designs, 
including an array of possible features for the blind and 
visually impaired.
    In May of this year, the BEP posted a notice in the Federal 
Register to announce recommendations that it intends to propose 
to the Secretary of the Treasury for moving forward and 
providing meaningful access to the blind and visually impaired 
to denominate currency. The BEP expects very shortly to make 
recommendations to Secretary Geithner as to the best possible 
manner to provide that meaningful access.
    Our recommendations currently consist of raised tactile 
features; large, high-contrast numerals; and a supplemental 
currency reader program. Additionally, the BEP is continuing 
its efforts to explore emerging technological solutions, such 
as the development of software to enable blind and visually-
impaired individuals to denominate currency. Other initiatives 
on the way at the BEP include employee training, product 
quality, cost reduction, and a modernization of our technology.
    By leveraging efficiencies in new innovations, the BEP 
recognized that we were overstaffed in certain positions. We 
requested and were granted permission for early-outs and 
buyouts. By the end of 2014, the BEP expects to have a 10 
percent overall reduction in its staff. Since 2005, staffing 
has declined by 338 positions.
    The BEP strives to provide its customers with superior 
products and is continuously looking for ways to manufacture 
efficiently without compromising quality.
    Mr. Chairman, this concludes my remarks, and I am happy to 
respond to any questions.
    [The prepared statement of Director Felix can be found on 
page 53 of the appendix.]
    Chairman Watt. Thank you for your comments and testimony.
    Ms. Roseman is recognized for 5 minutes.

 STATEMENT OF LOUISE L. ROSEMAN, DIRECTOR, DIVISION OF RESERVE 
BANK OPERATIONS AND PAYMENT SYSTEMS, BOARD OF GOVERNORS OF THE 
                     FEDERAL RESERVE SYSTEM

    Ms. Roseman. Chairman Watt, Ranking Member Paul, and 
members of the subcommittee, thank you for inviting me to 
discuss the Federal Reserve's perspectives on issues relating 
to currency and coins. I will focus my comments this afternoon 
on trends in currency demand, strategy for currency redesign, 
and our recent experience managing dollar coin inventories. 
Additional matters are addressed in my written statement.
    The growth rate for U.S. currency began to moderate during 
most of the past decade, compared to the strong growth of the 
previous 30 years. The recent financial crisis, however, 
spurred a substantial increase in demand for U.S. currency in 
late 2008 and in 2009, driven largely by foreign demand for the 
$100 note. International demand for U.S. currency tends to 
increase during times of economic and political uncertainties, 
and this was no exception. While domestic demand surged briefly 
in the fall of 2008, it quickly returned to normal patterns as 
the government took steps to restore confidence in the banking 
system, such as increasing FDIC insurance limits. Overall, 
currency in circulation increased from about $775 billion at 
the end of 2007 to almost $900 billion by the end of last year.
    Let me now turn to activities surrounding the design of 
currency. While currency designs remained unchanged for most of 
the 20th century, rapid changes in copying and printing 
technologies now require us to change designs more frequently 
to stay ahead of counterfeiters and keep counterfeit levels 
low. Maintaining confidence in U.S. currency requires a 
combination of effective security features in the notes, public 
education, and law enforcement. This requires a strong 
collaborative interagency effort.
    The Treasury Department, the BEP, the Secret Service, and 
the Federal Reserve participate on a joint steering committee 
that monitors ongoing counterfeit threats and advancements in 
banknote security features and recommends currency design 
changes to the Secretary of the Treasury. The current design 
family began with the issuance of the new $20 note in 2003, and 
will conclude with the new $100, which was unveiled in April. 
The Federal Reserve will begin distributing the new $100 next 
February 10th. We are currently engaged in an important program 
to educate users in the United States and around the world 
about the design and security features of the new note before 
it begins circulating.
    The subcommittee expressed interest in better understanding 
the demand for Presidential dollar coins and the effect of this 
program on Federal Reserve inventories. Demand for dollar coins 
remains quite low, especially when compared to dollar notes, 
and appears to come largely from collectors. Banking industry 
representatives have indicated that transactional demand for 
dollar coins has not increased materially since the start of 
the Presidential $1 Coin Program, and they generally do not 
expect demand to increase significantly in the future.
    Federal Reserve inventories of dollar coins have been 
growing substantially, from less than 70 million in 2006 to 
more than 1 billion today. We estimate that our dollar coin 
inventories may reach 2 billion by the end of the Presidential 
$1 Coin Program. This inventory growth is due in large part to 
the legislative requirement that the Reserve Banks make each 
new Presidential design available to their customers for an 
introductory period. I should note that we have no such 
requirement for any other coin. Therefore, the Federal Reserve 
must continue to order each new Presidential design from the 
Mint even though it already has more than ample inventories to 
meet demand.
    Exacerbating this problem is the legislative requirement 
that at least 20 percent of total dollar coins the Mint issues 
each year is a Native American design. While the Federal 
Reserve is not currently ordering these coins due to our large 
inventory levels and the lack of banking industry demand, many 
of the coins the Mint is issuing directly to the public are 
deposited in the banking system and ultimately make their way 
back to the Federal Reserve. These legislative requirements are 
resulting in steadily rising Reserve Bank inventories and the 
associated costs of dealing with them.
    In conclusion, I would like to assure the subcommittee that 
the Federal Reserve will continue to work to meet the public's 
demand for currency and coin in an efficient and effective 
manner. I appreciate this opportunity to discuss these issues 
with you and would be pleased to answer your questions. Thank 
you.
    [The statement of Director Roseman can be found on page 98 
of the appendix.]
    Chairman Watt. I thank you for your testimony.
    And, Mr. Jenkins, you are recognized for 5 minutes.

 STATEMENT OF KENNETH JENKINS, DEPUTY SPECIAL AGENT IN CHARGE, 
      CRIMINAL INVESTIGATIVE DIVISION, U.S. SECRET SERVICE

    Mr. Jenkins. Good afternoon, Chairman Watt, Ranking Member 
Paul, and distinguished members of the subcommittee. I would 
like to thank you for providing the Secret Service the 
opportunity to discuss currency issues.
    The Secret Service is perhaps best known for protecting our 
Nation's leaders. We were established in 1865 to investigate 
and prevent the counterfeiting of U.S. currency. Congress 
continues to recognize the Secret Service's 145 years of 
investigative expertise in financial crimes, and over the last 
2 decades, has expanded our statutory authorities to include 
access device fraud, identity theft, computer fraud, and bank 
fraud.
    As you are aware, the Secret Service officially became part 
of the Department of Homeland Security in March of 2003. Though 
our agency is no longer a component of the Department of the 
Treasury, we continue to maintain our historic ties and our 
robust partnership in safeguarding our currency and other 
payment systems.
    The Secret Service strongly believes that economic security 
is an essential element of homeland security. Therefore, the 
safeguarding of our financial infrastructure and monetary 
framework continues to be a paramount objective of our 
worldwide investigative efforts.
    As new technology continues to emerge, the challenges 
facing law enforcement are significant. These advancements mean 
counterfeit currency and other obligations can be reproduced 
quickly and effectively. Today's criminals need relatively 
little knowledge or specialized training to print counterfeit 
currency or other financial obligations. Utilizing equipment 
ranging from inexpensive digital devices, such as scanners, 
computers, and multifunction devices, to large commercial 
presses, a counterfeiter or criminal organization can flood a 
region with counterfeit currency.
    The Secret Service is aggressively combating the production 
and circulation of counterfeits on several fronts. With our 
partners in the Department of the Treasury and the Federal 
Reserve, we are continuing with the redesign of our currency. 
As a member of the Advanced Counterfeit Deterrence Steering 
Committee, an interagency currency design committee, we have an 
active role in the research, design, and introduction of new 
currency. The Secret Service continually evaluates the methods 
currently employed by counterfeiters and studies cutting-edge 
anticounterfeiting technologies to enhance further redesigns of 
the U.S. currency. This partnership was highlighted on April 
21, 2010, with the unveiling of the redesigned $100 Federal 
Reserve note. The new design for the $100 note not only retains 
the effective security features from previous designs, but also 
contains two new security features, the 3-D Security Ribbon and 
Bell in the Inkwell. These security features included in the 
$100 note will hinder a potential counterfeiter from 
reproducing high-quality notes that deceive consumers and 
merchants.
    Due to the dollar's value and widespread use overseas, it 
continues to be a target for transnational counterfeiting 
activity. Of the approximately $908 billion of genuine U.S. 
currency in circulation, roughly two-thirds of that amount 
circulates outside of our borders, making the U.S. dollar a 
truly global currency.
    Recent trends indicate a growing globalization in the 
production and distribution of counterfeit notes. For Fiscal 
Year 2009, the Secret Service received approximately $69 
million in counterfeits that was passed to the American public. 
Additionally, approximately $108 million in counterfeit U.S. 
currency was seized prior to distribution last year by the 
Secret Service and other authorities worldwide. Currently, more 
than 38 percent of all counterfeits passed domestically was 
printed outside of the United States using traditional printing 
techniques, predominantly offset printing. In contrast, 62 
percent of the counterfeit currency passed domestically last 
year was produced within the United States by individuals using 
digital technology, such as computers, scanners, printers, and 
multifunctioning devices.
    The Secret Service has observed the counterfeit notes 
produced on bleached paper are both a domestic and 
international concern. Domestic counterfeiters as well as 
counterfeiting operations based in Colombia, Nigeria, and Italy 
have produced significant quantities of counterfeit notes still 
printed on bleached genuine U.S. currency paper.
