Testimony cites savings from using steel
- Published: May 6, 2012, 8 PM
Switching to a steel-layered composition for all circulating U.S. coin denominations would save millions of dollars annually in production costs, a consultant testified April 17 before a House Banking Subcommittee hearing on “The Future of Money: Coin Production.”
Rodney J. Bosco, director of disputes and investigation practice for Navigant Consulting Inc., Washington, D.C., presented the 68-page findings from Jarden Zinc Products during testimony before the House Committee on Financial Services’ Subcommittee on Domestic Monetary Policy & Technology.
Among his comments, Bosco advocated the adoption of a program to recover selected circulating coinage in their current compositions for metal reclamation.
The House Banking subcommittee is chaired by Rep. Ron Paul, R-Texas, who took the opportunity during the hearing to launch another salvo toward Congress in recommending the abolishment of the Federal Reserve System.
Jarden, which is a licensee of the Royal Canadian Mint’s multi-ply plated steel technology, currently is the lone supplier to the U.S. Mint production facilities at Denver and Philadelphia with ready-to-strike planchets with upset rims.
Jarden is located in Greeneville, Tenn.
The RCM uses the multi-ply steel plated technology for multiple coin denominations.
Also testifying at the April 17 hearing were John Blake, executive vice president of engineering for Cummins Allison Corp., a Mount Prospect, Ill., manufacturer and worldwide distributor of counting, sorting and authenticating equipment for coins, paper currency and checks; and Dennis H. Weber, a coin industry consultant.
Richard A. Peterson, deputy director of the U.S. Mint, contributed written comments for the record.
In his April 17 testimony, Bosco testified that coin recovery and salvage could yield approximately $2 billion in revenue for the Mint. In addition, Bosco outlined two other primary findings from research to the potential benefits of using multi-ply plated steel for its vended coins.
The findings are pursuant to the Coin Modernization, Oversight and Continuity Act of 2010, Public Law 111-302.
? Employing steel as the dominant component of a new alloy for the Roosevelt dime, Jefferson 5-cent coin and the America the Beautiful quarter dollars would reduce the costs of raw materials for the three denominations by 84 to 89 percent, Bosco said.
More than half of costs of production are tied up in metal acquisition, Bosco said.
The copper-nickel clad dime and quarter dollar are currently produced from outer layers of 75 percent copper and 25 percent nickel bonded to a core of pure copper.
The 5-cent denomination is composed of a homogenous mix of 75 percent copper and 25 percent nickel.
Overall raw materials costs for all denominations could be reduced by 80 percent by substituting the steel-layered technology, Bosco testified.
Changing the composition of circulating U.S. coins could save the Mint up to $200 million annually, Bosco said.
? Eliminating the cent would not result in any savings.
The latest audited production figures, with certain costs not previously allocated to the cent and 5-cent coin now spread to include those denominations, notes that it costs 2.41 cents to produce each Lincoln cent and 11.16 cents to produce each 5-cent coin.
Even if the metals for those two denominations were provided gratis, Bosco said that because of other allocated fixed costs, it would still cost 1.41 cents to produce each cent and 6.8 cents for each 5-cent coin.
These allocated fixed costs, including costs of operating the die shops and other costs of administration, would have to be redistributed among the remaining denominations should the cent be eliminated, Bosco said.
Weber also cited the advantage of Canada’s multi-ply steel-plated coinage, noting Canada’s switch from nickel has saved taxpayers there $250 million Canadian annually.
Canada has maintained an active program the past six years to remove the older nickel and nickel alloy coins from circulation, defacing them and selling the recovered metal for scrap, as the multi-ply coins remain in circulation, Weber said.
Since being introduced, multi-ply technology has been adopted internationally by 28 different countries, covering more than 60 denominations, according to Weber.
The multi-ply Canadian 5-cent coins have the same look and feel as the current Jefferson copper-nickel 5-cent coin, according to Weber. The Canadian 5-cent coin costs 3 cents Canadian to produce, Weber said.
Savings for the composition switch alone for just the Jefferson 5-cent coin would save U.S. taxpayers $80 million annually, Weber said.
