[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                     THE PRODUCTION AND CIRCULATION

                         OF COINS AND CURRENCY

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 11, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-83
                           
                          
                                    ______

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida              STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
LUKE MESSER, Indiana

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
               Subcommittee on Monetary Policy and Trade

                  JOHN CAMPBELL, California, Chairman

BILL HUIZENGA, Michigan, Vice        WM. LACY CLAY, Missouri, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             GARY C. PETERS, Michigan
STEVAN PEARCE, New Mexico            BILL FOSTER, Illinois
BILL POSEY, Florida                  JOHN C. CARNEY, Jr., Delaware
STEPHEN LEE FINCHER, Tennessee       JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     KYRSTEN SINEMA, Arizona
TOM COTTON, Arkansas                 DENNY HECK, Washington
LUKE MESSER, Indiana
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 11, 2014................................................     1
Appendix:
    June 11, 2014................................................    25

                               WITNESSES
                        Wednesday, June 11, 2014

Felix, Larry R., Director, Bureau of Engraving and Printing, U.S. 
  Department of the Treasury.....................................     4
Mills, Andrew, Director, Circulating Coin, The Royal Mint, United 
  Kingdom........................................................     9
Peterson, Richard A., Deputy Director, United States Mint, U.S. 
  Department of the Treasury.....................................     6
St. James, Lorelei, Director, Physical Infrastructure Issues, 
  U.S. Government Accountability Office..........................     7

                                APPENDIX

Prepared statements:
    Fitzpatrick, Hon. Michael....................................    26
    Felix, Larry R...............................................    27
    Mills, Andrew................................................    35
    Peterson, Richard A..........................................   193
    St. James, Lorelei...........................................   201

              Additional Material Submitted for the Record

Campbell, Hon. John:
    Written statement of former U.S. Representatives Jim Kolbe 
      and Tim Penny, Honorary Co-Chairmen of the Dollar Coin 
      Alliance...................................................   215
    Written statement of Louise L. Roseman, Director, Division of 
      Reserve Bank Operations and Payment Systems, Board of 
      Governors of the Federal Reserve System....................   217
Peterson, Richard A.:
    Written responses to questions submitted by Representative 
      Fitzpatrick................................................   226
St. James, Lorelei:
    Written responses to questions submitted by Representative 
      Fitzpatrick................................................   227
    Written response to a question posed during the hearing by 
      Representative Clay........................................   231

 
                     THE PRODUCTION AND CIRCULATION

                         OF COINS AND CURRENCY

                              ----------                              


                        Wednesday, June 11, 2014

             U.S. House of Representatives,
                           Subcommittee on Monetary
                                  Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 11:31 a.m., in 
room 2128, Rayburn House Office Building, Hon. John Campbell 
[chairman of the subcommittee] presiding.
    Members present: Representatives Campbell, Lucas, Pearce, 
Stutzman, Mulvaney, Pittenger, Cotton; Clay and Heck.
    Also present: Representative Stivers.
    Chairman Campbell. The subcommittee will come to order. 
Good morning, everyone. Welcome to the Monetary Policy and 
Trade Subcommittee Hearing entitled, ``The Production and 
Circulation of Coins and Currency.'' I will now recognize 
myself for 5 minutes for an opening statement.
    We would all like to have more coins and currency. And we 
probably generally take it for granted. But it doesn't happen 
by itself.
    The purpose of this hearing--which is something I think 
this subcommittee should be doing periodically--is just to 
examine our physical coins and physical currency that we have. 
And whether there is anything we should be looking at to change 
or do differently relative to said currency because confidence 
in the security of our money is one of the strengths of this 
country.
    We have had the benefit of a fairly stable exchange rate 
and interest-free loans on more than $1 trillion in money in 
circulation. But a good half of the physical currency in the 
form of $100 bills stays overseas.
    But it is good to think about this. There is a lot of 
discussion. I am sure this will be a topic that a penny--I am 
trying to think if I have one in my pocket right now. I 
actually don't.
    Oh, the ranking member has a penny. There we are. Oh look 
at that, he has a bunch of pennies.
    One of the things we will be discussing is that this penny 
actually costs more than a penny to make. And some of our 
friends in Canada and in the United Kingdom have changed the 
makeup of their coins so that they don't cost more than the 
nominal value of the coin to make. So that is one of the things 
we will be discussing today.
    But we will be looking at paper currency as well, as to the 
security of said paper currency, the volume of it that has been 
made. And we need to also realize that in today's world, a lot 
of currency is digital. And I don't mean bit coins.
    At this time, we will leave bitcoins and dogecoins and 
litecoins and all the rest of them for another hearing. But I 
simply mean using the kind of currency that instead of looking 
like this, looks something like this, and shows up on your 
phone or in your credit card rather than with physical 
currency.
    So this hearing will be to analyze these things, look at 
these things, and hear from our distinguished panel of 
witnesses. Let me just briefly say who they are.
    We have Larry Felix, Director of the Bureau of Engraving 
and Printing with the U.S. Department of the Treasury. We have 
Mr. Richard Peterson, who is the Deputy Director of the United 
States Mint in the U.S. Department of the Treasury. We have 
Lorelei St. James, who is Director of Physical Infrastructure 
Issues at the U.S. Government Accountability Office or GAO. And 
we have Andrew Mills, who is the Director of Circulating Coin 
at the Royal Mint in the United Kingdom.
    So we have a panel of experts that we will be hearing from 
relative to coins and currency. And we look forward to their 
testimony.
    And with that, I will recognize the gentleman from 
Missouri, the ranking member of the subcommittee, Mr. Clay, for 
5 minutes.
    Mr. Clay. Thank you, Chairman Campbell, for holding this 
hearing regarding the production and circulation of coins and 
currency.
    The Federal Reserve Cash Product Office (CPO) is charged 
with supplying adequate amounts of coin and currency. The CPO 
acts through the district Federal Reserve Bank to distribute 
and store coins and currency.
    Last fall, the GAO found that the Fed manages coin and 
currency inventory that is aimed to ensure adequacy of supply. 
GAO suggested a number of methods that the Fed could take to 
improve its management. And I look forward to hearing from GAO 
regarding this issue.
    Also, with the growth, as you mentioned, Mr. Chairman, in 
increasing diversity of payment methods such as debit cards and 
online payments, I would like to know, what is the future for 
coins and paper money? And are we moving to a totally plastic 
payment system?
    Since the mid-2000s, the per unit cost of production and 
distribution of the penny and the nickel has exceeded each of 
the coin's per unit face value. In the U.S. Mint's most recent 
annual report for Fiscal Year 2013, the cost of production and 
distribution of the penny was $1.08, and the cost of the nickel 
production was $0.094.
    The U.S. Mint lost $55 million on minting and issuing the 
penny and $40.5 million on the nickel. And I would like to 
know, what is the cost of production and distribution of the 
remaining coins such as the $0.50 coin?
    Currently, Representative Stivers has introduced 
legislation that would mandate a change in the metallic 
composition of U.S. coins to plated steel to ease the cost of 
production. And I would like to know what is the position of 
the panelists regarding this legislation?
    So again, thank you, Mr. Chairman. And we will keep on 
display my pocket full of coins just to have as a reference.
    Chairman Campbell. Thank you. And you had better count 
those coins because it might be pretty easy for me to take 
them.
    The gentleman from North Carolina is recognized for 3 
minutes for an opening statement.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Thank you for calling this hearing. And I thank each of the 
witnesses for being here today.
    I do think it is of interest to each of us to know that you 
know what effects this will have in terms of any possible 
disruptive change in the process, the fears, are they overblown 
by the public, how it could be handled, and really how fast 
this change could be made in a seamless fashion.
    Could it be done so with the new and existing coins? And 
what would be the problems of co-circulation?
    And one other question I would have is, can you make a 
penny for less than a penny?
    But I really appreciate your being here, and your thoughts 
today would be most welcome. Thank you.
    I yield back.
    Chairman Campbell. The gentleman yields back. The gentleman 
from Washington, Mr. Heck, is recognized for 2 minutes.
    Mr. Heck. Thank you, sir. I won't take the 2 full minutes.
    Insofar as this is my first opportunity to attend the 
Subcommittee on Monetary Policy and Trade as its newest member, 
I did want to take this chance to just express how gratified 
and pleased I am after wanting to be on this committee for such 
a long period of time.
    And to acknowledge that no small part of the reason was 
because of the reputation that both the chairman and the 
ranking member have for the way in which they provide 
leadership of this subcommittee. I am very gratified to be 
here. Thank you very much, sirs.
    Chairman Campbell. Thank you. That is very kind. We both 
appreciate it, and we don't deserve it, so okay.
    We asked the Federal Reserve to come testify today. They 
said they couldn't. But they have sent us a statement which, 
without objection, we will enter into the record.
    And then, we also have a statement from the Dollar Coin 
Alliance which, without objection, we will also enter into the 
record.
    Okay. Opening statements having been completed, we will now 
move to our witnesses.
    Just as a reminder, Mr. Felix is Director of the Bureau of 
Engraving and Printing. And you were named Director in January 
of 2006, so, you have been there for a little while. And you 
are responsible for overall operations of the Bureau of 
Engraving and Printing, and production of U.S. currency and 
other government-secured documents.
    Mr. Felix, thank you so much for being with us this 
morning. You are recognized for 5 minutes.