    Today, the Secret Service continues to target locations 
throughout the world where significant counterfeiting activity 
is detected through joint task forces with our foreign law 
enforcement partners. Our investigative history has proven that 
the effect of suppression of counterfeit operations requires a 
close partnership between our domestic and international field 
offices and their law enforcement counterparts, as well as an 
immediate response by the law enforcement community.
    The Secret Service's permanent presence overseas has been 
essential in establishing the required relationships to 
successfully suppress foreign-based counterfeit operations. For 
example, Project Colombia is a continuation of the Secret 
Service efforts to establish and support Vetted 
Anticounterfeiting Forces. Since its inception in 2001, Project 
Colombia partners have seized approximately $239 million in 
counterfeit U.S. currency, arrested more than 600 suspects, 
suppressed nearly 100 counterfeit printing plants, and reduced 
the number of Colombia-originated counterfeit passed within the 
United States by more than 80 percent.
    As a collateral effect of our investigative successes in 
Colombia, the criminal element has relocated to other parts of 
South America. For example, from Fiscal Year 2008 to Fiscal 
Year 2009, the Secret Service noted an 156 percent increase in 
worldwide passing activity of counterfeit U.S. currency 
emulating from Peru. These counterfeit notes, referred to as 
the Peruvian Note Family, have emerged as one of the leading 
domestically passed notes in the last 18 months. In response to 
this increase in passing activity of the Peruvian Note Family, 
which is second only to domestic passing of digital counterfeit 
in Fiscal Year 2008, the Secret Service formed a temporary 
Peruvian Counterfeit Task Force in collaboration and 
partnership with Peruvian law enforcement officials. Since 
opening in Peru on March 15, 2009, the task force yielded 38 
arrests, 17 counterfeit plant suppressions, and seizure of more 
than $20.6 million in counterfeit U.S. currency.
    Chairman Watt. Mr. Jenkins, can you wrap up?
    Mr. Jenkins. Yes, sir.
    The Secret Service, in concert with established partners, 
both private and public, domestic and international, law 
enforcement and civilian, will continue to play a critical role 
in preventing, detecting, and investigating the effects of 
increasingly complex financial and electronic crimes.
    Chairman Watt, Ranking Member Paul, and distinguished 
members of the subcommittee, this concludes my prepared 
remarks. I am pleased to answer any questions at this time. 
Thank you.
    [The prepared statement of Deputy Special Agent Jenkins can 
be found on page 69 of the appendix.]
    Chairman Watt. Thank you.
    We will now recognize the members of the committee for 5 
minutes of questioning each. And since Mr. Jenkins was in the 
middle of telling us about all the anticounterfeit stuff, I 
will give him the opening to go back to some of that by just 
asking him, you would think if $70 million a year is being 
counterfeited, that you would hear a little bit more about 
prosecutions and the things that you are describing to us. We 
don't seem to hear much about that. Why is that?
    Mr. Jenkins. I am sorry. The last part of that, sir?
    Chairman Watt. We don't seem to hear much about 
prosecutions, or investigations, or blowing up these 
counterfeiting rings. Why are we not hearing more about that?
    Mr. Jenkins. Sir, a lot of these investigations begin 
overseas through our 22 international field offices. I believe 
in Fiscal Year 2009, through our investigative measures 
overseas, we seized over $100 million in counterfeit currency. 
We continue to work with the U.S. Attorney's Office as well as 
the district attorney's office domestically to fight 
counterfeiting. It is just not our stance to publicize our 
cases in the media, and that is probably one of the reasons why 
you haven't heard--
    Chairman Watt. So you are saying the bulk of it is taking 
place outside of the United States? It is not a major problem 
inside our own borders?
    Mr. Jenkins. That is correct, sir. The bulk of the 
counterfeiting is emanating out of Peru.
    Chairman Watt. Okay. Mr. Moy, some of our Financial 
Services Committee members are somewhat concerned about the 
amount of money we are spending to promote the Presidential $1 
Coin Program. And as part of our request for this hearing, we 
asked you to provide information about the costs that are being 
incurred for that program, and we did not receive that. So I 
hope you will provide that, if you don't have it with you 
today. We need that information.
    Generally, I guess, the question would be with this program 
not being very successful in getting people to acquire these 
dollar coins, why are we spending so much money to promote 
something that people obviously are not taking to, and what is 
the rationale for that?
    Mr. Moy. Yes. Mr. Chairman, first of all, we are doing a 
detailed accounting. And once that is done, I would like to 
submit that for the record so that you would have your answer.
    To answer your question directly, the United States Mint, 
for the Presidential $1 coin, has spent $30 million to raise 
the awareness and to try to get this coin integrated into 
circulation. That money has been spent through an awareness 
program familiarizing Americans with the dollar coin, to pilot 
programs that adequately stock the banks, making sure retailers 
use it, and consumers are aware of it. All those programs have 
met with limited success. We have had success--
    Chairman Watt. Is there some reason that we want to push 
this coin if the American people don't--what are the policy 
reasons that we would be pushing a coin?
    Mr. Moy. The authorizing legislation said that it was the 
United States' mission with the dollar coin to analyze, 
identify, and remove all barriers to robust circulation. We 
have been attempting this now for 3 years. We have had limited 
success. For example, transit systems, like subways, are big 
users of the dollar coin. But, by and large, the dollar coin 
has not been received well in just cash register transactions. 
And at this point, we have tried every major idea that we can 
come up with, with limited success. And so the question is, how 
much more should we be trying with this?
    Chairman Watt. We understand that we are shipping gold to 
Australia to be made into blanks, with the fabricated blanks 
shipped back to the United States for production. Is this 
efficient? Why can't the processing of these blanks be done in 
the United States?
    Mr. Moy. It is efficient in that this is the easiest way to 
get the greatest volume of blanks that meet our specifications 
so we can make the bullion coins to satisfy investors' demand. 
We have tried to expand our ability to acquire planchets by 
requesting the limited number of suppliers to--we have gotten a 
greater percentage of what they produce. We have helped those 
suppliers increase their capacity, and we have constantly put 
out procurement requests for any suppliers, including domestic, 
to supply those planchets and blanks for us.
    Since this effort, we have increased the number of 
companies supplying domestically by one, with one currently in 
process of contracting. So we have increased our domestic 
suppliers, but they do have to meet our stringent standards 
because we are making so many of these things, and they do have 
to offer us an adequate supply of planchets so that it is cost-
efficient for us.
    Chairman Watt. Okay. The red light is on. That means my 
time has expired. And I recognize the gentleman from Texas, the 
ranking member, for 5 minutes.
    Dr. Paul. Thank you, Mr. Chairman. I want to follow up on 
that very subject with Mr. Moy, because I had some questions 
myself.
    Has the Mint ever made planchets? Is that something they 
have ever done?
    Mr. Moy. The Mint has made planchets in its past, but it 
got out of the business a decade ago mainly because of the 
extreme cost of doing it, the environmental hazard for doing 
it, and it was determined at that time that there were other 
private entities who could make it more cheaply and safely than 
the United States Mint could.
    Dr. Paul. Okay. And because of the shortage, you didn't 
have--and you had a mandate. You had to put them into the 
nonproof coins, that is correct; and you are asking now for 
authority to say that you can take some of that money out or 
coinage out and make proof coins.
    Now, is this the first year that you have missed making 
proof coins in 2009?
    Mr. Moy. Yes. This is the first year that we have missed.
    Dr. Paul. If the problem were corrected, is there such a 
thing as minting coins a year late? Because some of those 
collectors are thinking, oh, why can't I have a 2009 coin?
    Mr. Moy. The Mint is required to basically sell the coins 
that are minted in the year that they are made. So if the date 
is 2009, we sell 2009 coins in 2009.
    Dr. Paul. The 2009 will be missing?
    Mr. Moy. Is missing, and what we are trying to do is 
prevent 2010 from missing.
    Dr. Paul. It still baffles me that we can't make a 
planchet. I don't know anything about the equipment or what is 
necessary, but doesn't this country make jewelry and make 
complicated jewelry out of gold? Isn't this just pretty simple? 
This just really is confusing to me why this can't be 
accomplished.
    Instead of looking for more planchets, you are saying, give 
me more authority so I can make a few of these proof sets, 
rather than figuring this out. What would a businessman do 
about this? Would he always resort to going to Australia to do 
this? It just seems so bewildering that a problem that seems 
rather simple, that we couldn't have had an easier solution for 
this. Right now, we don't even have a solution.
    Mr. Moy. A businessman has to weigh two things. On one end, 
to make the planchets ourselves, we need to make capital 
investments in order to develop the smelters, the chemical 
processing, take care of the environmental hazard of getting 
rid of the chemicals, all those issues. And on the other side, 
you have a limited amount of planchet makers around the world 
who don't want to increase their capacity unless they get 
guarantees from government that we will continue buying at such 
a high rate for some foreseeable future so that they can spread 
out their capital investment.
    So those are the two choices. And right now, it is the most 
efficient choice to be able to expand the quantity of planchets 
that we are getting from the various suppliers.
    Dr. Paul. Now, there are private companies making, not 
coinage, but they make medallions, and I have never heard of 
them running out of planchets. Do you think they have that 
problem?
    Mr. Moy. They don't, because they are not in a business of 
being the largest bullion maker and supplier in the world. Last 
year, we sold 28 million ounces of these. This year, we are 
headed to 32 million ounces. On an average year, the Mint might 
make 8 million ounces of this. So, the other people don't have 
to deal with the volume issues that the United States Mint 
does.
    Dr. Paul. This is awfully disturbing. What are we going to 
do when we go on the gold standard? We won't even be able to 
make the gold coins. You can't even keep up with a few 
collectors.
    Mr. Moy. By that time, my term at the Mint will be done, 
and I will start a planchet-making company to pick up the 
excess.
