Last March, three members of the Citizens Coinage Advisory Committee met with Rep. Andy Barr (R-KY), a freshman member of the House Financial Services Committee that oversees the U.S. Mint, to pitch the idea of Liberty-themed coins.
Initially, the proposal was to issue a series of Liberty-themed coins for the five silver-colored circulating coins but dropped the 5-cent coins after Barr said that there must be no cost to the taxpayer. Currently, the U.S. Mint reports that it costs 10.9-cents to produce the Jefferson nickel and was removed from discussion. What the politicians fail to grasp is that coin production does not cost the U.S. taxpayer anything because all of the money used to operate the U.S. Mint comes from the seigniorage collected on all coins, commemoratives, and tokens sold including circulating coinage to the Federal Reserve. Since the Federal Reserve does not use taxpayer money in its operation, the purchase of circulating coins generates a profit for the government.
Although removing the 5-cent coins from consideration is a wise political move, it demonstrates the illogic and dysfunction of the politics. It also illustrates why the current system of how congress controls the U.S. Mint is unsustainable and needs to be changed.
No other mint in the world is under the same legislative control as the U.S. Mint. Every other major mint are autonomous entities running under the authority of the government required to produce circulating coinage for the country’s central bank and must obtain approval from the central bank to create any legal tender coin. A government can decide that it should produce certain denomination or stop producing a denomination and the autonomous entity must comply.
People who want to discontinue the use and production of the one-cent coin looks to Canada as an example of how a country to stop producing their lowest denomination and be successful. While it is too soon to judge the success and failure of this move, what is lost on people is how the Royal Canadian Mint, a Crown corporation of Canada, is required to comply with the laws passed by the Canadian Parliament. If the Canadian Parliament passes a law that says the Royal Canadian Mint is not to produce any more one-cent coins, than the Royal Canadian Mint does not produce one-cent coins.While parliament does prescribe that certain coins be made, the Royal Canadian Mint is free to produce coins of its own designs to sell to the public. They work with the Bank of Canada on the approval of designs and the Bank of Canada allows the Royal Canadian Mint to strike coins with a denomination so that these have legal tender status. Most of these coins are bullion and non-circulating legal tender (NCLT) issues sold to investors and collectors for the sole purpose of generating revenues (seigniorage).
Some countries do not operate a mint even as a public corporation. Countries like Niue, Somalia, and Isle of Man that have produced popular NCLT issues contract their minting to other mints, such as the New Zealand Mint, or to private corporations like the family-owned Pobjoy Mint. Even the government of Israel thought it was best to privatize their mint. After being established in 1958 by then Prime Minister David Ben-Gurion, the Israel Coins & Medals Corp was privatized and sold in 2008 where they continue to operate under the authority of the Israeli government and the Bank of Israel.Although it could be successfully argued that some of the mints have gone overboard with their bullion and NCLT programs like the Royal Canadian Mint and Perth Mints, it could also be noted that other mints have show great constraint in what they have produced. An example of showing restraint would be the Britain’s Royal Mint and Australian Mint who have concentrated on producing quality and not quantity. These are all models to learn from for the future.
Those who would be against privatizing the U.S. Mint immediately point to Article I, Section 8 of the U.S. Constitution that says “The Congress shall have Power… To coin Money, regulate the Value thereof,” as the reason not to privatize the U.S. Mint. While the Constitution gives congress this authority, it does not say that the government has to own the means of production nor does it say that congress has to dictate the design of that money. In its most basic term, “to coin money” means to authorize production of and make legal tender of coins used in commerce (for a full description based on case law, see this section).An argument used against privatizing the U.S. Mint is to compare what could happen to the U.S. Postal Service. However, the Postal Service is not a government-owned corporation. According to 39 U.S.C. § 201, it is “an independent establishment of the executive branch of the Government of the United States.” While it has many independent powers, it still regulated by congress and subject to insipid rules no private company could ever meet.