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

    Mr. Felix. Good morning. Thank you, Chairman Campbell, 
Ranking Member Clay, and distinguished members of the 
subcommittee, for holding this hearing and for inviting me to 
testify today on behalf of the Bureau of Engraving and 
Printing, and to talk about some of the initiatives.
    The BEP is the security printer for the United States 
Government, and we provide technical assistance and advice to 
other Federal agencies in the design and production of security 
documents which, because of their inherent value or other 
characteristics, require counterfeit deterrence.
    The BEP also reviews cash destruction and unfit currency 
operations at all of the Federal Reserve Banks. And as a free 
service to the public, we process claims for redemptions of 
mutilated paper currency. The mission of the BEP is to develop 
and produce United States currency that is trusted worldwide.
    BEP has two facilities operating in Washington, D.C., and 
Fort Worth, Texas. And each facility is capable of producing 
all denominations. On average, the BEP produces approximately 7 
billion notes per year. The BEP also produces security 
documents on behalf of other Federal agencies.
    We work collaboratively through the Advanced Counterfeit 
Deterrence Committee, the ACD, which consists of the Board of 
Governors at the Federal Reserve System, the U.S. Secret 
Service, and the U.S. Treasury to improve counterfeit-deterrent 
features in our banknotes. But the primary reason for 
redesigning our notes is to continue to deter counterfeiting.
    Since the mid-1990s--the U.S. Government has introduced its 
first major redesign of notes in over 60 years. And the 
redesign, those designs really occurred because of the 
emergence of a new category of counterfeiters who are using and 
leveraging digital technology in order to replicate notes.
    October 8th of last year marked the introduction of the new 
$100 note. And that in effect marks the completion of our most 
recent design series.
    I want to talk a little bit about meaningful access. A 
complaint was filed in the U.S. District Court in Washington, 
D.C., against the Treasury Department, alleging that United 
States currency violates Section 504 of the Rehabilitation Act 
because blind and visually impaired individuals aren't able to 
denominate the United States currency.
    And so, an October 2008 court order decision directed that 
steps be taken to provide meaningful access to United States 
currency in our next redesign of notes. And we are beginning to 
plan for our next redesign of notes.
    The BEP has been actively engaged in identifying meaningful 
access solutions to fully comply with the court's order, and 
while at the same time giving appropriate considerations to the 
interest of domestic and international users of currency, 
looking at the interests of the business community, and the 
cash handling and the cash-intensive industries.
    The BEP proposed recommendations to the Secretary of the 
Treasury, who by statute has the sole authority for approving 
United States currency designs. The recommendations that we 
provided were: first, to pursue the development of a raised 
tactical feature for every note that we are legally, lawfully 
allowed to alter; second, to continue the use of large high-
contrast numerals; and third, to introduce a Currency Reader 
Program. In 2011, the Secretary approved that three-prong 
strategy.
    A key component of that three-prong strategy is to 
establish a nationwide currency redistribution program. The 
Currency Reader Program is designed as an effective method to 
enable people with visual impairments to denominate their 
currency.
    The Currency Reader Program is expected to be a useful 
option for many, many years to come because: first, when we do 
introduce a tactually enhanced note, we will be doing it one 
denomination at a time; second, per congressional directions, 
we can't alter the $1 Federal Reserve note; and third, because 
we will be introducing it at a time when we expect both notes 
to co-circulate.
    We plan to launch this currency redesign program, pilot it 
this summer. And we will roll it out in 2015.
    Since the court order has come about, we have also been 
leveraging existing technologies that are available, and the 
BEP has introduced a new reader, a mobile app for the blind and 
visually impaired using--it is free to anyone who wants to 
download it.
    The BEP anticipates that it will also start working on 
selecting a tactical feature by January of 2015. And that is a 
priority for this organization.
    The ACD has indicated that the next note to be redesigned 
will be the $10 note. And it should have the new tactical 
feature and the enhanced security features. The $10 note was 
selected because it is a transactional note and it is also a 
low-volume note in terms of production. So we will be able to 
test and determine how the tactical feature works in 
circulation.
    However, if there is a threat to another denomination, we 
will change that. But as it stands right now, the next note 
will be a $10 redesign.
    Chairman Campbell. If you could wrap up your testimony, Mr. 
Felix, your time has expired.
    Mr. Felix. Mr. Chairman, that concludes my remarks about 
initiatives at the BEP. I will be happy to answer your 
questions.
    [The statement of Director Felix can be found on page 27 of 
the appendix.]
    Chairman Campbell. Thanks. I am sure you will be getting 
some questions.
    Mr. Peterson was named Deputy Director of the United States 
Mint on January 25, 2011. And before becoming its top 
executive, he served as the Mint's Associate Director of 
Manufacturing for 2 years.
    Thank you so much for being here. Did you bring any 
samples? But please, you are recognized for 5 minutes for your 
testimony.