    Dr. Paul. I don't know what it is, but it seems to me that 
there has to be a market answer for this. And maybe it is the 
promise to take these no matter how many they make. Maybe that 
would help. They are not going to lose their value, like it is 
a risky thing. But you are dictated by law that you have to 
promise these private sources on how many you can take?
    Mr. Moy. We are not dictated by law, but just by business 
practice. When a company invests in expanding their capacity, 
they are going to want to make sure that investment gets paid 
off over time, and they are not willing to do it unless they 
get a commitment from their buyers to buy up all their excess 
capacity.
    Dr. Paul. It sounds like they don't trust the government. I 
don't know. Thank you.
    I yield back.
    Chairman Watt. You have another problem for the gold 
standard that we have identified.
    The gentleman from Missouri, Mr. Cleaver, is recognized for 
5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    To the first three panelists, it would seem to me that one 
of the things that you would want to sell with this proposal is 
the sustainability. If a $1 note lasts for approximately 21 
months, and a $1 coin lasts for 30 years, it would seem to me 
that there is a very clear and real issue of sustainability.
    Mr. Moy. Excuse me, sir. Is that question directed at me?
    Mr. Cleaver. Yes, to any of you.
    Mr. Moy. Coins, because they are made of metal, are harder 
and last longer. We engineer our coins to make sure that they 
have a usable surface for at least 30 years. Many of our coins 
end up lasting 40 or more years. So there is an advantage for 
using dollar coins.
    But Americans are creatures of habit. So they are very used 
to using the bill. They are not used to using coins in regular 
retail transactions.
    One thing that we have seen some utility for is when you 
use it in a vending machine, without dollar coins, if you buy a 
$1 soda for $5, you get 16 quarters back. People find it a 
little more convenient to get four $1 coins back. But that has 
not been enough to change behavior.
    So we are a little bit vexed, given the current co-
circulation of both the dollar bill and the dollar coin, for 
how to make inroads for sustained utilization of the dollar 
coin.
    Mr. Cleaver. So, let's say a $1 bill has a life span of 21 
months, how long would it take to phase out the $1 bill?
    Ms. Roseman. Actually, the $1 bill now lasts longer than 21 
months. There have been efforts that both BEP and the Federal 
Reserve have taken over the years to extend the useful life of 
dollar bills.
    Mr. Cleaver. For how long?
    Ms. Roseman. It is about 3.5 years. We are planning to make 
further changes to Federal Reserve processing operations to 
extend the useful life even further. It won't approach the 30 
years for the dollar coin, but I think there are a number of 
considerations that we need to take account of in weighing the 
dollar bill versus the dollar coin.
    There is, as you alluded to, the cost to government. I 
think we also need to look more broadly at the cost to society 
in general, particularly to businesses that handle coin and 
currency and the differential cost to them.
    There is also the issue that I think was brought up earlier 
with respect to public preference. Today, Americans have a 
strong preference for dollar notes. That may evolve over time. 
But that is the case for today.
    Mr. Cleaver. But the GAO says that they have that 
preference until you follow with a second question dealing with 
the fact that it would save a half billion dollars.
    Ms. Roseman. It is unclear--and I know the GAO, and we are 
also and I think others are looking at, in today's environment, 
what would be the savings to the government from looking at the 
dollar coin and the dollar bill. That study is just getting 
under way.
    Mr. Jenkins would be able to address the counterfeit 
deterrence and detection features of coins versus notes, and if 
there was counterfeiting, how readily it would be detected.
    And also, I think one of the other things we would need to 
take into consideration is the use of the dollar in other 
countries. Now, most use of the U.S. dollar in other countries 
has been more in the high denominations, but there are some 
economies that use the U.S. dollar for transactional purposes, 
as well. They are either dollarized economies, or they have the 
U.S. dollar co-circulate with their local currency. And as part 
of the cost equation, will U.S. currency be as attractive to 
them if the dollar coin were to replace the dollar note?
    I am not clear at this point what the answer is, but I 
think those are all things that would need to be weighed in 
doing that evaluation.
    Mr. Cleaver. Mr. Jenkins, I think my time is up. So if you 
can do a small response.
    Mr. Jenkins. Sir, it definitely would be an educational 
process for us to reeducate the American public on the 
detection of counterfeit coins. Currently, right now, through 
our 138 field offices and 22 international offices, we go out 
and educate the consumers out there on what to look for in 
counterfeit currency for all paper notes. So we would have to 
reeducate the general public on the detection of counterfeit 
coins if we did make that switch.
    Mr. Cleaver. Thank you.
    Chairman Watt. I thank the gentleman.
    The gentleman from Delaware, Mr. Castle, is recognized for 
5 minutes.
    Mr. Castle. Thank you very much, Mr. Chairman. I am pleased 
to be here. Unfortunately, my schedule is such that I am 
dancing around a little bit in terms of where I am going to be.
    But I would like to welcome Michael Clark--who will be on 
the second panel--a coin expert and a friend of mine from 
Delaware. I deal with him on a regular basis.
    And pursuant to that, Mr. Jenkins, I want to ask a question 
of something he had in his written testimony, which you haven't 
heard yet. I will read it to you. It says, ``Our industry 
believes that Congress needs to take swift action to protect 
consumers from the increasing and systematic counterfeiting and 
subsequent marketing of collectible, numismatic, rare and 
investment-grade legal tender United States coins. As a first 
step, we ask that Congress direct the Treasury Department's 
Inspector General to conduct a thorough investigation of the 
sources and extent of such counterfeiting and report back to 
Congress on the results of that investigation 270 days after 
enactment.''
    In your mind, is that--I realize that it may be a little 
bit off of your department, but is that a reasonable request to 
be made by Congress?
    Mr. Jenkins. Sir, to be quite honest with you, we don't see 
many cases involving counterfeit coins. I think, in the past 2 
years, we have seen less than 100 cases related to 
counterfeiting coins, and 99 percent of those cases deal with 
collectors where one collector has made a purchase from another 
collector, and there is a discrepancy there. In cases where we 
do deal--
    Mr. Castle. It is a discrepancy, but it is not a 
counterfeit?
    Mr. Jenkins. It is one collector saying it is counterfeit, 
and the other collector saying it is genuine. What happens 
then, sir, is that it will be referred to the Secret Service. 
We will investigate it, and we will bring it into our labs here 
in Washington, D.C., to determine if it is counterfeit or not. 
And then, we will refer it out to one of our field offices. At 
that point, they will conduct the investigation. And then, we 
refer it to either the U.S. Attorney's Office for prosecution 
or the District Attorney's Office, and they would make the 
decision on whether there will be a prosecution or not.
    Mr. Castle. I think I will drop that particular subject and 
go to something else, although I am not sure we have a complete 
answer at this stage.
    I wanted to ask Mr. Moy a question about the America the 
Beautiful Quarters Program and how it is coming along. We all 
know the 50 State Quarter Program worked extraordinarily well. 
It may have produced seigniorage, I think in the area of $3 
billion or something of that nature. But I am not sure exactly 
where we are with the America the Beautiful Quarters Program in 
terms of production. Is production sufficient? I am not hearing 
as much about it as I did the 50 State Quarter Program. I would 
be interested in the Mint's views on that program and where it 
seems to be right now.
    Mr. Moy. The short answer is that the program was launched 
late this spring. There have been two quarters that have come 
out, both the Hot Springs and Yellowstone. The orders for these 
quarters from the Federal Reserve are enough to meet demand, 
but the demand overall for quarters--not just these--is 
relatively low. So, for both Hot Springs and Yellowstone, the 
average Federal Reserve coin order has been about 50 million of 
these quarters. And that is compared to, at the end of the 50 
State Quarter Program, when both the Mint and the Federal 
Reserve figured out what the right amount is, that right amount 
was between 350 million and 550 million quarters per issue. 
That is compared to early on in the 50 State Quarter Program, 
States like Virginia--at that time, nobody knew what the demand 
was going to be. So in order to meet anticipated demand, both 
the Federal Reserve and the Mint made about 1.6 million of 
Virginia State quarters.
    So, comparatively speaking, the program is starting out 
slow because these quarters are much more difficult for 
consumers to get. As a result, the United States Mint has 
worked with the Federal Reserve to find alternate distribution 
mechanisms that don't tread on the Federal Reserve's 
responsibilities, such as allowing people to buy bulk bags, 
meaning bulk is 200,000 coins or $50,000 at the face value, 
which they can purchase directly from the Mint and pick them up 
at either the Denver or the Philadelphia Mint.
    Mr. Castle. My time is about up. Did you say 50 million 
versus 350 million to 500 million?
    Mr. Moy. That is correct, per issue.
    Mr. Castle. Is that an economic issue in the terms of the 
need for quarters in general?
    Mr. Moy. Yes, we believe so.
    Mr. Castle. Thank you.
    I yield back, Mr. Chairman.
    Chairman Watt. The gentleman from Texas, Mr. Green, is 
recognized.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the witnesses for appearing. The information is 
greatly appreciated.
    I am going to go into this line of questioning that deals 
with what I am calling an electronic cash society. There are 
other names, alternative transactions, for this.
    But I noted from your testimony, Ms. Roseman, that from 
1980 to 2009, the circulation increased to an average of 7 
percent per year from 124.8 billion to 888.3 billion. And this 
is driven by demand that--much of which is international. I 
also noted in your testimony that the Federal Reserve estimates 
that as much as two-thirds of the currency is circulated 
abroad, which is a significant amount.
    And I have not come to any conclusions about this. I really 
am interested in the answers. I am very much inquisitive, as 
you might well expect, given that I personally use electronic 
transfer for most of my transactions. I understand the use of 
the debit card and how that is impacting society, the credit 
cards. Checks are still being used.