Blake said the key to the success of Canada’s recent changes to the $1 and $2 coins was keeping industry, along with others that would be affected by the compositional change, involved throughout the development process.
Also key: Canada did not change the size or thickness of the coins.
“It is much more difficult and expensive to alter or retrofit machinery that will accommodate new or changed coins which have a different diameter or thickness,” Blake said. “Changes to diameter or thickness may require significant, expensive changes to our equipment, or the outright replacement of equipment.”
Blake said coin metallurgical content changes will affect not only how well sorting, counting and authenticating equipment functions, but also affect the life of the coin.
In addition, “Coins manufactured from more common metals are easier to counterfeit than those containing less common metals or a unique combination of metals,” Blake said. “In order to provide a high level of security, the metallurgical content of any new coin must be unique to every other coin in the world.
“The penny, like the larger denomination coins, should be nearly free from the threat of counterfeiting.”
Two pieces of parallel legislation were also addressed during the hearing — H.R. 3693, “Cents and Sensibility Act,” subtitled “To amend title 31, United States Code, to save the American taxpayers money by immediately altering the metallic composition of the 1-cent coin, to require a prompt review and report, with recommendations, for cost-saving changes in the metallic content of other circulating United States coins, and for other purposes”; and H.R. 3694, “Saving Taxpayer Expenditures by Employing Less Imported Nickel Act (STEEL Nickel Act),” subtitled “To amend title 31, United States Code, to save the American taxpayers money by immediately altering the metallic composition of the 5-cent coin, to require a prompt review and report, with recommendations, for cost-saving changes in the metallic content of other circulating United States coins, and for other purposes.”
The U.S. Mint is currently in the second year of a two-year study seeking alloy alternatives. The study, authorized by 2010 legislation, was prompted by the production costs of the Lincoln copper-plated zinc cent and Jefferson copper-nickel 5-cent coin rising to double their face value.
The study is addressing the composition of all circulating denominations, with the complete findings and recommendations to be provided to Congress by Dec. 14, 2012.
Treasury secretary discretion
Peterson’s written comments included the recurring recommendation to Congress to introduce and pass legislation granting the secretary of the Treasury discretionary authority to change the specifications for all U.S. coins — authority which statutorily has been vested solely with Congress.
Currently, the Treasury secretary only has the authority to change the composition of dollar coins and the ratio of copper and zinc in the cent. A manganese-brass clad composition is used for Presidential dollars and Native American dollars, both of which are currently being struck in circulation quality for numismatic sales only.
Treasury Secretary Timothy F. Geithner suspended production Dec. 13, 2011, for Presidential dollars for circulation. Native American dollar coin production has been limited to those coins needed for collector programs.
Peterson’s comments note that President Obama’s Fiscal Year 2013 budget includes a legislative proposal, which Treasury and U.S. Mint officials support, that would grant the Treasury secretary the authority to specify the coinage materials for the cent, 5-cent coin, dime, quarter dollar, half dollar and dollar.
Abolish the Fed
Rep. Paul, a longtime opponent of the Federal Reserve, used the hearing to address a subject that has also been part of his presidential campaign platform. Paul has been seeking nomination as the Republican candidate for president in the current election cycle.
Paul said that abolishing the Federal Reserve System, embracing currency competition by breaking the government’s monopoly on coin and paper money production, and allowing parallel currencies will go a long way toward restoring the nation’s monetary stability.
Paul remarked that changing the composition of circulating coinage “fails to address the root cause behind currency debasement.”
“The problem with the penny and the 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,” Paul said. “The same pattern has been seen throughout history, as debased currency results in the value of the metal content of coins outstripping their face value.
“Coins disappear from circulation and only paper money circulates. Finally, the currency collapses.
“Coins will begin to reappear once the monetary unit is restabilized, usually with the introduction of an entirely new currency and after much economic hardship for the people.”
Paul concluded that “focusing on the symptoms rather than the causes is only hacking at the branches, when we need to strike at the root.”
The complete testimony from the hearing participants, as well as links to the archived webcast, can be found online at http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=289484. ¦
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