   STATEMENT OF RICHARD A. PETERSON, DEPUTY DIRECTOR, UNITED 
          STATES MINT, U.S. DEPARTMENT OF THE TREASURY

    Mr. Peterson. Chairman Campbell, Ranking Member Clay, and 
members of the subcommittee, I appreciate the opportunity to 
appear before you again today to discuss the United States Mint 
and coin production.
    The United States Mint is a vibrant team of 1,700 dedicated 
men and women. We operate two fiscally separate programs: a 
circulating coin program; and a numismatic program that 
includes collectable coins and our precious metal bullion 
coins.
    I last testified before you in November 2012. And I 
committed then that the Mint would continue to drive costs out 
of our manufacturing operations. I am pleased to report our 
results for fiscal 2013.
    We shipped 10.7 billion coins to the Federal Reserve, an 
increase of nearly 18 percent from the 9.1 billion shipped in 
2012. The general and administrative costs (G&A) of our 
circulating coin operations decreased another $4.7 million--7.6 
percent--to $56.9 million.
    Since 2009, we have reduced the G&A costs of our 
circulating program by over 42 percent. Now that is real money. 
That is $41 million of annual G&A expenses that have been 
eliminated.
    In short, our costs are down, and our production is up. 
These productivity improvements resulted in a $350 million 
transfer of seigniorage to the Treasury General Fund.
    In December of 2012, we provided our first report to 
Congress detailing the analysis and testing of possible 
alternative metals for our coinage. Since then, we have tested 
in much greater detail several promising alternatives. There 
are several key points to share at this time.
    First, the overarching mission of our circulating coin 
program is to facilitate commerce by minting and issuing 
circulating coins in quantities that the Secretary of the 
Treasury determines are necessary to meet the needs of the 
Nation. As our 2013 results show, the Mint is meeting that 
mission with a denomination portfolio that generates positive 
seigniorage.
    Second, cash is and will remain an important method for 
settling financial transactions. In a 2011 survey, the Federal 
Reserve Bank of Boston concluded that 65 percent of all 
transactions under $10, and 45 percent of all transactions 
under $25, were completed with cash.
    Third, our report in 2012 concluded that no alternative 
metal compositions would lower the cost of the penny. And it is 
highly unlikely that the cost of minting the penny will ever 
again fall below one-cent.
    Fourth, when other countries have made changes to their 
coinage and currency lineups, a key to the success of the 
effectiveness of the change was the communications plan that 
explained the change.
    Finally, change in the metallic composition of our coins 
will affect a variety of stakeholders in different ways. The 
Mint is actively seeking feedback from the vending, parking 
meter, coin-operated laundry, amusement, public transportation, 
banking, and supermarket industries. Our next report to 
Congress is due this December, and we are committed to 
providing decision-makers with accurate and timely information.
    Our bullion program set a record for the number of ounces 
sold in 2013. Gold ounces were up 55 percent to 1.2 million 
ounces. And silver ounces were up 31 percent to 44.6 million 
ounces.
    Our American Eagle Bullion Coins remain the coin of choice 
for investors around the world. We are pleased that our 
suppliers have invested in capacity enhancements and that we 
are able to meet demand without restrictions or allocations.
    The United States Mint's commemorative coin program honors 
people, places, events, and institutions of significance in 
American history and culture. We have two important and high-
profile commemorative coin programs in 2014: the Civil Rights 
Act of 1964 Commemorative Coin Program; and the Baseball Hall 
of Fame Commemorative Coin Program. The baseball program 
features curved coins, the first ever produced by the United 
States Mint.
    The Mint is actively engaged in regular outreach efforts 
and public awareness events for both programs that include 
Members of Congress, including John Lewis and full Financial 
Services Committee Ranking Member Maxine Waters, as well as 
several Baseball Hall of Fame members.
    Mr. Chairman, the United States Mint is a cost-effective, 
open, transparent organization that is meeting its core mission 
to produce circulating, precious metal bullion and numismatic 
coins. I thank you for your interest in our activities. And I 
am pleased to answer any questions that you may have.
    [The prepared statement of Deputy Director Peterson can be 
found on page 193 of the appendix.]
    Chairman Campbell. Thank you, Mr. Peterson.
    Next, Lorelei St. James is a senior executive at the U.S. 
GAO, serving as Director of the GAO's Physical Infrastructure 
Issue area. In this capacity, Ms. St. James has a wide-ranging 
portfolio covering issues such as the United States Postal 
Service, coin and currency--which is why you are here today--VA 
construction, and maritime infrastructure issues.
    There is a little controversy in a few of those areas, but 
we are not going to talk about those today. We are only going 
to talk about coins and currency. Thank you so much for being 
here. You are recognized for 5 minutes.

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

    Ms. St. James. Thank you. Chairman Campbell, Ranking Member 
Clay, and members of the subcommittee, I am pleased to be here 
today to discuss the Federal Reserve's management of the 
Nation's coin inventory.
    At the end of Fiscal Year 2012, coins worth over $40 
billion were in circulation. And in 2013, the U.S. Mint 
produced over 10 billion coins.
    My statement today is based on a report that we issued in 
October 2013. This report reviewed the Federal Reserve's 
management of the coin inventory and includes recommendations 
to improve how the inventory is managed.
    Within the Federal Reserve, the Cash Product Office, or 
CPO, manages the Nation's coin inventory, distributes existing 
inventories of coins, and orders new coins from the U.S. Mint 
based on a forecasted demand.
    In 2009, CPO centralized coin management across the 12 
Reserve Banks. Prior to this action, each Reserve Bank managed 
its own inventory, which sometimes resulted in either too many 
coins or not enough. This centralized system in part 
contributed to the 43 percent decrease in coin inventory levels 
from 2008 through 2012.
    Also in 2009, the CPO established national upper and lower 
inventory targets, which CPO uses to monitor inventory levels. 
For example, if inventory levels are above the upper target, 
CPO knows to order fewer coins. And if the levels are below the 
lower target, CPO may order more. From 2009 to 2012, we found 
that in most cases, inventory targets were met.
    CPO also manages the inventory on a daily basis, 
determining when to order new coins or move coins from one 
location to another or both. If there is an insufficient supply 
of coins to meet demand in a given location, and transferring 
coins from another location, known as an interbank transfer, 
would not be cost-effective, CPO orders new coins each month 
from the U.S. Mint based on a rolling forecast.
    In our review, we found that coin inventory costs totaled 
about $62 million in 2012, and that these costs had 
dramatically increased by 69 percent since 2008. We found CPO 
had not done a systematic review to determine why these costs 
had increased or if they can be reduced. And we recommended 
that the Federal Reserve direct the CPO to assess these costs.
    We also reviewed if CPO was following the key inventory 
practices we identified for coin management. We found it was 
substantially following collaboration and risk management, but 
only partially following key practices in three other areas.
    For example, in examining its forecasting model we found it 
was consistently under-ordering new coins when compared to 
actual demand, indicating that the forecast may be biased and 
that the model should be updated to reflect actual demand.
    In system optimization, we found that CPO has multiple 
sources of information, but didn't use this information to 
optimize inventory management. We recommended that the Federal 
Reserve direct CPO to establish coin inventory goals and 
metrics and assess the accuracy of its forecast.
    We also discussed potential changes in the demand for 
currency with Federal Reserve officials. According to them, 
studies we reviewed, and government banking officials in 
Austria, Australia, and Canada, any change in the demand for 
currency will likely be a gradual decline as electronic means 
of payment increase.
    For example, in the United States, the use of debit cards 
has increased more than any other payment type, about 7.7 
percent per year from 2009 to 2012. In 2010, CPO began to 
develop a long-term strategic framework to be done in phases to 
consider potential changes in currency demand over the next 5 
to 10 years. At the time of our review, CPO had not established 
a date that the third phase of this effort would be completed.
    In summary, we recommended that the Federal Reserve take 
additional actions to better manage the Nation's coin 
inventory, and they agreed with our recommendations.
    Mr. Chairman, this concludes my statement. I would be happy 
to answer any questions you have. Thank you.
    [The prepared statement of Director St. James can be found 
on page 201 of the appendix.]
    Chairman Campbell. Thank you very much.
    Finally, Mr. Andrew Mills is the Director of Circulating 
Coin at the Royal Mint, University of East Anglia and Cardiff 
in the United Kingdom. You have been in that position since 
2009. And did you bring three shillings and twopence? Oh, you 
don't do that anymore. All right.
    Mr. Mills. Since 1971.
    Chairman Campbell. Yes, I thank you so much for being here. 
You are recognized for 5 minutes.