    And then there are persons who are attracted to these 
plastic cards or other alternative transactions simply because 
of the interest-bearing nature of the currency. To hold 
currency is to lose money if you hold any large amount of it 
when you can have it in some sort of account wherein you 
actually are making money on your money.
    So my concern or question--perhaps I should not say 
concern. My question has to do with whether or not we will find 
at some point that we will move aggressively or with some 
greater amount of speed to a society wherein we really do rely 
more on plastic than on the Federal notes that we carry and the 
coins that we carry but not quite as much, it seems to me, as 
we used to--we seem to lean more toward currency than coins for 
obvious reasons. But with that said, your thoughts, please, 
ma'am, in terms of our moving into what I am calling an 
electronic cash society.
    Ms. Roseman. The use of different payment mechanisms in 
this country is something that we have been very interested in 
tracking. We have tracked over time the use of noncash payment 
mechanisms. It is more challenging to determine how pervasively 
cash is used for transactional purposes because it is more 
difficult to count the number of cash transactions than it is 
for card transactions, checks, or wire transfers.
    There is clearly evidence that there is some substitution 
taking place. Transactions that used to be done primarily in 
cash may be performed more frequently with debit cards and 
credit cards these days. Fast food restaurants, Starbucks, or 
other outlets that 10 or 15 years ago were largely cash-only, 
now have a growing portion of their transactions using cards.
    But we are not sure whether actually the number of cash 
transactions in this country has started to decline. If it is 
still growing, it is growing at a very small rate, where 
electronic transactions are growing at a much higher rate.
    So I do think that you are right, that over time there will 
be a continued substitution away from cash towards electronic 
payments. It is just unclear at this point how fast market 
forces will go in that direction. But I think the trend is as 
you suggest.
    Mr. Green. Thank you.
    I will just leave you with this comment. Perhaps you might 
want to respond. It seems that the technology is driving it 
simply because it is becoming so easy now to do this and to 
acclimate to it.
    At one time, it was somewhat alien to us, but the vending 
machines now will accept credit cards and debit cards. Almost 
everything in life seems to be moving in this direction. I am 
talking about in terms of the necessity to use cash.
    So it just seems that at some point, we will see an 
exponential increase once the technology becomes so pervasive 
that it is immediately available and accessible.
    Would anyone else care to respond? If so, I am all ears.
    Mr. Moy. Yes, sir. Given the Mint's experience, what we 
have seen in electronic transactions, the larger rate of growth 
has mainly come at the expense of checking. And so, when you 
take a look at checking's market share, that has dramatically 
shrunk and continues to shrink, whereas, what impacts a lot of 
the Mint's coin demand is retail sales.
    What we have been able to extrapolate from cash used, 
dollar amount-wise, represents about one-third of all retail 
transactions. But over the last 5 years, it has been stable, 
one-third for 50 years. And in the last 5 years, that has 
eroded to about 29 percent. So you begin seeing that 
substitution in there. And when you anecdotally test that, you 
will find that customers are feeling more comfortable with it, 
but you have old guys like me who don't want to use a credit 
card for a $3 transaction.
    Mr. Green. Thank you. My time has expired.
    Thank you very much. Thank you, Mr. Chairman.
    Chairman Watt. The gentleman's time has expired.
    Mr. Lucas is recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    I come at the panel with several questions from several 
different directions.
    First, Director Moy, it is always a pleasure to see you 
again. And to tee off with what my colleague from Texas was 
discussing about the planchette business, we get occasional 
reports here in Congress that there are entities in this 
country, manufacturers who would like to produce and provide 
those planchettes and that they believe they don't have an 
opportunity to compete. I know you will comment on that in just 
a moment.
    But I would also note that I realize that the Mint got out 
of the business of making planchettes and assaying gold and 
silver in the 1960's. But you do have that cavernous, huge Mint 
building in Philadelphia that was designed for this very 
purpose. Maybe some of those rotating fund dollars you have, 
maybe they should be spent on what I suspect you have already 
done, which is a study to determine, is it more effective for 
the Mint to produce these products, the same kind of study that 
would project for the years to come how many planchettes that 
you would need, because, as you said, we are the biggest 
bullion sellers? We could provide some certainty here. And I 
think Mr. Paul and I probably would help you with the directive 
for the appropriations process if you need it to do this study. 
Let's apply that businessperson sense, and let's just see what 
the economics are.
    To turn to Ms. Roseman, we have talked about dollars, and 
we have talked about 1 cent coins, so let's talk about the half 
dollar for a moment. Off the top of your head, how long has it 
been since the flow of half dollars out of the Federal Reserve 
Banks has been greater than the flow of half dollars from the 
public into the Federal Reserve Banks?
    Ms. Roseman. Each year since 2000, we had more half dollars 
deposited with the Reserve Banks than were ordered from the 
Reserve Banks.
    Mr. Lucas. So, essentially, 10 years since you have ordered 
new half dollars for circulation from the Mint. Any idea how 
many halves you have in the inventory system? You mentioned a 
billion of the dollar coins. How many half dollars?
    Ms. Roseman. We have 197 million half dollars.
    Mr. Lucas. But it has been 10 years since the flow has been 
greater out than the flow coming back in?
    Ms. Roseman. I am sorry. I have been corrected by my 
colleagues. Until 2004, we had a greater flow out than in.
    Mr. Lucas. One year out of 10, and yet it has been a decade 
since you have ordered new circulation pieces from the Mint. 
So, basically, it is a functioning obsolete denomination, too, 
along with the 1 cent, for all practical purposes, and the 
problems of the dollar coin.
    Turning to Mr. Jenkins, discussing the counterfeiting 
stuff, I guess I have a couple of technical questions you may 
or may not be able to answer. But tell me, how many trained 
agents do you know that the Secret Service has who have the 
experience to be able to detect and work with counterfeit 
coins? By the way, since 1865, you have an awesome history of 
addressing counterfeit paper currency. How many folks do you 
have who really know anything about counterfeit coins?
    Mr. Jenkins. Thank you for your question, sir.
    We have a counterfeit lab here in D.C., where if we do get 
coins that are suspected of being counterfeit, we will actually 
analyze the coin to see the makeup of the coin to determine 
whether it is counterfeit or not. Any counterfeit coins that 
would come in would come into our lab here in D.C.
    Mr. Lucas. The reason I ask that, agent, is there are 
reports that come to us that Secret Service offices and, on 
occasion, field agents around the country tell members of the 
public and perhaps even some other law enforcement officers 
that they are really too busy chasing the paper fraud and the 
other paper currency fraud and the other things going on around 
to worry about counterfeit U.S. coins. I would hope that is 
just urban legend. I would hope that we are not telling people 
we don't have time to mess with counterfeit coins. Any comments 
on that?
    Mr. Jenkins. Sir, I can assure you that the men and women 
of the Secret Service will investigate, whether it is a 
counterfeit coin or whether it is counterfeit currency on 
paper.
    Mr. Lucas. And there have been no directives of, ``Don't 
waste your time on the coin side, focus only on paper?''
    Mr. Jenkins. Absolutely not, sir. We just haven't seen the 
demand.
    Mr. Lucas. Thank you very much.
    Now, we are supposed to be protected in this country, folks 
who are interested in coin collecting and the numismatic areas, 
by the Hobby Protection Act, which requires that copies be 
stamped with the word ``copy'' to make it very clear that they 
are not actual U.S. coins, that they are reproductions or 
whatever.
    But one of the issues that again occasionally comes up in 
my discussions with folks who care about this is that because 
the Federal Trade Commission has jurisdiction or primary 
jurisdiction over the Hobby Protection Act, that confuses the 
chain of responsibility in pursuing these kind of cases for 
counterfeit coins and the selling of them in the U.S. markets. 
Do you have any insights? Is it more complicated because that 
particular issue involves the FTC versus perhaps a more 
straight-up issue about counterfeiting on currency?
    Mr. Jenkins. To be honest with you, sir, I would have to 
research that further due to the lack of demand that I have 
seen from counterfeit coins that have come in to us. As 
mentioned previously, I think it is less than 100 cases we have 
in the last 2 years.
    Mr. Lucas. Mr. Chairman, will you indulge me with one more 
question?
    Chairman Watt. Yes, sir.
    Mr. Lucas. I would also note, I think, by the reports that 
come to us, there are areas in the world where there are 
industrial-level efforts at manufacturing counterfeit U.S. 
coins. And not just ones that go through the vending machine 
down at the corner store, but pieces that are worth 
substantially more than the metal content. They are numismatic 
value. They are historic value, things copied from the 1790's 
and the 1800's and all this sort of stuff.
    This is not the first time that this has gone on. There are 
reports that in the 1950's, 1960's, and 1970's that certain 
places in the Middle East counterfeited in great quantities 
U.S. gold coins, full weight, full metallic value simply 
because having Uncle Sam's stamp on the front provided a 
substantial surcharge. If that was the case, then that was most 
unfortunate. And those are still floating around.
    There are reports in certain Asian countries, perhaps one 
of the biggest Asian countries, that this level of industrial 
counterfeiting is going on now. If that is indeed the case, 
then we are seeing the potential defrauding of many people who 
are purchasing these items unknowingly as legitimate 
investments or because of great appreciation for the perceived 
value. We need to do something about that.
    And with that, I yield back my time to the Chair.
    Chairman Watt. I thank the gentleman, and I thank this 
panel. I am not sure I want to go to a second round because we 
have a second panel. But it does seem to me that we have raised 
a substantial number of questions here that raise some issues 
that I think would cause me to ask this question with the 
unanimous consent of my colleagues here. Yesterday, the 
Washington Post ran this pretty extensive article about all of 
the proliferation of activities in response to terrorism and 
various entities not knowing what the others are doing and 
duplication and multiplication. And it seems to me that these 
four entities that are represented at the table here, some of 
these issues would be worth some collaboration on and--such 
as--we have reports, for example, that a number of studies have 
demonstrated that eliminating the penny, for example, would 
have a substantial regressive impact on poor people because 
they are--is anybody studying this? Is anybody talking about 
it, to give Congress advice about it?
