On April 17, 2012, the House Subcommittee on Domestic Monetary Policy and Technology held a hearing entitled “The Future of Money: Coinage Production.” The hearing was held in relation to two bills H.R. 3693 and H.R. 3694 introduced by Rep. Steve Stivers, which seek to require the cent and nickel to be made from steel.
In an opening statement, Subcommittee Chairman Ron Paul took a broader view on the subject of circulating coinage composition. He stated that changing the composition of the cent and nickel fails to address to root cause behind currency debasement and also fails to provide a viable solution for both the dollar and circulating coinage.
“If Congress were truly interested in the cost of coinage, it would begin by reining in and eventually abolishing the Federal Reserve System. The Fed along is responsible for the devaluation of the dollar. The problem with the penny and nickel is not that the price of copper and nickel are rising, but that the purchasing power of the dollar is declining due to the Fed’s currency debasement… Unless Congress puts an end to the Fed’s loose monetary policy and returns to a sound and stable dollar, the issue of U.S. coin composition will be revisited every few years until inflation finally forces coins out of circulation altogether and we are left with only worthless paper.”
Paul also called for the United States to embrace currency competition to break up the government’s monopoly on the issuance of money. He cited examples throughout history when privately minted or foreign coins were used in commerce, and explained how the current monopoly removes the incentive for the US Mint to keep costs under control.
Testimony for the hearing was provided by John Blake, Executive Vice President of Cummins Allison, a privately held corporation that develops and provides solutions to count, sort, and authenticate currency, checks, and coins. Cummins Allison acknowledged their support of Congressional efforts to reduce the cost of coin production, but urged that changes in appearance, weight, size, or composition should be implemented slowly and cautiously. They strongly encouraged the development of a government-industry/stakeholder task force very early in the process to assist in a seamless transition.
“That would allow all stakeholders to carefully review options and alternatives from conception through circulation. This task force would help to assure that all technical, scientific, commercial and public issues are thoroughly addressed early on and at every stage of the process.”
Blake’s testimony also included some points of consideration following coin changes imitated by other countries. In Japan, a soft aluminum composition was introduced. Although this metal was less expensive, it required more expensive equipment and the coins had durability problems. In the United Kingdom, the pound coin has metallurgical properties that are nearly identical to coins from other countries with lower values. This has led to a high degree of counterfeiting.
Dennis W. Weber, a coin industry consultant, provided testimony which focused on multi-ply technology.
“Multi-ply is a proprietary process developed in Canada that applies electroplated layers of nickel and copper to an inexpensive steel core to create circulating coins that are both attractive and affordable. In an age of escalating global metal costs, governments need to produce coins more cost effectively without compromising quality.”
Weber’s testimony went on to explain that the transition in Canada from pure nickel and nickel alloy coins to multi-ply steel coins went smoothly due to the commitment by the Royal Canadian Mint to involve major stakeholders throughout the process. He cited savings to Canadian taxpayers of more than $250 million as well as profits from removing older coins from circulation and selling them for their metal content. Multi-ply technology has been adopted by 28 different countries representing 60 denominations.
Rodney Bosco, Director in the Disputes and Investigations practice at Navigant Consulting provided testimony based on a report commissioned by Jarden Zinc products, a producer of coin blanks and licensee of the Royal Canadian Mint’s multi-ply plated steel technology.
The testimony offered three main conclusions. First, the adoption of multi-ply plated steel for the nickel, dime, and quarter would reduce per-unit raw material costs by 84% to 89%, yielding annual savings of approximately $200 million. Second, the parallel adoption of an alloy recovery program, which would replace copper-nickel alloy coins with multi-ply plated steel coins and salvage material from retired coins, could generated potentially $2 billion in additional revenue. Third, the elimination of the cent would not completely eliminate losses generated from production since a portion of the United States Mint’s fabrication, distribution, and SG&A expenses are fixed and would not be eliminated.
Richard A. Peterson, Deputy Director of the United States Mint, submitted a statement for the record. Under the authority provided by the Coin Modernization, Oversight, and Continuity Act of 2010, the US Mint is currently conducting research and development activities to determine “the most cost effective and fully functional metallic coin composition for each circulating coin.”
The results of the Mint’s research and development activities will be provided to Congress in a report due later this year, which may also contain recommendations for action. Any changes in coin composition would still need to be accomplished through an Act of Congress.
Peterson mentioned the proposal in the President’s FY2013 Budget, which would provide the Secretary of the Treasury with direct authority to determine the composition of coinage. Peterson said, “The proposal is the optimal method for addressing the current and future challenges related to the costs of coin materials and production, and would reduce costs of circulating coins by millions of dollars annually. We urge the Committee to support this proposal.”