  STATEMENT OF ANDREW MILLS, DIRECTOR, CIRCULATING COIN, THE 
                   ROYAL MINT, UNITED KINGDOM

    Mr. Mills. Thank you. I would like to thank Chairman 
Campbell and the esteemed members of this subcommittee for 
inviting the Royal Mint to give testimony on our work to 
control the cost to produce circulating coins.
    Current business-as-usual demand for UK circulating coin is 
approximately one billion pieces a year. We have a total 
capacity to make four billion pieces.
    The remaining capacity is used to supply struck coin and 
blanks to overseas central banks and mints around the world. We 
also supply tooling, metal recovery services, and consultancy 
to these customers, which is why we describe ourselves as the 
world's leading export mint.
    Over the years, the Royal Mint has developed a number of 
capabilities that enable us to control the cost of producing 
circulating coin for our customers. Our armor plating 
technology replaces expensive solid alloy coins with a mild 
steel core electroplated with either nickel, brass or copper.
    This single layer, or mono-plate, at typically 25 microns, 
allows for a lifetime in circulation in excess of 20 years. In 
contrast, multilayer plating has a thin outer layer of only 6 
to 9 microns that can wear through in as little as 5 years in 
circulation, exposing the underlying copper layer.
    Our new award winning Integrated Secure Identification 
Systems (iSIS) technology for the first time brings a machine-
readable high-security feature to our cost-effective armor 
plated coins that up until now was only available in bank 
notes. iSIS coins can be read at over 4,000 coins a minute, and 
provides a definitive binary authentication. It is either a 
genuine coin or it is a counterfeit.
    Unlike today's electromagnetic sensing that has a wide 
acceptance window and varies over time, the high security iSIS 
additive is co-dispositive in the armor placing layer, and is 
therefore constantly exposed to be read as the coins wear in 
circulation.
    I will now summarize the cost controls that we have 
implemented on behalf of Her Majesty's Treasury since 
decimalization in 1971. To give a perspective of the scale of 
the cost savings, I have calculated the metal saving of each of 
these changes since they were made using London Metal Exchange 
prices on the 31st of March 2014.
    The current exchange rate is on the order of $1.65 to 1 
pound sterling. There have been four types of programs that 
have controlled the cost of U.K. circulation coins. The first, 
demonetization, the decimal half penny, ceased production in 
1984, and in the last year of full issuance, 191 million were 
manufactured, at a metal cost of 1.4 million pounds. This cost 
then became nonrecurring.
    Secondly, the conversion of solid alloy coins to armor 
plated coins. In 1992, the 1p and 2p coins were converted from 
bronze to armor copper plated steel. The metal cost savings 
since this change has been 281 million pounds.
    To provide a sense of the scale difference between U.S. 
demands and that of the United Kingdom, and comparing the U.S. 
$0.01 to the U.K. 1p, since 1992 we have made 13 billion 1p 
coins and the U.S. Mint has made 190 billion one-cent coins.
    In 2009, Her Majesty's Treasury announced that the 5p and 
10p would be converted from copper nickel to armor nickel 
plated steel. And this change has saved 21 million pounds in 
metal costs.
    Reduction in coin sizes has also occurred. In 1992, the 
copper nickel 5p and 10p were reduced in size. These changes 
saved 135 million pounds in metal costs. And in 1997, a smaller 
50p was introduced, saving 29 million pounds.
    Finally, the proactive replacement program. The 2012 Autumn 
Statement announced the active withdrawal of the copper nickel 
5p and 10p coins for circulation. In the first year of 
operation, it delivered 15 million pounds of benefit to Her 
Majesty's Treasury, and indeed the U.K. taxpayer.
    The U.K. coinage model ensures that new coins are not 
struck when surface coins are held by the cash industry 
members. Surface and deficit cash industry members trade coins 
between one another on a weekly basis.
    Overall costs are also optimized by using an annual 
forecasting process agreed in the market between UK Payments, 
an industry body that represents retail banks and cash handling 
companies, the Royal Mint, and Her Majesty's Treasury.
    For these changes to take place, I cannot emphasize enough 
how important stakeholder engagement is from early on in the 
process. We have regular dialogue with stakeholders that 
represent different facets of the coin acceptance industry, 
including vending, parking, amusements and retail.
    We also have close working relationships with major coin 
mechanism and sorting companies that provide equipment in the 
United Kingdom. And this is in addition to concert with 
institutions such as the Royal National Institute for the 
Blind.
    In closing, the Royal Mint has significant expertise and 
experience in this field. And iSIS provides a novel, high-
security feature in lower-cost plated coins. We will be 
delighted to work with stakeholders here in the United States.
    Thank you once again for inviting me to give this 
testimony, and I welcome any questions that you may have.
    [The prepared statement of Director Mills can be found on 
page 35 of the appendix.]
    Chairman Campbell. Thank you. Thank you all very much for 
your testimony. I will now recognize myself for 5 minutes for 
the first series of questions. And my first questions will be 
to you, Mr. Mills.
    You just described a lot of changes over a period of time 
from eliminating a coin, the halfpenny, to changing the 
composition and even the size of various coins. And you 
mentioned stakeholders, vending, parking, et cetera. And all 
the savings to the Treasury, and up here, we are certainly 
interested in saving money to our Treasury.
    But there is the question--what kind of disruption did this 
cause? How difficult was it for the private sector to 
accommodate all of those various changes in coin type, 
composition, and size?
    Mr. Mills. Yes. Thank you very much, Mr. Chairman.
    Our aim in any of these changes is to provide as little 
disruption as possible, be that for people within the industry 
or the general public. And I think a good measure is our most 
recent change, which was the introduction of the nickel plated 
steel 5p and 10p coins.
    We engaged with stakeholders very thoroughly. A major 
stakeholder is the Automatic Vending Association in the United 
Kingdom, which represents much of the vending industry. And it 
was on their advice that indeed we took 2 years to introduce 
these new coins from the point of the announcement in September 
2009 to their final introduction in January 2012.
    Chairman Campbell. Was that to give them time to--
    Mr. Mills. Absolutely. It was absolutely to minimize the 
impact on their members in terms of making sure that the 
software changes that were necessary could be carried out with 
incurring very little or no additional cost.
    Chairman Campbell. How do you and how does everyone deal 
with it if you have two different coins in circulation at the 
same time that are of completely different size or composition 
but they have the same nominal value?
    Mr. Mills. Yes, thank you. The change to the 5p and 10p, in 
fact as far as the general public is concerned, they would 
really tell very little difference. They are the same diameter 
and look, for all intents and purposes, identical to one 
another, apart from the fact that one is magnetic because it is 
based on 94 percent, 96 percent steel, and the other one is 
non-ferrous so it is non-magnetic.
    One of the big learnings from engaging with the vending 
industry is that they prefer co-circulation to occur for the 
shortest possible time. So the fewer coins their machines 
accept and have to recognize, the better that is for them and 
their members. That is why we introduced the proactive 
replacement program to actively withdraw the copper nickel 5p 
and 10ps to the benefit of the vending industry.
    Chairman Campbell. All right. Thank you.
    Mr. Peterson, Mr. Mills described a whole bunch of 
composition which is way over my very limited chemical and 
metallurgy knowledge. Is there stuff they are doing in the U.K. 
that we are not but we ought to be or should be thinking about 
doing?
    Mr. Peterson. Sir, could you repeat the last part of that 
question?
    Chairman Campbell. As far as some of the composition things 
that Mr. Mills talked about in the U.K., are we doing those 
things here? Or should we? Or have we decided not to?
    Mr. Peterson. Absolutely. In 2011, the United States Mint 
began an active research and development program to explore 
alternative metals for our coinage.
    And really, on the metallurgy piece, there are four metals 
on the periodic table of the elements that are in play. These 
are zinc and iron in the form of steel, lead, and aluminum.
    We are not going to make our coins out of lead, and 
aluminum is a very difficult metal to work with. So really, we 
are down to zinc and steel that are in play.
    Chairman Campbell. Okay. Thank you.