    This issue that Mr. Lucas raised, what kind of 
collaboration is going on between these four entities here? 
This is not all of the different entities that I saw in the 
Washington Post yesterday dealing with terrorism. This is four 
entities basically. How much are you all talking to each other? 
And what kind of authority do we need to be giving--do we need 
to be setting up a study commission to study some of these 
issues? Who is studying these issues so that they can make 
recommendations to Congress? If we have the statutory authority 
to do this, we need to do it on an informed basis. We don't 
need to keep producing quarters that nobody is using. We don't 
need to keep producing dollar coins that nobody is using. We 
don't need to be producing more and more pennies unless there 
is some policy reason for it. Who is studying this? Is there a 
collaboration going on between the four entities? And what kind 
of authorization do you need to study some of these issues now 
that we have identified them?
    Can somebody answer that for me? Mr. Jenkins? And then, we 
will go right down the line. And maybe then, we will close this 
panel out, unless somebody else has questions.
    Mr. Jenkins. Mr. Chairman, in terms of communication, I 
think we all have a strong partnership together and we are on 
two committees where we meet on a regular basis to discuss 
issues that may be coming up, whether it is dealing with 
counterfeit currency trends or other issues that my other 
partners may have. So there is strong communication between the 
four entities at this table.
    Chairman Watt. And out of that communication, is anybody 
communicating these recommendations of any kind to Congress so 
that we can act on them or do they not require congressional 
action?
    Mr. Jenkins, that is the second part of my question, so 
then we will go right down the line.
    Mr. Felix. In terms of the currency design, the Secretary 
of the Treasury has that authority. It is not an authority 
that--it is a legislative authority. But to further Mr. 
Jenkins' point, we meet on a monthly basis to talk about some 
of the issues that impact not only counterfeiting, designs. At 
the Treasury Department, there are conversations and dialogues 
going on about the coin boundary mix and also about some of 
these issues. But certainly, the Federal Reserve has a major 
role and a major voice in this discussion, as well.
    Ms. Roseman. I would agree with respect to the level of 
collaboration among our four agencies. From the Federal 
Reserve's perspective with respect to studying certain issues, 
we wouldn't need additional legislative authority. I think that 
there may be opportunities in some laws to make changes to be 
able to address increasing inventories and other matters, some 
which we have raised in past reports to Congress, for example, 
on the Presidential Dollar Coin Act.
    Chairman Watt. Mr. Moy?
    Mr. Moy. Yes. I agree with my colleagues and further add 
that there are ways that we communicate the results of our 
collaboration, whether through reports on the Presidential 
dollar coin that are required on an annual basis to--during my 
confirmation hearings, one of the questions that was asked of 
me was--being 2006, that was the first year that making the 
coins exceeded their face value and what was I going to do 
about it as Mint Director. So that has spurred an initiative 
within Treasury Department to think of what the best solutions 
to that are. And as a result, you got that as a budget proposal 
in the Administration's Fiscal Year 2011 budget. So there are 
ways that we can communicate that to you. And based on the 
discussions here of the potential of the Mint doing a study on 
whether we should get back into the planchette business, that 
is something we are going to explore when we get back.
    Chairman Watt. 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 30 days for members to submit written questions 
to these witnesses and to place their responses in the record.
    So maybe we will try to frame some kind of comprehensive 
question to ask you all to collaborate on and to give us some 
recommendations. This hearing kind of comes at a--this is July 
of the second year of the House term because we have been 
basically devoting most of our attention to the financial 
services meltdown in our committee. And who knows who will be 
the chairman or ranking member of the subcommittee in the next 
term of Congress. It could be anybody up here, on this side.
    So, perhaps, the problem is one of continuity as much as 
anything else. But these questions do cry out. This is the 
medium by which we conduct business in this country. And I 
suppose all these people sitting in this audience are not here 
just by happenstance. They are here because they want to know 
what is happening with their dollars. And we need to be making 
good decisions about these issues. So with that--unless there 
are other questions--this panel will be excused. We thank you 
very much for your testimony, and we would encourage you to 
respond to any written questions that may be submitted to you 
either collectively or individually as we go forward. So thank 
you so much.
    And the second panel, if they will come up promptly, so we 
don't get caught by votes at some point this afternoon. And 
while the second panel is coming up, I would ask unanimous 
consent for the following statements to be submitted into the 
record: number one, a statement by Mark Weller, the executive 
director of Americans for Commonsense--I think he has a 
perspective on the one penny; number two, a statement by James 
Mulroney, director of coin services of Brinks, Inc.; and number 
three, a Federal Reserve chart that explains parts of Ms. 
Roseman's testimony.
    Without objection, those items will be made a part of the 
record.
    We will now proceed with the second panel, the members of 
which I will introduce in abbreviated form. My apologies for 
not giving your long bios. We will put them into the record, 
but we don't want to get caught by votes and not have the 
opportunity to hear your testimony.
    Our first witness on the second panel is Mr. Craig Hesch, 
chairman of the National Automatic Merchandising Association. 
Our second witness is Mr. Michael B. Clark, the president of 
Diamond State Depository. And our final witness will be Mr. 
Gary Marks, chairman of the Citizens Coinage Advisory 
Committee.
    And you were present, I hope, when we gave the instructions 
about the lighting system to the first panel: green for 4 
minutes; yellow for 1 minute; and then red means 5 minutes has 
expired, and we would ask you to wrap up as promptly as you 
can.
    So, Mr. Hesch, we recognize you for 5 minutes for your 
testimony, being aware that your entire written statement, will 
be made a part of the record, so we would ask you to summarize.

   STATEMENT OF CRAIG A. HESCH, CHAIRMAN, NATIONAL AUTOMATIC 
                   MERCHANDISING ASSOCIATION

    Mr. Hesch. Thank you, Mr. Chairman. Mr. Chairman, and 
members of the committee, I am Craig Hesch, volunteer 2010 
chairman of the board for National Automatic Merchandising 
Association, your vending machine people of the United States.
    In addition, I am the chief financial officer of A.H. 
Management Group, a family business, my family and our third 
generation of business. It started out as a mom-and-pop 
operation and grew to the size that we are now. We provide 
vending snacks and beverages to companies throughout the 
Chicago land area.
    Our national association, NAMA, is the trade association 
for the food and beverage companies, coffee service, and food 
service management industries. Our membership is comprised of 
service companies, equipment manufacturers, and suppliers of 
products and services. We have 34 affiliated State councils 
encompassing 36 States.
    The vending industry is a $40 billion a year business, 
employing approximately 700,000 people who work at an estimated 
13,500 companies. According to The Vending Times Census of the 
industry, there are approximately 5.3 million food and beverage 
machines in the United States.
    Since 100 million Americans will use a vending machine each 
day, any changes in coins or currency will directly impact our 
membership and our customers. The industry could lose jobs if 
dramatic changes are made to coin or currency. To understand 
why jobs could be lost, it is important to understand the costs 
of a modern coin and currency acceptance system.
    The coin and bill validator costs between $250 and $475 
each. I have with me examples of a coin and a bill validator. 
This mechanism costs $450 and takes 20 minutes to install. If 
it needs to be reprogrammed to accept the new designs of a new 
U.S. Federal Reserve note or new metal content of a U.S. coin, 
it will cost, at a minimum, $100 per device, and take 20 
minutes for a trained technician to travel to the location and 
reprogram the device. So changes could result in an estimated 
cost of at least $530 million just to this industry.
    But an estimate of the cost may be much more complicated. 
For example, one NAMA member estimated that it would cost the 
industry billions of dollars when you consider all of the 
unattended point-of-sale locations. In addition to an estimated 
5.3 million food and beverage machines, there are approximately 
1.3 million amusement machines; 750,000 to 1 million gaming 
devices; 1.5 million to 2 million retail, car wash, and other 
specialty devices; 2 million, in addition, parking meters; and 
millions of coin and cash handling or currency counting devices 
in banks and retail locations currently.
    And the more drastic the change to the coin and currency, 
the greater the cost of the engineering. If the unit is older 
and it requires new hardware or potentially an entirely new 
device, then the jump in cost is an additional $100 for low-end 
devices to $500 in the higher-end devices, such as you see 
here. The most common cost would be $300 to $400, in that 
range.
    Examples of change which would require more costly upgrades 
would include coin size changes or notes that significantly 
differ in width and length from our current bills.
    Regarding changes to the metal content of coins, we 
recognize that there is an increased cost of mining coins; 
however, changing the composition alloy, size, or weight of the 
coins could very well lead to expensive modifications to coin 
mechanisms by the vending industry.
    NAMA generally opposes coins manufactured from multilayer 
plated materials, especially for higher value coins. Multilayer 
plated steel construction or other material changes to coins 
could have similar electronic metal signatures which may not 
allow coin validators to distinguish coins directly.
    We also strongly oppose mechanical changes to coins, such 
as shapes, sizes or weights.
    In my closing, because my time is up, in regards to 
currency, we support reasonable changes to U.S. currency to 
accommodate the visually impaired, but we must ensure that 
currency readers in vending machines can validate the currency. 
NAMA opposes any changes which will unnecessarily burden the 
thousands of small businesses which operate vending machines or 
to our customers, sir.
    [The prepared statement of Mr. Hesch can be found on page 
61 of the appendix.]
    Chairman Watt. Thank you for your testimony.
