[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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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
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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
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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.]
A P P E N D I X
July 20, 2010
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