    Ms. St. James, when you look at the millennial generation, 
they use physical currency less than Mr. Clay and I do. And 
particularly coins. Is the Federal Reserve--are they 
anticipating, are they looking at all this sort of thing in 
terms of what impact that has on physical currency?
    Ms. St. James. In their strategic plan that they have, that 
they started in 2010, they are looking at and trying to better 
monitor trends.
    And as I discussed in my written statement, with the 
countries that we talk to, Australia to Austria and Canada, 
they believe that there will be a gradual decline in currency, 
but there will still be what is called the unbanked. There will 
still be a portion of society who will always use coins.
    So one of the reasons why we made the recommendations to 
the Fed was for them to have more data to better monitor what 
was happening and so they could see those changes in demand 
with more fidelity than they do right now.
    Chairman Campbell. Thank you.
    I had questions for Mr. Felix, but I will have to get to 
them in the second round.
    I do have with me a $20 billion Zimbabwe note, which I 
always carry around to prove that it is really not about the 
paper. It is what stands behind the paper that is the most 
important.
    But with that, my time has expired, and I will yield 5 
minutes to the ranking member, the gentleman from Missouri, Mr. 
Clay.
    Mr. Clay. Thank you, Mr. Chairman. Perhaps I can borrow $10 
billion from the $20 billion.
    Chairman Campbell. I actually have--this is $20 billion. I 
have a $10 trillion note as well.
    Mr. Clay. Mr. Felix, a White Paper was issued by the BEP in 
2013 which reported that reinjured notes with tactile features 
designed to provide meaningful access to the blind and visually 
impaired won't be available for circulation for another 6 
years. Can you talk about the process associated with designing 
and issuing the new notes? And help us understand why it will 
take 6 years?
    Mr. Felix. Thank you, sir.
    The reality is that we design currency to deter 
counterfeiting. And so, the longer lead time for our currency 
design is to get the overt and covert features in the currency 
as we introduce the new currency design. And as we introduce 
the new currency design, we also intend to apply the tactile 
feature, as the court had given us the opportunity to introduce 
it at the new design.
    So the longest lead time in that is not so much tactile 
features, but acquiring classified central bank features and 
being able to deploy them into the bank notes, as well as the 
security features that people can just look at and determine 
whether or not it is authentic or not.
    Mr. Clay. And now, there is an app that the blind can use 
that will tell you the denomination of the note?
    Mr. Felix. Yes. There are several options. We have 
introduced a downloadable app on the Apple iPhone that you can 
use.
    Right now, in conjunction with the Department of Education, 
they have introduced one Apple/Android. And of course, we will 
also be distributing a portable currency reader for anyone who 
is eligible. And they can also get that through a collaboration 
with the Library of Congress.
    Mr. Clay. Thank you for your response.
    Mr. Peterson, how viable is plated steel as an option for 
replacing the current composition of U.S. coinage?
    Mr. Peterson. Mr. Clay, as I mentioned, zinc and steel are 
currently in play and we are analyzing several different 
compounds of steel. And we are doing a very detailed test 
regimen on this.
    We have made millions of plated steel trial coins. We 
understand the striking pressure, the tonnage that we need to 
use on our presses, and how long the dyes will last.
    We take these coins and tumble them in a tumbling chamber 
to simulate a lifetime of corrosion and wear. We add a little 
saline solution to simulate perspiration so that we have a good 
feel as to how long these coins will be viable for in the long 
term.
    And we know that our friends in Britain use plated steel. 
Our friends in Canada use plated steel. Steel is a viable 
option.
    Mr. Clay. Are you concerned that Canadian ownership of the 
plated steel patent would add additional cost to the production 
of plated steel coins?
    Mr. Peterson. I wish we had gotten the patent, but we 
didn't. But our price quotes with the Royal Canadian Mint are 
fair, and I am not concerned that we are going to have an issue 
with that patent.
    Mr. Clay. Thank you for that response.
    Ms. St. James, what are the next steps the Federal Reserve 
should be taking to better manage coin inventory?
    Ms. St. James. We were quite surprised when we looked at 
cost, that between 2008 and 2012, the cost of the management of 
the coin inventory had increased by 69 percent. So we naturally 
asked them, why has it increased so much? And they said direct 
costs and support costs have gone up.
    But beyond knowing that is what made up the 69 percent, 
they didn't really have specific answers for why those costs 
had increased. And they had not looked at them. So we 
recommended that they really do a good analysis of where they 
could reduce those costs.
    Mr. Clay. Thank you for that response.
    Mr. Mills, what steps has the Royal Mint taken to reduce 
coin production costs? Can you talk about that 20-year lifespan 
of the coin?
    Mr. Mills. Yes, certainly.
    There are several types of plating technology available for 
Circulating Coin. And the only one that has a license fee is 
the Canadian technology. So our armor technology is not only 
license-free, but we would say also has better duration in 
circulation.
    We apply a single layer of 25 microns in nickel-plated 
coins. Our independent testing in fact carried out here at the 
Fraunhofer Institute in the United States shows that on 
average, coins wear at a micron a year. So with 25 microns, you 
should get at least 25 years life.
    With the outer layer of multiple plating technology, you 
only get 6 microns to 9 microns. That means you are going to be 
paying a license fee, and potentially replacing your coins 
every 6 to 9 years.
    Mr. Clay. Thank you. And I yield back.
    Chairman Campbell. The gentleman's time has expired. Thank 
you.
    And now, we will recognize the chairman of the House 
Committee on Agriculture, the gentleman from Oklahoma, Mr. 
Lucas, for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman. And I would note to all 
my colleagues that the things you work with not only just 
represent a medium exchange, a store of value, but as we 
discussed before in this subcommittee, a very important 
statement about our society.
    In the case of paper money, the artistic nature, the 
scientific nature in the United States for 150 years--coinage, 
of course, 2,500 years of recorded history is documented in 
those things.
    So it is not just a subject matter of immediately what is 
in your pocket change. But it is a statement that will be left 
for millenniums to come. That said, for a moment I would like 
to visit with the panel about just a variety of small issues.
    Ms. St. James, in the examination of the circulating cash 
situation and the way the Federal Reserve handles that, I have 
read somewhere, and maybe you can confirm or deny this, but the 
50-cent piece literally--do we have more coming back into the 
banks than we have going out?
    And Mr. Peterson, could you touch on this for a moment 
about the nature of the 50-cent piece? Is it an example of a 
coin that in effect doesn't circulate at all anymore once you 
get past the numismatic community?
    Mr. Peterson. The 50-cent piece is not ordered by the 
Federal Reserve. So, the United States Mint hasn't made them 
since 2006.
    Mr. Lucas. For general circulation. So that answers the 
question.
    Mr. Felix, what percentage of your printed currency that 
you deliver to the Federal Reserve is $100 bills, 
approximately?
    Mr. Felix. So the order change--
    Mr. Lucas. And I know it varies from--
    Mr. Felix. Right.
    Mr. Lucas. --cycle to cycle. Just round numbers.
    Mr. Felix. The vast majority of notes in terms of value is 
circulated outside our borders. Over 50 percent are in $100 
bills. So it is about--of the $1.2 trillion in circulation, 
more than half in value are hundreds. But we typically we 
produce about 1.5 billion a year in hundreds.
    Mr. Lucas. And of your overall production you mentioned--
    Mr. Felix. --around seven.
    Mr. Lucas. Exactly. And of your overall production, you 
mentioned the fact that by law you were not authorized to 
change the design on the $1 bill. What percentage of your 
average annual run, round numbers, are ones?
    Mr. Felix. We do about a billion as well.
    Mr. Lucas. Okay.
    Mr. Peterson, since we have not for a number of years had 
orders from the Fed for circulating 50-cent pieces, for a 
moment what percentage of, in round numbers, of your overall 
coin production are 1-cent pieces and 5-cent pieces, those two 
lower denominations on the--
    Mr. Peterson. In 2013, we manufactured 10.7 billion coins, 
with 6.6 billion of those, about 60 to 65 percent, pennies, and 
1.1 billion nickels. So it's very concentrated toward the 
pennies and nickels.