    Mr. Clark, you are recognized for 5 minutes.

    STATEMENT OF MICHAEL B. CLARK, PRESIDENT, DIAMOND STATE 
                           DEPOSITORY

    Mr. Clark. Chairman Watt, Ranking Member Paul, and members 
of the subcommittee, thank you for the opportunity to address 
you today. I appear before you this afternoon as president of 
Diamond State Depository in Wilmington, Delaware, a subsidiary 
of the Dallas-based Dillon Gage group. Dillon Gage is one of 
the 12 authorized purchasers of the American Eagle Silver 
Bullion Coin from the United States Mint.
    I also represent the industry council for tangible assets, 
the National Association for Rare Coins, Precious Metals and 
the Tangible Asset Industry.
    This afternoon, I wish to discuss three issues, all related 
to coinage: first, the market impact of the Mint's continuing 
difficulties in keeping pace with the market demand for its 
American Eagle Gold and Silver Bullion programs; second, the 
desire among collectors and investors alike for an American 
Eagle palladium bullion coin; and third, the growing presence 
of counterfeit coins in the marketplace.
    When Congress authorized the minting of the gold and silver 
bullion coins with the Gold Bullion Act of 1985, it created a 
wildly successful program for investors and hobbyists 
interested in the advantages that precious metals can offer in 
diversifying and stabilizing one's investment portfolio.
    Today, the American Eagle Bullion Series, which includes 
gold, silver, and platinum products, is the dominant provider 
of bullion and coin investment products to the global market. 
The coinage program has provided investors with a convenient 
manner by which to invest in silver, gold, and platinum 
bullion. Of course, these coins are also prized by collectors 
for their beauty. Strong investment demand, coupled with the 
global economic turmoil we have experienced in recent years, 
has paved the way for a bull market in precious metals 
investments.
    In the past 3 years, the U.S. Mint has sold unprecedented 
volumes of American Gold and Silver Eagle Bullion Coins. Demand 
for these products has been so robust in recent years that the 
Mint at times has suspended the production of both its 
fractional Gold Eagle Bullion Coins, which are produced in 22 
carat, and its 24-carat Buffalo Gold Bullion Coin.
    Moreover, in late 2008, production of the American Eagle 
Gold and Silver Proof and Uncirculated Coins was suspended 
because of the exceptionally strong demand for the bullion 
coins. The Mint has allocated all available gold and silver 
bullion blanks to the production of the American Eagle Gold and 
Silver Coins because the United States is required by law to 
produce these coins ``in quantities sufficient to meet public 
demand.'' As a result, collectors that prize the Proof and 
Uncirculated Coins are being denied the opportunity to purchase 
these products.
    While the Mint's inability to keep pace with demand has had 
a negative and unnecessary impact on the investment and hobby 
community, it has also caused frustration among the Mint's main 
marketers, its authorized purchasers. On many occasions, the 
Mint has had to ration coins amongst the purchasers, causing 
havoc in the distribution system.
    At the heart of the problem is the Mint's inability to sort 
sufficient blanks from multiple producers. Its reliance on just 
three suppliers is flawed. Moreover, there is some irony in the 
fact that Congress requires the Mint to procure gold for the 
Bullion Eagle Coins from newly mined U.S. deposits, but then 
the Mint shifts the gold to Australia, as we have heard, to 
have them made into blanks. Then, the fabricated blanks are 
subsequently shipped back to the United States for production 
of the coins. The inefficiency of this system is obvious. It 
seems that we should be able to create jobs at home by sourcing 
these blanks in the United States and eliminate the cost for 
the intercontinental shipping.
    We wish to recommend that Congress take the following 
actions: one, authorize the Mint to produce both Proof and 
Uncirculated versions of the Gold and Eagle--Silver Eagle 
Coins, regardless of the demand requirements for the bullion 
coins to ensure an uninterrupted supply to the market; two, 
direct the Government Accountability Office to undertake a 
review of the Mint's procurement process for blanks and to seek 
its recommendations on what can be done to improve it; and 
three, require the Mint procure the blanks for its bullion 
programs with sources within the United States by 2014.
    Our industry also believes that Congress should broaden the 
offerings of the American Eagle Bullion Coin Program by 
authorizing the Mint to produce a palladium bullion coin 
investment coin. While principally an industrial metal, much 
like silver, platinum and palladium, palladium is also favored 
by investors because of its rarity. Palladium is similar to 
platinum in composition and appearance. Palladium is mined in 
only a few nations, and the United States is the fifth largest 
producer of this rare white metal. A 1-ounce palladium coin 
would offer the precious metals investor an interesting price 
point for entry, as gold trades currently at about $1,200; 
platinum over $1,500; and palladium at about $450 an ounce.
    Lastly, a palladium bullion coin would create or maintain 
U.S. mining and refining jobs. In addition to mining jobs in 
Montana, palladium is refined in New Jersey, California, and 
South Carolina.
    Unfortunately, I have run out of time. I was going to speak 
about the counterfeiting issue, but my time is up. So it is in 
my submitted testimony, of course.
    I thank you for the opportunity to address the 
subcommittee, and I would be happy to answer questions at the 
conclusion.
    [The prepared statement of Mr. Clark can be found on page 
47 of the appendix.]
    Chairman Watt. I suspect you will get some questions in the 
question-and-answer period. It will give you an opportunity to 
elaborate on that.
    Mr. Marks, you are recognized for 5 minutes.

 STATEMENT OF GARY MARKS, CHAIRMAN, CITIZENS COINAGE ADVISORY 
                           COMMITTEE

    Mr. Marks. Chairman Watt, Ranking Member Paul, and 
distinguished members of the subcommittee, thank you for the 
opportunity to address the matter of design quality for the 
coins and metals produced by the United States Mint.
    I am the chairman of the Citizens Coinage Advisory 
Committee, commonly known as the CCAC. In 2003, Congress 
created the CCAC to advise the Secretary of the Treasury on any 
theme or design proposals relating to circulating coinage, 
bullion coinage, Congressional Gold Medals, and national and 
other medals produced by the Secretary of the Treasury, in 
accordance with Section 5111 of Title 31 of the United States 
Code.
    As a committee designed specifically to advise the 
Secretary of the Treasury, the CCAC serves in an independent 
capacity from the United States Mint. Over the past 3 years, 
members of the CCAC have expressed concerns to Mint officials 
that the design proposals for various metals and for 
circulating and commemorative coinage have at times lacked the 
appropriate quality for the United States of America.
    Specifically, the lack of design quality has been evidenced 
in designs that are cluttered and lack focus--and I have 
included these exhibits along with my submission--the use of 
design devices that are so small they cannot be readily 
discerned by the naked eye, and the use of what I call 
storyboard depictions that attempt to illustrate design themes 
in literal terms rather than through the use of allegorical or 
symbolic devices. And historically, some of this Nation's most 
acclaimed coin designs have been achieved through the effective 
use of allegory and symbolism.
    In other instances, the CCAC has been provided a single 
design proposal for a medal and asked to make a recommendation. 
If the CCAC finds the design unacceptable or lacking, 
production timelines are often so tight that the Mint is unable 
to provide alternate designs for review.
    In a similar vein, the CCAC was recently provided a set of 
three proposed designs for the obverse of the silver dollar for 
the 2011 Medal of Honor Commemorative Coin Program. All three 
designs were virtually the same, except for a few very small 
variations.
    When the choices we are asked to make become nearly 
meaningless for the lack of variation or because only one 
design is proposed, the ability of the CCAC to effectively 
administer its advisory role is severely diminished.
    In a recent review of the 2011 United States Army and 
Commemorative Coin Program, the CCAC was presented with a 
design showing a United States soldier pointing a rifle in the 
direction of a United States Army helicopter, giving the 
unintended and unfortunate appearance of trying to shoot it 
down. In another example, the Army emblem was rendered with 
inscriptions reversed from their official position.
    Despite these examples, members of the CCAC have been 
hopeful that necessary changes would be made and, in fact, that 
a renaissance in United States coinage design would occur.
    This hope has been founded in a vision articulated by Mint 
Director Edmund C. Moy, in 2007. During the Art Medal World 
Congress held in Colorado Springs in September of 2007, 
Director Moy issued a stirring call ``to spark a neo-
renaissance for coin design and achieve a new level of design 
excellence.''
    I count myself as a strong supporter of the vision to bring 
about a neo-renaissance, as the Director has called for, and I 
know many of my fellow members on the CCAC share the same or 
similar convictions and desire to see a true modern revival of 
excellence for the designs of our Nation's coinage, yet nearly 
3 years after the Director's call for design excellence, 
members of the CCAC continue to express dissatisfaction with 
the Mint's design proposals.
    Let me be very clear. It is not my intent to find blame or 
point fingers, but rather to identify what must happen going 
forward to bring about the positive change we desire.
    Let me also be very clear that the Mint's art staff is 
highly skilled and very capable of producing high-quality 
designs. I have seen moments of genius in these artists, and I 
believe the answer will be found when we discover what changes 
in the process need to be made to liberate them to perform at 
their full potential.
    Therefore, acting in my statutory role as the CCAC's 
chairman, I recently appointed a Subcommittee on Coin Design 
Excellence comprised of five members of the committee. I have 
given the subcommittee the task of investigating the Mint's 
design processes, identifying what changes would lead to 
improved designs and, subsequently, to develop recommendations 
designed to further these changes.
    It is my intent that such changes would be issued by the 
full committee to the Secretary of the Treasury within the next 
several months. Once the committee has issued its design 
quality recommendations, I would be pleased to provide copies 
to this committee or any members who might be interested.
    The CCAC's Fiscal Year 2009 annual report has just been 
released, this document here, and it is available to all 
interested parties in the room if you would like to know more 
about us.
