The point at which printed United States paper currency from the Bureau of Engraving and Printing officially becomes money is rather cut-and-dried, but the same doesn't hold true for when the metallic disks struck at the various U.S. Mint production facilities officially become legal tender coins.
In fact, struck coins have been officially made legal tender or considered by some to be "monetized" by several different means depending on whether the coins are struck for circulation, numismatic or bullion products. And exceptions have been made to the general rules. Even the terms "legal tender" and "monetization" are subject to dispute.
The issue of "monetization" and when a Mint-struck coin becomes money became paramount concerning the 1933 Saint-Gaudens gold $20 double eagle purportedly once owned by King Farouk of Egypt. The Mint's entire 1933 production of 445,500 double eagles was not considered by Mint authorities to have been officially issued through accepted channels. The Farouk coin did not become officially "monetized" until a $20 Federal Reserve note was paid to compensate the Mint for its issuance after an anonymous bidder paid $7.59 million at auction July 30 for the coin.
For paper money, according to the Federal Reserve, the Federal Reserve pays the BEP for the cost of production, and pays armored carriers to transport currency from the BEP to the Federal Reserve Banks.
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2002 SACAGAWEA dollar coins were struck only for sales to collectors in bags and rolls. These coins were monetized when the Mint Sales and Marketing Unit bought them at face value from its Manufacturing Unit.
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"'Monetization' is not defined in federal law or regulation, nor does federal law provide when United States coins and currency become 'legal tender'," according to a Federal Reserve spokeswoman. "The Federal Reserve Act provides that Federal Reserve notes become a lien upon all assets of a Federal Reserve Bank when the notes are delivered to the Reserve Bank. Specifically, Federal Reserve notes are 'issued at the discretion of the Board' and 'shall be obligations of the United States.' 12 U.S.C. [United States Code] §411. Federal Reserve Banks apply to the Board to have Federal Reserve notes issued to them. When applying for Federal Reserve notes, the Reserve Banks are required to tender 'collateral in amount equal to the sum of the Federal Reserve notes thus applied for and issued pursuant to such application.' 12 U.S.C. §412. The Federal Reserve Act provides that 'Federal Reserve notes issued to any such [Federal Reserve Bank] shall, upon delivery, become a first and paramount lien on all the assets of such bank.' 12 U.S.C. §414. Federal Reserve notes become money when Reserve Banks issue them to depository institutions for face value."
Although the BEP charges a premium to collectors for notes that it sells to the general public, the Federal Reserve is only compensated for the face value of the notes, according to the Federal Reserve spokeswoman.
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FEDERAL RESERVE Banks do not order coins from the Mint that will be sold only for numismatic purposes, as in the case with 2002 dollar coins.
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Coins, on the other hand, struck with the mandated legends and denominations as required by federal law become "money" under multiple interpretations. Which interpretation is used depends on whether the coins are for circulation; are numismatic products, such as Uncirculated Mint sets, clad Proof and Silver Proof sets, collector bags and rolls of circulation-quality coins; or even whether they are Proof or Uncirculated platinum, gold and silver American Eagle bullion coins.
No definition
Again, according to the Fed, "monetization" is not defined in federal statutes or regulations.
"Federal law provides that 'United States coins and currency' (including Federal Reserve notes) are 'legal tender,' but 'legal tender' itself is not further defined (31 U.S.C. §5103)," according to the Federal Reserve spokeswoman. "Federal law authorizes the Secretary of the Treasury to mint and issue coins of specific denominations and metallic composition 'in amounts the Secretary decides are necessary to meet the needs of the United States' (31 U.S.C. § 5111(a)(1). Reserve Banks purchase coins from the Mint for face value. Circulating coins become money by two different methods. The great majority of circulating coins become money when the Reserve Banks, or armored carriers acting as their agents, accept delivery of newly issued coin at their docks. The Mint issues a small percentage of circulating coins directly to the public."
The Federal Reserve - whose role it is to distribute circulating coins issued by the Mint - pays the Mint only face value for coins, and depository institutions pay only face value to Federal Reserve Banks for coins ordered from the Fed offices, according to the spokeswoman.
Depository institutions may pay armored carriers subcontracted by the Federal Reserve for routine additional services such as wrapped or rolled coins, the spokeswoman said.
Mint spokesman Doug Hecox explains it is the Mint's position that circulating coins shipped to the Federal Reserve are monetized upon receipt by the Federal Reserve Banks or their agents, the armored carriers. The Mint's production plan is driven primarily by Federal Reserve orders.
The Federal Reserve pays the Mint face value for the coins, Hecox says. The transactions are accounted for by the individual Federal Reserve Banks processing a Deposit Ticket (Form 215) and posting electronic transaction in Cashlink, Hecox says.
Federal Reserve Banks do not order coins from the Mint for numismatic purposes and coins produced for numismatic programs are not distributed via the FRBs, according to Hecox. "Coins sold as numismatic products are monetized when the Mint's Sales and Marketing Business Unit buys the coin from the Manufacturing Business Unit at face value," Hecox says.
This rationale covers the annual Uncirculated Mint sets, clad Proof and silver Proof sets, other special collector sets, commemorative coins, Proof American Eagles and circulation-quality coins sold in bags and rolls (State quarters, Sacagawea dollars and 2002-P and 2002-D Kennedy half dollars).
Hecox said the Federal Reserve did not forecast its demand for 2002 Sacagawea dollars. All of the circulation-quality Sacagawea dollars produced by the Mint dated 2002-D and 2002-P were struck exclusively for sale in numismatic bags and rolls, he said. The coins became monetized when the Mint's Sales and Marketing Unit purchased them from the Manufacturing Unit at face value, according to Hecox.
The procedure for monetizing the 94 million 2000-P Sacagawea dollars that were distributed through Wal-Mart stores nationwide in January and February 2000 followed a completely different route. The dollar coins never passed through the Federal Reserve Banks as originally planned, Hecox says. According to Hecox, the coins were first shipped directly from the Philadelphia Mint to a Mint wrapping contractor and then mailed via the United States Postal Service to the respective Wal-Mart outlets. The coins became monetized when received by the stores.
The Mint has the authority to produce and sell coins to the numismatic community through its Sales and Marketing Business Unit, exclusive from circulating production ordered by the Federal Reserve, according to Hecox.
All coins produced by the Mint are considered legal tender in business transactions for the stated value on each coin, according to Hecox, even though their numismatic and/or intrinsic value may be above the face value.
This is especially true for the American Eagles that have a higher intrinsic value than face value because of the fineness of gold, silver or platinum that they contain.
Unlike the Proof American Eagles, the Uncirculated coins are not sold by the Mint directly to the general public, but to a network of authorized purchasers, who acquire the coins from the Mint for the spot price of the precious metal on a given day on the metals market plus a small premium.
The authorized purchasers may then sell the Uncirculated American Eagles to dealers and/or to the general public. The Eagles become monetized when the authorized purchasers receive them.