    Mr. Lucas. So in both cases, at Engraving and Printing and 
at the Mint, a substantial portion of your production is the 
lower denomination, whether it is $1 bills in paper or currency 
or the 1-cent and 5-cent pieces in coin.
    Mr. Peterson. Correct.
    Mr. Lucas. By the way, on a slightly different note, Mr. 
Peterson, one of your predecessors began the process of an 
inventory of the various things within the Mint's possessions.
    And while your institution is not quite as old as Mr. 
Mills' institution, which predates you by hundreds of years, 
nonetheless you are one of the oldest institutions of the 
Federal Government.
    And not only the good work you do on the day-to-day basis 
in the numismatic programs, but the historic property and the 
historic record, is a voice of great interest to the numismatic 
community.
    I don't know whether you can answer this question today or 
not, but I would ask if you are aware of that effort to create 
that master inventory of all your assets, some of us would 
define as treasures. And if you are not up to where at a 
particular moment I would appreciate a response in writing 
later about just what the status of that treasure catalogue is, 
as some people would describe.
    Mr. Peterson. Absolutely. The Mint is one of the oldest 
institutions in the United States, 222 years old, a venerable 
institution. And we do have many heritage assets at each one of 
our facilities.
    After the prior testimony we hired a curator and we have 
catalogued our heritage assets, and we are ready to share that 
information.
    Mr. Lucas. That is a very important thing because that is 
of great interest to a good many good people around the country 
and around the world. And as you describe them, heritage 
assets, some of them literally go back to the very beginning.
    That said, I would just note to my friends at Engraving and 
Printing and at the Mint, if we continue on the monetary 
policies we have with a regimented inflation factor built in, 
at some point we have to assess the viability of those lower 
denominations. We don't make half-cent coins anymore, as the 
Mint did for 60-some years.
    I believe the original statute actually allowed for a 
denomination referred to as mills/1,000 for the dollar. We have 
never used that. At some point, we may have to assess in a 
practical way what we make and why we make it and how that 
impacts commerce.
    And with that, Mr. Chairman, I yield back.
    Chairman Campbell. And I thank the gentleman for yielding.
    And now, we will go to the gentleman from South Carolina, 
Mr. Mulvaney, who is recognized for 5 minutes.
    Mr. Mulvaney. Thanks very much, Mr. Chairman.
    I want to continue there on what Mr. Lucas was talking 
about because we hear a lot of discussion about getting rid of 
the lower denomination coins. We have done that in the past.
    And I just wonder if commerce isn't changing to where 
smaller denominations are actually going to become more and 
more relevant as we go through. I think immediately of online 
transactions. I am not willing to pay $0.99 to buy a song, but 
I might pay 1/20th of a penny to listen to it one time.
    Is there a way for currency to do that? Is there a way for 
hard currency to deal in smaller and smaller denominations?
    Let's ignore--for instance, the larger and larger 
denominations, but start talking about smaller and smaller. Is 
there a way to do that with hard currency? Mr. Peterson?
    Mr. Peterson. As I mentioned in my opening statement, many, 
many transactions still occur in cash around the country. Cash 
enjoys the advantage. It is one of the lowest cost ways to 
conduct a transaction and it is confidential, and so the 
American public will probably want to continue to use cash for 
some percentage of their transactions.
    Our job at the Bureau of Engraving and Printing and the 
Mint is to facilitate commerce with the trusted coins and 
currency. And we know that millions of transactions happen 
every single day using cash. And it will continue to be like 
that.
    Mr. Mulvaney. Okay. I am not sure if that answers the 
question about smaller and smaller denominations.
    Let me ask then--let me talk about what the reason I asked 
the question is: I would be curious to know your thoughts on 
the crypto-currencies, on bitcoins specifically so the other 
currencies that are out there.
    I am sitting here reading a blog, I guess, Mr. Peterson, 
from your former boss, Edmund Moy, who just recently wrote 
something on bitcoin. And he closed the article by saying that 
bitcoin and the ideas behind it will be a disrupter to the 
traditional notions of currency. But in the end, currency will 
be better for it.
    Have you all given any thought--and I will throw this open 
to the group, as to where your various organizations and 
institutions are on the role that online currencies, that 
crypto-currencies play in this particular role, in the 
functioning of commerce?
    Mr. Mills, I would be curious to know what the Europeans 
think about it as well. But, Mr. Felix, you look like you--
    Mr. Felix. I was going to say that is really a province for 
the Federal Reserve, the central bank--
    Mr. Mulvaney. Okay.
    Mr. Felix. --and they do tend to look at some of those 
things more than the operational organizations of the United 
States Government.
    Mr. Mulvaney. All right. But it would impact you directly 
though, right? Is it competition? Is it a complement? How do 
you--has the BEP taken a look at it? Do they have an official 
position on it? Or they just haven't done that yet?
    I am just curious. I am not trying to bait anybody. I know 
it is such a new topic that a lot of folks might not have a 
position on it yet.
    Printing and Engraving does not. Does the Mint? No?
    Mr. Peterson. At the Mint, our focus is on producing United 
States coins. And the other alternative vehicles--
    Mr. Mulvaney. Doesn't factor in?
    Mr. Peterson. No.
    Mr. Mulvaney. Mr. Mills, has the British government taken a 
position on it?
    Mr. Mills. Again, we at the Royal Mint act as agents for 
Her Majesty's Treasury. We don't set policy.
    Mr. Peterson. Okay.
    Mr. Mills. So pretty much as Mr. Felix said then, that is 
not within my knowledge or my ability to answer, I am afraid.
    Mr. Mulvaney. All right.
    Ms. St. James, I have asked everybody else. Maybe this is 
the wrong--apparently the wrong group to ask this question.
    Ms. St. James. They are correct in that it is the Federal 
Reserve here in the States--
    Mr. Mulvaney. Okay.
    Ms. St. James. --the Federal Reserve policy to make that 
decision. And they are looking at electronic payments and the 
increase in those electronic payments. Interestingly, the 
electronic payments have seemingly impacted checking more than 
the demand for currency.
    Mr. Mulvaney. Let me ask--Mr. Peterson, let me close with 
this, see if I can keep it germane to why you all are here 
today.
    Is there a way--is it possible for traditional hard 
currencies to deal with transactions at a small fraction of a 
penny?
    Mr. Peterson. I am sure in an electronic world, there might 
be. But practically, for the United States Mint to make coins 
that are less than a penny, I don't see that as part of our 
future.
    Mr. Mulvaney. And that would be the same for the British 
government, Mr. Mills, do you think?
    Mr. Mills. Again, not wishing to sound boring, I would have 
to defer to my colleagues in Her Majesty's Treasury or the Bank 
of England.
    Mr. Mulvaney. Listen, I have been to a lot of meetings. 
This is by far not the most boring I have been to. I can assure 
you of that.
    So thank you, Mr. Chairman. And thank you to the panel.
    Chairman Campbell. Thank you.
    And just arriving--you are--okay. The gentleman from Ohio, 
Mr. Stivers?
    Mr. Stivers. Perfect timing.
    Chairman Campbell. Perfect timing is recognized for 5 
minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I really appreciate 
you holding this hearing on important issues. And I have a few 
questions related to coins.
    The first question is for Director Peterson. Can you assure 
us that the Treasury has not and will not make changes to our 
circulating coins that would increase the cost to produce them?
    Mr. Peterson. Congressman, Congress controls what the 
composition of our coins is, what the diameter is, and what the 
weight is. And so we will continue to make the coins that are 
authorized for us to make today, the penny, nickel, dime, 
quarter, and half-dollar coins.
    Mr. Stivers. Great. And can you update us so you can maybe 
refresh my memory? As I recall, 2\1/2\, 3 years ago, Congress 
mandated the U.S. Mint to do a study on what was in coins, how 
coins were produced. You produced an initial report on or about 
the deadline of 2013, the end of 2013, as I recall.
    Mr. Peterson. In December of 2012, yes.
    Mr. Stivers. December 2012, I'm sorry. And then you said 
you needed more time. And then I saw another report and I met 
with you subsequently and you said you needed a little more 
time. Can you update us on the status of those efforts?
    Mr. Peterson. Absolutely. I mentioned before that we are 
analyzing multiple formulations of zinc and steel. Both appear 