    Thank you for the opportunity to report to you on the 
design quality issue and the CCAC's recent efforts to develop 
recommendations for improvement. I would be very pleased to 
answer any questions you might have.
    [The prepared statement of Mr. Marks can be found on page 
76 of the appendix.]
    Chairman Watt. Thank you for your testimony.
    And I thank all three witnesses for their testimony.
    I will now recognize the members for questions.
    And, Mr. Marks, I was thinking, apropos to my closing 
comments on the first panel, that the CCAC might be the 
appropriate body to be doing some of this. But it sounds like 
you all are being marginalized to some extent, and maybe that 
wouldn't be the appropriate body if you get marginalized.
    Do you see the kind of consultation on a number of these 
issues going forth, or is your portfolio only with the design 
of coins and currency?
    Mr. Marks. Our statutory role is limited to design and 
themes for designs. I think, essentially, the Mint is a 
manufacturing operation, and because of that, there are 
production schedules. And I think that dictates a lot of what 
happens with the Mint.
    In recent years, the last decade or so, there has been a 
flourish of legislation with various commemorative programs, 
both circulating and more of the numismatic type that I think 
have taxed the capacity of the Mint. That is my personal 
observation.
    And unfortunately, groups like mine, the CCAC and the 
Commission on Fine Arts, typically are at the end of the design 
process. So, by the time a design reaches us, having sufficient 
time in the production schedule to react to our input I think 
sometimes is very limited, and sometimes, as I have indicated 
in my testimony, we are somewhat marginalized.
    Chairman Watt. I assume both Mr. Hesch and Mr. Clark, you 
would support giving the Mint and/or other bodies, the four who 
appeared on the first panel, greater research and development 
authority on alternative metal compositions for circulating 
coins and, I suppose, numismatic coins also. Do you have any 
comments to make in this area?
    Mr. Clark. Thank you, sir.
    I believe our industry feels as though the present system 
is probably best. I like one idea that I heard I think from 
Congressman Paul.
    Chairman Watt. The present system being--
    Mr. Clark. That Congress has the authority.
    But the recommendation earlier, the suggestion earlier that 
the Mint and its resources be brought to bear to bring about 
recommendations for the Congress to consider seems it would be 
the most logical approach in our minds, I believe.
    Chairman Watt. I think that was actually my opening 
statement comment as a suggested alternative.
    Mr. Hesch?
    Mr. Hesch. NAMA definitely supports the idea of giving the 
U.S. Mint and the Bureau of Engraving the authority to do 
research and conduct research.
    However, we do hope that Congress will retain the authority 
to allow such changes.
    Chairman Watt. And that is so that it doesn't get made 
regularly and have an adverse impact, I suppose, on your 
industry?
    Mr. Hesch. Yes.
    And we do have a very good working relationship with both, 
I might add, but again, the costs associated to dramatic 
changes or any changes are so large to our industry that we 
want to be able to monitor them.
    Chairman Watt. Mr. Hesch does your industry have a position 
on whether we should retain the statutory requirement that 
refined gold and silver must first be used to meet bullion 
demand as opposed to being used in numismatic--
    Mr. Hesch. Our association has no position on that at this 
point in time.
    Chairman Watt. I take it, Mr. Clark, you have a bigger dog 
in that fight?
    Mr. Clark. We do, sir, yes. We believe that the Mint should 
be authorized to produce the Proofs and Uncirculated along with 
the bullion coins. And it would seem logical that it could be 
done in some proportion. But under the current system, the 
collectors of the Proofs and Uncirculated Coins are sort of 
being shut out of the market, quite honestly, because there are 
no products for them to buy from the Mint.
    Chairman Watt. Is the collection of numismatic coins a 
profit center for--we are obviously encouraging collection, but 
wouldn't the primary role of these agencies be to deal with the 
circulation and economic value as opposed to collection?
    Mr. Clark. Part of the U.S. Mint's mission, as I understand 
it, is to satisfy the demands and desires of the collector 
community as well as provide circulating coinage at the same 
time. So I don't think their mission--that they are mutually 
exclusive requirements.
    Chairman Watt. One final question. This palladium 
suggestion that you have made, would that help to solve--how 
much of the undersupply would that help to solve, in your 
estimation?
    Mr. Clark. We do believe it is an ideal price point for 
many investors. And as a result of producing a palladium coin, 
we believe it would have the effect of reducing the burden on 
the Mint for Silver Eagle production because the Silver Eagle 
coins are priced roughly at $20 to $21, $22 right now, whereas 
the palladium bullion coin would be in the $450 market--price 
range, excuse me. And it would no doubt attract some of the 
investors who forego the higher priced $1,200-plus gold bullion 
coin and the $1,500-plus platinum coin. It would provide us an 
excellent alternative for the lower-priced coin investors.
    Chairman Watt. My time has expired. I was tempted to ask 
you about the value of all of these Kennedy half dollars I have 
in my safety deposit box, but I won't do that on the record.
    My colleague, the ranking member, is recognized for 5 
minutes.
    Dr. Paul. Thank you.
    Chairman Watt. Diminishing value, I take it.
    Dr. Paul. They may have some silver left in them.
    I have a question for Mr. Clark. Why do you think the Mint 
only uses three suppliers to provide these planchettes?
    Mr. Clark. I would like to be able to understand that, but 
I have no firsthand knowledge.
    Dr. Paul. If you know the business, are there other people 
who can make them in the country?
    Mr. Clark. I believe there are other companies out there 
that are very interested in offering their services to the 
Mint.
    Dr. Paul. And I understand that they are not restricted by 
the law to these three individuals. They have the authority to 
do it.
    If we get the palladium coin, we are still going to have 
that same problem; where are we going to get the planchettes? 
Because they can't even supply the demand right now.
    Now, you suggested that we get the GAO involved and take a 
look at all of this and see if we can get recommendations. And 
I am just wondering how much we really need this. Is there any 
other way to get some professional or political advice on this 
without an audit? Or do you see the audit as something very, 
very important?
    Mr. Clark. Are we talking about the planchettes or the 
palladium coin, sir?
    Dr. Paul. Your recommendation for the audit to review the 
Mint's procurement processes for the blanks.
    Mr. Clark. We thought an outside agency looking at their 
process and why--to answer your question, why they are 
restricting sources to only three separate entities, someone 
with a separate set of eyes and kind of a fresh look might be 
able to determine that there is a better way to go about it. 
That is why we are making the recommendation.
    Dr. Paul. And your other recommendation was that we require 
all the planchettes be made here in this country.
    Mr. Clark. We believe there is sufficient capacity within 
the U.S. borders to do so.
    Dr. Paul. Do you think there is a lot of difference, a net 
difference in making these coins if we didn't require that the 
gold came from this country? Isn't gold generally pretty 
fungible? Does that make a big difference?
    Mr. Clark. I think the interest in--Congress' interest at 
the time they passed that requirement, of course, back in 1985, 
was to promote the sale, the job creation amongst American 
mining companies that domestically produced gold be used for 
the American bullion coin programs.
    But you are right, obviously, gold is fungible, and 
conceivably it could be acquired anywhere. I don't think that 
is part of the problem. I think there is a sufficient gold 
supply. It is just the actual fabrication of the planchettes 
for some reason is limited to three separate sources at the 
current time.
    Dr. Paul. Yes. It just seems to me, like I mentioned 
earlier in our hearing, that this problem seems to be unique to 
government. If the private industry is doing this, they just 
don't run into this. Some of this, I think, just like the 
emphasis in 1985 to--I use domestic gold and all, I can 
understand that. But it certainly is--we are a long way away 
from a business person adjusting for supply and demand and 
doing it at the best price. There is no way that the government 
can compete with private industry in even making a coin these 
days. But I was just wondering about how strongly you felt 
about that. But I really don't have any other questions, and I 
am going to yield back my time.
    Chairman Watt. I thank the gentleman.
    The gentleman from Texas is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank the witnesses 
as well.
    Mr. Hesch, your testimony was very insightful. You provided 
a lot of intelligence that I think a good many people were just 
not aware of in terms of the costs associated with making a 
transition from one coin to another. Your industry went for a 
very long time without accepting currency within the automated 
machinery, and then you made that transition to currency. And 
currently, I assume, if you--not all have, but you are making a 
transition now to plastic or alternative forms of promoting 
these transactions. How rapidly is this taking place from the 
coinage, to the currency, to what I am going to call plastic?
    Mr. Hesch. It kind of depends upon what generation you are 
from, to be quite honest. What we have experienced is the 
younger generation obviously does not carry cash and coin. I 
have two daughters, 28 and 26, and they don't carry cash with 
them. I understand that. Our industry is definitely moving 
toward a cashless or a credit-based system.
    Up until not that long ago, it was very expensive for 
microtransactions to take place on the cost that we had to 
issue back for the credit card usage. So as that barrier has 
been breaking down, we have becoming more intrigued and putting 
out more credit card acceptance devices on equipment. It is a 
cost that we encumber both on the up-front charge as well as on 
the back-side charge.
    But we have to obviously take care of all of our customers. 
So, yes, cash and credit are coming on every machine. As far as 
acceptance, that is kind of tough. It depends upon the 
generation.
    Mr. Green. I understand that. I think I am with your 
daughter's generation. I rarely carry cash; I use credit cards, 
for various and sundry reasons.
    Now, you talked about the costs associated with making the 
change. Do you have an adequate means by which you can convey 
your concerns to those who have the hands-on experience with 
making the change? Is this the means by which you communicate 
your message, primarily through us in hearings like this? Or is 
there some other means by which you can adequately convey your 
message?