In a huff, those who argue against government-owned corporation point to Freddie Mac and Fannie Mae as examples of the dangers of making critical government functions private. Unfortunately, these people are reading the headlines and not the reasons for Freddie and Fannie’s problems caused by the recent fiscal crisis. While both companies can be blamed for their parts in the failure of the markets, a lot of their blame can be traced to the laws that congress passed giving them a complicated deregulated environment from which to try to accomplish their goals. Rather than find a way to fix the issues, congress wants to end the programs Freddie and Fannie support and close those entities even though new regulations have been working.
The problem with making the U.S. Mint a government-owned corporation would be the 535 member board of directors (congress) whose knowledge of what it would take to do this right is suspect. This is the same congress that has forced the Postal Service to over pay into its pension fund while forgetting that it has to the power “to pay the Debts and provide for the common Defence and general Welfare of the United States” by shutting down the government or preventing the payment of debt by manipulating the artificial debt ceiling.
It would be possible to make the U.S. Mint a government-owned corporation using the lessons learned from the governance of the Postal Service, Fannie Mae, Freddie Mac, and any number of other world mints. A charter would be established to make the government-owned Mint corporation the sole provider of circulating coins to the federal reserve and that its operations would be managed by a board with representation from the executive branch, legislative branch, and the Federal Reserve. The board would have oversight power over the Mint corporation and work within the parameters set up by the charter.
Provisions of the charter would be that congress would regulate coinage in that nearly every part of 31 U.S.C. § 5112 would be eliminated except for paragraph (a) that describes the denominations and their size specifications. All laws regarding weights, composition, and design with the exception of the first sentence of paragraph (d), would be eliminated.So that coin series are maintained, all current programs like the American Eagle, Presidential dollar, National Parks quarters, and Native American dollars would be maintained until they are completed as described in the current law.
A new charter would allow congress to designate two commemorative coins per year with a surcharge to be paid to an organization as it does today, but the Mint corporation could create additional non-circulating legal tender coins with its own designs that are made legal tender by following the specifications of the law (e.g., 31 U.S.C. § 5112(a)(10) allows for “A five dollar gold coin that is 16.5 millimeters in diameter, weighs 3.393 grams, and contains one-tenth troy ounce of fine gold.”) and approved by the design board, the Mint charter board, and the Federal Reserve.
The design board would be the Citizens Coinage Advisory Committee. Rather than have two design groups, one that whose purpose outside of reviewing coins is to review architecture, only the CCAC would continue as the approved design board. This way, the Mint corporation would have artistic oversight by a dedicated organization and not have to worry about whether the U.S. Commission of Fine Arts, whose purpose is to oversee the architecture of Washington, understands design and the issues with striking those designs.This charter can be written in a way to create a special inspector general that would work with the Department of the Treasury to help the executive branch maintain oversight over the new corporation.
Freeing the U.S. Mint to be more autonomous and provide them the ability to create new products will not cost the taxpayer anything. In fact, it has the potential for the new corporation to earn more than it does now with new products on the market because if you notice, I never said to get rid of the U.S. Mint Public Enterprise Fund (31 U.S.C. § 5136). On the contrary, the new Mint corporation should be required to set an operations budget and leave the budget plus 25-percent in the Public Enterprise Fund for emergencies. The rest should be deposited in the account of the company’s shareholders: the General Treasury of the United States of America.
In this scenario, it will not matter that it costs more than face value to manufacture the cent and 5-cent coins. The losses can be made up by selling other products to a world that trusts the U.S. Mint—a world that buys more bullion and collectibles from the U.S. Mint than any other country. Imagine how much the new Mint corporation could help reduce the deficit if allowed to be run more like a commercial enterprise than an over regulated government agency.
If it is said that the private sector can do better than the government, here is one way to put that rhetoric to a test!
What do you think? In addition to writing a comment below, how about participating in a poll. Do you think that the U.S. Mint should become a government-owned corporation?