to yield some cost savings. And we are putting the finishing 
touches on what those cost savings would be so that we can 
provide the right information in our next report to Congress, 
which will be in December of this year.
    Mr. Stivers. So we will be a full 2 years after the initial 
required timeframe for Congress. And will we have any final 
results by then, when we are 2 years late?
    Mr. Peterson. Yes. Our next report is in December. And we 
will fully flesh out all the various costs to produce both the 
zinc and the steel coins. We are also beginning to look at a 
stainless steel alternative and other alternatives that are 
various ratios of copper, zinc, and nickel.
    Mr. Stivers. Thank you. Are you familiar with the Navigant 
Study from 2 years ago? It said that the United States could 
save over $2 billion over a decade if just the nickel, dime, 
and quarter were made of plated steel. And you just referred to 
stainless steel.
    I would just remind the entire audience that stainless 
steel costs almost 3 times what plated steel costs. And Canada 
made the switch to plated steel over 10 years ago.
    Do you guys at the Mint think the Navigant Study was 
correct? And do you think there would be more savings if we 
included the penny in that since it is our largest circulating 
denomination?
    Mr. Peterson. Our report 2 years ago showed that there were 
no alternative metals that would lower the cost of the penny. 
And so the penny is not part of that, and there would be no 
benefit to shift to steel.
    On the nickel, dime, and quarter, there are cost savings 
possible with steel coins. And I testified previously that 
obviously our friends in Great Britain use plated steel. Our 
friends in Canada use plated steel. Steel is a viable option 
for United States coinage.
    Mr. Stivers. Thank you. And I appreciate you commenting on 
plated steel because your report as of 2012 when I looked at 
the price and we did some work, and I have met with you since, 
it sure looked like you were not using plated steel, not using 
cold rolled steel. It looked like you were using a stainless 
steel price. And if you looked at the cold rolled steel price, 
you would see a substantial savings on the penny.
    I would ask you to just go back and look at that. I want to 
ask you in a formal setting, I know I have asked you in my 
office, but I would ask you again to go back and take a look at 
that again.
    So, Canada and the United Kingdom and several other 
countries have already made the switch to lower-cost coins over 
the last 20 years, in fact the U.K. first and then Canada. Why 
has the United States been lagging in that, Mr. Peterson?
    Mr. Peterson. We were just given authority to go conduct 
research and development in December of 2010. We ramped up that 
effort in 2011 when we established a secure research and 
development laboratory at our Mint facility in Philadelphia. We 
analyzed 27 different alternative compositions in 2011 and 
2012.
    We put out our first report in 2012, saying that there was 
a smaller number, four or five possible alternatives, that we 
needed to conduct further in-depth research on to confirm the 
actual cost of making the coins out of those materials. And 
that is what we are doing right now and what we will report out 
on in December.
    Mr. Stivers. Thank you. I would just urge you, and I have 
just a few seconds left, to move as fast as you can on that, 
because what we will need to do if we are going to allow the 
vending coin industry time to put this in their capital 
replacement costs, is to make an announced change and then 
phase that in over time, because those folks deserve an 
opportunity to have it phased in.
    That is what Canada did. If we phase it in, it will work so 
much better, because their capital replacement cost is an 
average of 100 percent replaced every 5 years.
    So the sooner we can announce the change and then continue 
to work toward it, the better it will be. And I think that 
industry would like to work with you. And they deserve the 
ability to have that phased in over a reasonable timeframe.
    Mr. Peterson. Agreed.
    Mr. Stivers. Thank you, Mr. Chairman. I yield back my 
nonexistent time. Thank you for your indulgence.
    Chairman Campbell. Thank you.
    I think Mr. Clay and I have a couple more questions, so we 
will do sort of a second round. There are only two of us in the 
round. And then, we will let you all go back to what you 
actually do all day.
    Okay. I yield myself 5 minutes.
    Let me go now to Mr. Felix and understand, so we, Congress, 
said you can't alter the dollar note?
    Mr. Felix. That is correct. It was done--I think it was 
done when Mr. Colby chaired the Appropriations Committee. There 
was language in there that says we cannot make any changes at 
all to the $1 note.
    And I think it is in part--this is when we were beginning 
our redesign of all notes. And it is in legislation that is 
continued on to this day.
    Chairman Campbell. But you would want to? I would presume 
that counterfeiting is less of a problem with the dollar. If 
you are going to counterfeit, make big money.
    So left to your own devices, you would like to change the 
dollar note?
    Mr. Felix. We are perfectly comfortable because the 
counterfeiter didn't get that big return, if you will, on 
counterfeiting a one.
    Chairman Campbell. Are there counterfeit dollar notes out 
there? Have there been? Or is it just kind of a--
    Mr. Felix. You are talking about ones?
    Chairman Campbell. Just yes, on a one, I'm sorry, yes.
    Mr. Felix. Very few.
    Chairman Campbell. Okay.
    Mr. Felix. Very few.
    Chairman Campbell. And fives, tens? Because you are 
changing the ten, you said.
    Mr. Felix. Right. Typically the biggest issue with the 
fives is actually people would erase--they would take the five 
and bleach it out and print 100 on it. And the reason for that 
is they will go to places that use the marker. And it will give 
an indication of real currency because it is real currency 
paper.
    And that is one of the reasons why we made a preemptive 
change in the five. And so we have in the watermark of the 
five, the number five in it.
    Chairman Campbell. Okay. So this is a $100 bill, which is 
your latest iteration. Is that correct?
    Mr. Felix. Yes, sir. That is correct.
    Chairman Campbell. Of bill of any denomination this is the 
latest iteration. So this is what you will be transitioning, 
20s, 50s, 10s too?
    Mr. Felix. That represents the last of our--what we call 
our next-gen series. We begin to embark--we will be starting 
with the ten, as I said in my testimony. And it will be 
completely different. It may in fact have a higher order of 
technology in the bank notes. So that actually represents the 
closing of the next-gen series.
    Chairman Campbell. The next-gen?
    Mr. Felix. The end of that series, yes.
    Chairman Campbell. The end of that series?
    Mr. Felix. The end--
    Chairman Campbell. So the ten will be a new series--
    Mr. Felix. That is correct.
    Chairman Campbell. --from this one? Okay.
    So the dollar, single dollar, that you are not changing, 
does it cost less to make those than it cost to make these or 
the new ten because it doesn't have all this anticounterfeit 
stuff?
    Mr. Felix. It cost us typically about $0.04 to make a $1 
note because it doesn't have those security features.
    Chairman Campbell. Right.
    Mr. Felix. What we have just introduced, a new technology 
enhancement, the BEP, where it will yield even 15 percent more 
savings because we are producing--we currently produce them in 
32 notes per sheet. And starting this year, we will be 
producing them at 50 notes per sheet for an incredible yield. 
And so, the price will go down below that even further.
    Chairman Campbell. Okay. But--
    Mr. Felix. But it does not have--
    Chairman Campbell. So, it cost $0.04 to make that. What 
does it cost to make this?
    Mr. Felix. About $0.12.
    Chairman Campbell. Okay. A lot more. Okay. Got you. All 
right. Thank you.
    Ms. St. James, you talked about how the Federal Reserve--
that it costs 67 percent more than it did a few years ago to do 
what?
    Ms. St. James. Their cost to manage the coin inventory went 
up by 69 percent between 2008 and 2012.
    Chairman Campbell. So, not to make it. We are talking about 
to manage the coin inventory?
    Ms. St. James. To manage the coin inventory.
    Chairman Campbell. Why? What did they spend--is there more 
or less physical money in circulation than there was then over 
that period?
    Ms. St. James. Part of the problem is that they were 
monitoring a cost figure that included currency management 
costs plus coin management costs. They never took a separate 
look at what it cost to manage coins.
    But overall, currency, both note and coins, that cost 
increased by 23 percent, and when we took out the coin 
inventory costs, that is the 69 percent increase from 2008 to 
2012.
    Chairman Campbell. Okay. This is something we will have to 
look into some more.
    We did ask the Federal Reserve to be here. They declined, 
saying that there was an FMOC meeting within 2 weeks and that 
they couldn't show up because of an FMOC meeting in 2 weeks.