    Mr. Hesch. Actually, both; here in front of you to convey 
our message to you, who actually are telling or are letting 
them do what they want. But we do have a working relationship 
with the BEP as well as the Mint. We know both gentlemen very 
well as far as our President. We do work on both sides, if you 
will, sir.
    Mr. Green. And to this end, you made mention of the costs 
associated with this. Are you of the opinion that these things 
are given consideration when changes are made such that your 
industry is not adversely impacted to some astronomical degree? 
I am confident that you are always adversely impacted.
    Mr. Hesch. Absolutely, sir. We did go through. When the BEP 
did come up with the new bills, our industry did get them for a 
period of time to be able to test them, to be able to find out 
what changes needed to be made on our currency acceptors, etc. 
So, yes, we do have a working relationship.
    As far as coins, we haven't gotten to that point yet. 
Obviously, we don't take pennies; we take nickels and above. 
But the electronic signature is of concern to us because not 
only will we have to accept what we currently have, we will 
have to accept potentially what is being manufactured. And 
again, in my statement, the alloy is a concern, not as much of 
a concern on the lower denominational coin, but when you start 
talking size, shape, diameter, that impacts our industry on a 
much more larger level, much more larger.
    Mr. Green. My final question would be this: In making the 
transition to what I am calling plastic or electronic credit, 
if you will, what is the most significant obstacle that you are 
having to deal with that we here in Congress might have an 
opportunity to give some assistance with?
    Mr. Hesch. We are talking to Members of Congress as far as 
initiatives that we are looking at for equipment investment to 
be able to do certain things, such as credit card acceptance. 
Not only do we have that, we also are on the green side, if you 
will, because we are bringing something to people at either 
where they work or a place where they are at. We are bringing a 
convenience to them so that they don't have to go somewhere 
else. So in reference to that, we are trying to look for places 
through initiatives here in Congress to be able to get some 
capital to be able to improve what we are able to offer.
    Mr. Green. Thank you, Mr. Chairman. My time has expired.
    Chairman Watt. Thank you.
    And the gentleman from Oklahoma, my friend Mr. Lucas, is 
recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    Mr. Hesch, I apologize for being out of the room for part 
of your oral testimony. But reading your statements here, in an 
earlier panel, I inquired about the nature of what would be 
defined as obsolete coins and what is not. You are the best 
example of an industry that is using them each and every day.
    Mr. Hesch. Yes, sir.
    Mr. Lucas. What percentage would you guess that go through 
your machines are half dollars, quarters, dimes, nickels?
    Mr. Hesch. The majority of the coinage that goes through 
our machines would be quarters.
    Mr. Lucas. Followed by dimes?
    Mr. Hesch. Followed by dollar coins. I would say quarters, 
dimes, dollar coins, nickels. No half dollars. We don't even 
take half dollars, sir. I am sorry.
    Mr. Lucas. Absolutely. And you make the point in your 
testimony that whatever we do, it is important to maintain that 
consistent alloy, that electronic signature that you referred 
to.
    Mr. Hesch. Consistency is key.
    Mr. Lucas. So, in fact, thinking to the earlier discussion, 
if the 1-cent piece went away, the half dollar went away, your 
folks wouldn't notice it at all--minimally.
    Mr. Hesch. Minimally. If the penny went away, no.
    Mr. Lucas. And on the 5-cent piece, which we have had much 
discussion here, historically we have not always used this 
particular combination, this particular size in the past. The 
5-cent piece was of the same alloy as the larger ones. Fair 
enough.
    Let me turn to Mr. Clark and anyone on the rest of the 
panel. Let us expand for just a moment on the counterfeit 
issues. I think, Mr. Clark, in your testimony, you mentioned 
that the estimation on sales of products that were alleged to 
be legitimate U.S. legal tender, perhaps defined as collector 
coins but not, could be as high as $5 billion?
    Mr. Clark. Yes, sir. By some industry estimates, it could 
be as high as $5 billion.
    Mr. Lucas. Could you expand for a moment on that problem? 
Since we are talking about not just a few thousand dollars or a 
few hundred thousand dollars, but billions, could you expand on 
that issue and what your folks are encountering and seeing?
    Mr. Clark. There have been written reports and discussions 
at our gatherings, estimates made of as many as 1 million 
counterfeit in numismatic coins being brought into the U.S. 
marketplace last year. They come primarily from the Far East, 
as you mentioned earlier. There are some very sophisticated and 
extensive capabilities in certain parts of the Far East, where 
it is legal to produce replicas, which we would probably 
consider as counterfeits once they come into this country. And 
the issue is critical within our industry, because even our own 
experts sometimes have a difficulty distinguishing an authentic 
coin from a replica or a counterfeit.
    Mr. Lucas. And, Mr. Clark, I have seen reports that on 
occasions these pieces come into the country packaged or 
encapsulated in what are purported to be systems to verify the 
authenticity by third-party grading services not only 
counterfeiting the coin, but counterfeiting the package that 
implies the coin is real. Have you seen those reports?
    Mr. Clark. We have. And this is correct. It is happening. 
There have been reports of the exact same coin with the exact 
same serial number.
    Mr. Lucas. As long as they have a verification package.
    Mr. Clark. Yes, exactly, on the package having been 
replicated. The two most well-known services are NGC, the 
Numismatic Grading Company, and PCGS, which is the Professional 
Coin Grading Service, are the most widely recognized throughout 
the world actually, and are the most replicated in that 
country, counterfeited in ours. And we have seen multiples of 
the same replicated coin packaged in the exact same container, 
bearing even the same serial number, but they are so good and 
they are so authentic looking, as I said, it is sometimes 
difficult for the experts to distinguish between the two.
    Mr. Lucas. And for the benefit of the panel, Mr. Clark, we 
are talking about things that, by creating this appearance, by 
adding the appearance of this packaging, we are not just 
talking about a $20 gold piece selling for whatever an ounce of 
gold is selling for, we are talking about potentially for 
thousands of dollars above and beyond metallic value.
    Mr. Clark. Yes. They can range from several thousand 
dollars to--I have seen certified coins in excess of $1 million 
in value, in market value.
    Mr. Lucas. So clearly, this is an area where law 
enforcement and all of the appropriate entities need to be 
aggressive. And this is not just selling to tourists on the 
street somewhere, these are Internet marketers, these are a 
variety of sources moving this product. Is that a fair 
statement?
    Mr. Clark. That is correct. Yes, sir, I agree with that.
    Mr. Lucas. Thank you, Mr. Chairman.
    Chairman Watt. The gentleman's time has expired.
    Mr. Cleaver is recognized.
    Mr. Cleaver. Thank you, Mr. Chairman.
    This is an amazing place to be, because if somebody had 
told me that there was an Automated Merchandising Association 
in the world, I would have challenged it. Since I have been 
here, I have never seen anything that does not have an 
association. And I also would contradict your industry.
    I am in an industry where people leave their change at a 
higher level. I am in the church, and more change is left in 
the church than in any of the machines. People are adverse to a 
silent offering in church.
    The other thing is that--and I don't want to be 
insensitive, but most of the industries, when we proposed seat 
belts, the automobile industry said, this is going to collapse 
our industry. And then when we required air bags, they said, 
this is going to do it for sure. And in any industry, we always 
hear that. So I don't mean to suggest that there won't be costs 
involved, because obviously there will be.
    And the other issue--and I said this to the last panel--it 
would seem to me--and you did speak on the issue of 
sustainability, I think, for a lot of people, certainly for me, 
is a much more sellable issue if the coins could be melted and 
then reformed into strip metal for making new coins. And it 
seems to me that is something that we ought to be involved in. 
I wouldn't be surprised if some of the Treasury stimulus money 
does not deal with sustainability, even in the coins.
    My question is, I have a stack of coins. My grandfather 
used to give us silver dollars for Christmas. And my 
generation, which is the younger generation--you earlier 
suggested that this might not be it, but this is it, the 
younger generation. We got silver dollars for Christmas. It was 
a big deal. And so, I am wondering about the Peace silver 
dollar and then the one with Eisenhower and the Liberty Bell on 
the back. I am wondering, what are we going to--this is a 
question for the people who left, but I am just hypothetically 
just throwing it out. What do we do with all of those coins? 
How would your industry deal with all those coins?
    Mr. Hesch. As far as the coins that are not in true 
circulation, those actually go to the bank, and the bank either 
deposits them through the Fed or retains them. That is how our 
industry deals with them.
    Mr. Cleaver. With a $1 value.
    Chairman Watt. You need to ask Mr. Clark, because they may 
be valuable.
    Mr. Cleaver. Do I have more money coming?
    Mr. Clark. The question is, what happens to the coins if 
new coinage was to be introduced?
    Mr. Cleaver. Yes.
    Mr. Clark. Undoubtedly, they would become collector's 
items.
    Mr. Cleaver. Worthless?
    Mr. Clark. Collector's items, meaning they might be worth 
more than their face value, depending on things like the 
mintage, the number produced in any given year, the condition 
of those coins. But if they are no longer being produced or 
circulated, they will find their way into hobbyists' 
collections and just amateur collectors.
    Mr. Cleaver. I am for this, Mr. Chairman. That is my last 
question. Thank you.
    Chairman Watt. You should give up now. I just made you a 
millionaire, see?
    The Chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. And without objection, the hearing record will remain 
open for 30 days for members to submit written questions to 
these witnesses and to place their responses in the record. If 
everything has been done for the good of the order, I think I 
will thank these gentlemen for your testimony and encourage you 
to respond, if you get written questions, as promptly as you 
can.
    The hearing is adjourned.
    [Whereupon, at 4:50 p.m., the hearing was adjourned.]




















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                             July 20, 2010

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