    Although clearly what we are discussing has nothing to do 
with monetary policy in the broad sense of M1 and M2 monetary 
policy. But they declined to be here for this hearing. There 
are a lot of questions I would like to ask them on the basis of 
that.
    Thank you very much. My time has expired. I yield to the 
ranking member of the subcommittee, Mr. Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    Ms. St. James, the Federal Reserve's 2013 annual report 
found that Reserve Banks hold roughly 1.4 billion $1 coins, 
which accounts for more than 40 years of supply at current 
levels of demand. Given this, to what extent can the increase 
in coin management costs be attributed to managing dollar coin 
inventories associated with the dramatic increase in dollar 
coins as part of the Presidential $1 Coin Program?
    Ms. St. James. The cost increase that we referred to does 
not include the dollar coin. It only includes pennies, nickels, 
dimes, and quarters.
    Mr. Clay. How much do you anticipate the Federal Reserve 
will have to spend just to manage the dollar coin inventories 
over the next 40 years?
    Ms. St. James. We don't have that cost at the--
    Mr. Clay. Could you supply this committee with an estimate 
or the cost--
    Ms. St. James. Yes.
    Mr. Clay. --of what you think it would be?
    Ms. St. James. Certainly.
    Mr. Clay. Thank you.
    Mr. Peterson, can you discuss how you have been able to 
increase production efficiency to bring down per unit costs of 
producing the penny and the nickel in recent years? Do you 
anticipate achieving further such efficiencies in future years?
    Mr. Peterson. Absolutely. I have testified before that our 
plant manager in Denver came to us from General Motors. Our 
plant manager in Philadelphia came to us from Ford Motor 
Company. I spent 11 years with General Electric.
    We know how to take costs out of our manufacturing 
operations. The short answer is, we don't swing for the fences. 
We try and hit singles every day. And those little wins add up 
over time.
    We have renegotiated contracts to get costs out year-over-
year on some of our recurring contracts. We have invested in 
capital equipment for the HVAC systems, the water treatment 
systems, the lighting systems, and they reduce our utility 
costs year-over-year.
    We have shifted our manufacturing operations in Denver and 
Philadelphia to two-shift operations, and they run Monday 
through Thursday. And we turn down the furnaces on Friday, 
Saturday and Sunday so that we can reduce our utility expenses.
    There is an inherent seasonality to coin demand. In the 
build-up to Memorial Day, coin demand goes up in March, April, 
and May, and then again in October and November before the 
holidays. And the coins flow back into the Federal Reserve in 
January and February and over the summer.
    And so, we have smoothed production. We look at what the 
12-month forecast is and we staff up for those levels. And we 
make the same number every month. And if there is a peak, we 
add temporary workers to make that peak demand.
    Those kinds of cost reductions are what we are doing every 
single day. And we are going to continue those.
    And the 42 percent cost reductions I mentioned in my 
opening statement in G&A expenses over the last 3\1/2\ years, 
are among our proudest accomplishments at the United States 
Mint.
    Mr. Clay. Thank you so much for your response.
    Mr. Chairman, I have no other question. I yield back.
    Chairman Campbell. Thank you.
    Our final set of questions will be a second round from the 
gentleman from Ohio, Mr. Stivers. You are recognized for 5 
minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I really appreciate 
that. My first question is for Ms. St. James.
    The GAO--the ranking member was just talking about the 
costs with Director Peterson of how we produce coins. And I 
would like to note that they have very extensive real estate in 
downtown Denver and in Pennsylvania, the very old, aging plants 
and aging equipment.
    And the way I understand it, Mr. Peterson just basically 
said they fire their furnaces for 4 days and then turn them way 
down for 3 days, and then they start over and do a 4-day week 
again the next week. Could we save money by modernizing our 
equipment, our plants, and our production techniques?
    Ms. St. James. I think that is probably a question better 
directed to the Mint.
    Mr. Stivers. Director Peterson?
    Mr. Peterson. So yes, our Denver Mint was built in 1904, 
our San Francisco Mint in 1937, and the West Point Mint in 
1938. And our newest Mint was Philadelphia in 1968.
    I did serve in the Navy and I know we get to retire our 
aircraft carriers after 50 years. And so, what we want to do in 
those facilities is look at our capital expenditures, look at 
what the buildings need, look at what equipment needs to go 
inside the buildings.
    And again, in the manufacturing cost reduction mode, we 
want to preserve flexibility in the manufacturing operations so 
that we can move products from one site to another back and 
forth. We don't know what the future will hold as to what 
materials we make our coins out of and what denominations we 
will be asked to make.
    And so preserving and expanding the manufacturing--
    Mr. Stivers. And all three of those facilities are in 
downtowns, aren't they, in pretty expensive real estate?
    Mr. Peterson. West Point is on the outskirts of the campus 
of the military academy on the Hudson River.
    Mr. Stivers. If you were able to sell the real estate and 
recoup the profits to build newer facilities in places that 
might be a little less expensive real estate, and buy more 
modern equipment--I guess my question is, have you done an 
analysis of that in any of your plants?
    Because if your newest plant is 50 years old and your 
oldest plant is 106 years old--
    Mr. Peterson. One hundred ten.
    Mr. Stivers. I'm sorry, 110 years old. I didn't want to 
short them. Have you done that analysis?
    Mr. Peterson. No, we have not done an analysis to go out 
and look at what the real estate markets are. I will say that 
these sites are heritage assets that Mr. Lucas asked about 
earlier in the hearing. They are on the register of historic 
places in the cities in which they exist.
    Mr. Stivers. And I am sure they are very historic and 
beautiful. But in the end, we have an obligation to taxpayers 
to make our coins as efficiently as we can.
    My next question is for Mr. Mills. Having gone through the 
process of taking a lot of costs out of your coins and now 
being a mint that makes coins for how many nations?
    Mr. Mills. In total, we say we supply around 60 other 
nations, depending on the year.
    Mr. Stivers. So you have been able to make coins for 60 
other nations and continue to do research and development, buy 
new equipment because you have the flow-through. Of course 
today, I think the United States only makes coins for one 
country.
    Tell me about your experience of how you have been able to 
take so much cost out of your coins.
    Mr. Mills. Yes. Thank you, sir.
    As I said in my testimony, I guess it is in some 
fundamental areas. One has been changing the metal composition, 
and by and large that has been changing from solid alloys, 
which are obviously relatively expensive if you look at the 
price of the nickel at the moment. It is trading, I checked 
this morning, at about $18,000 a ton versus steel in Europe is 
trading at about $900 a ton.
    So with a nickel plated coin, you are talking about taking 
over 95 percent of cost--
    Mr. Stivers. And do you buy your steel at $900 a ton?
    Mr. Mills. That is the sort of price in Europe at the 
moment.
    Mr. Stivers. So the study in 2012 that the U.S. Mint did 
claimed steel was $2,100 a ton. Clearly, that is not the same 
composition steel that you buy.
    Mr. Mills. I don't know the exact--I don't know anything 
about the specification of steel--
    Mr. Stivers. In the whole world, steel was trading at $900 
a ton at that point too. So it has been pretty flat. And I 
don't mean to cut you off, but I only have 27 seconds left.
    If the United States were to enter into an agreement with 
the Royal Mint and ask you to make the penny for us, would you 
have any idea what you could make it for?
    Mr. Mills. Looking at the work we have done, I think it 
would be very difficult to have a U.S. penny that would be in 
positive seigniorage.
    Mr. Stivers. But could you make it for less than $0.02?
    Mr. Mills. I would have to look at it more closely. I think 
it is a tough job.
    Mr. Stivers. Thank you. My time has expired again. That 
keeps happening to me.
    Chairman Campbell. Thank you--
    Mr. Stivers. Thank you, Mr. Chairman.
    Chairman Campbell. --Mr. Stivers.
    I do have to say I miss the halfpenny and the shilling. Of 
course, my taxes aren't paying for them.
    I would like to thank our witnesses for their testimony 
today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And with that, thank you all. This hearing is adjourned.
    
    [Whereupon, at 12:45 p.m., the hearing was adjourned.]
    
    
                            A P P E N D I X


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