Sep 24, 2012 | advice, coins, counterfeit, legislative, policy
It was reported that the third-party grading service ANACS has found a counterfeit 1934 Peace Dollar. Although the coin appears to be made with a genuine planchet, indications of heavy polishing and other flaws seen under high magnification has ANACS questioning the coin’s authenticity.
Senior ANACS Numismatist Michael Fahey was interviewed for the Coin World article does not believe that the counterfeiters used a previously struck coin and that the dies were made using a transfer process.
NGC discovered the “Blundered O” not included in the VAM references.
Regardless of whether one point is valid or not, the fact of the matter is that the ANACS staff who examined the coin found a lot of evidence that leads them to believe the coin is counterfeit. Finding counterfeit coins that get by experienced dealers and nearly fools the graders is a serious matter for the hobby. This is why the Hobby Protection Act needs to be strengthened so that we can stop something like this from hurting the hobby.
I will remind everyone that it is not too late to write to your representative and ask him or her to support H.R. 5977 the Collectible Coin Protection Act. In short, the Collectible Coin Protection Act will allow collectors, dealers, and grading services to bring legal actions that are much more effective, with much stronger remedies than previously existed. It will allow those harmed to work with the Justice Department to bring criminal actions, where appropriate.
The only way to ensure that H.R. 5977 becomes law, especially since we are approaching the end of this session in an election year, is to contact your member of congress will let them know that the numismatic community supports this Act and that their support is important. It can be worked on during the lame duck session and members of the Industry Council for Tangible Assets (ICTA) and the Gold and Silver Political Action Committee are working to see this law passed.
WE STILL NEED YOUR HELP!
There are only 11 co-sponsors of this bill as I write this post. We need more co-sponsors to get the attention of the House leadership.
First, see if your member of congress is not a sponsor of this legislation. The best way is to visit govtrack.us, scroll down and and select the “show cosponsors” link. If your representative is not there, here is a sample note to send them (complements of the ICTA):
As your constituent, I urge you to sign on as a co–sponsor of HR 5977, “The Collectible Coin Protection Act.” The bill was introduced on June 12 by Representatives Lamar Smith and Fred Upton, chairs of the Judiciary and Energy & Commerce Committees, respectively.
HR 5977 provides a means whereby US citizens can take legal action against purveyors of the high-quality counterfeit US coins entering our marketplace from China by expanding enforcement power of the Hobby Protection Act. The Hobby Protection Act has been in effect since its passage in December, 1975, but lacks enforcement power that HR 5977 now provides.
HR 5977 is revenue neutral and contains no controversial issues.
Please contact me if you have any questions or if I can provide any additional information. Thank you for your action on this.
Even though the House is not in session, members can still contact the Clerk of the House and ask that their name be added as a co-sponsor. The more names added, the better the chance that the bill will see action in the lame duck session.
Please take this opportunity and contact your representative today!
ADDED: If you do contact your representative, please leave a note here and let me know who you contacted. THANKS!
Image courtesy of NGC.
Sep 2, 2012 | coins, commemorative, news, policy
The following is a summary of the coin-related legislation whose status was changed in August 2012:
Public Law No. 112-169: National Infantry Museum And Soldier Center Commemorative Coin Surcharges
H.R. 3187: March of Dimes Commemorative Coin Act of 2012
H.R.4104: Pro Football Hall of Fame Commemorative Coin Act
S.3517: Panama-Pacific International Exposition and Panama Canal Commemorative Coins Act
H.R. 6331: Panama-Pacific International Exposition and Panama Canal Commemorative Coins Act
Jul 30, 2012 | BEP, coins, currency, education, legislative, policy, US Mint
There has been a lot of legislation passed by Congress that affects the coin and currency production in the United States. While some of it has been as mundane as changing the composition of coins or the approval of a commemorative coin, there are some that has had a significant impact on coin and currency production. Here is a list of those laws that had a major impact.
- Coinage Act of 1792
- The first coin-related law passed by congress and signed by President George Washington on April 2, 1792, establishes a mint, says that congress is the regulating authority of coins, and establishes the dollar as the unit of money. It made the United States one of the first countries to use a decimal system for currency and established legal tender laws. It is the foundation for the creation of the money production in the United States.
- Act of April 10, 1806
- This act regulates the legal tender value of foreign coins used in the United States.
- Act of April 21, 1806
- This act establishes the penalty for counterfeiting coins to be between three and five years of hard labor. Although there was no law regarding counterfeiting coins before this act, it was assumed that penalty was death because of the statements printed on colonial currency.
- Coinage Act of 1834
- This act changed the ratio of silver-to-gold weight from 15:1 that was established in the Coinage Act of 1792 to 16:1, setting the price of an ounce of gold to $20.67. This was done to strengthen the financial system after the Panic of 1833 and stem the tide of paper currency in favor of “hard money.” President Andrew Jackson signed this bill into law on June 27, 1834.
- Coinage Act of 1849
- Signed into law by President James K. Polk as one of his last acts as president on March 3, 1849, it established the use of gold for a $1 coin and the $20 gold double eagle coin. This act also refined the variances that were permissible for United States gold coinage. This act came largely because of the California Gold Rush.
- Coinage Act of 1857
- Signed into law by President Franklin Pierce February 21, 1857, this act repealed the legal tender status for foreign coins in the United States. It required the Treasury to exchange foreign coins at a market rate set by Treasury. This act discontinued the half-cent and reduced the size of the one-cent coin from 27mm (large cent) to the modern size of 19.05mm (small cent) that is still being used today.
- National Bank Act of 1863
- Originally known as the National Currency Act and signed into law by President Abraham Lincoln on February 25, 1863, it created a single currency standard for the United States where the notes would be backed by the United States Treasury and printed by the federal government. The result of this act lead to the establishment of the National Currency Bureau which was later rename to the Bureau of Engraving and Printing.
- Coinage Act of 1864
- This act changed the composition of the one-cent coin to bronze (0.95 copper, 0.05 tin and zinc) from 0.88 copper and 0.12 nickel. It authorized the minting of the two-cent coins with the motto “In God We Trust” to appear the first time on a United States coin. President Abraham Lincoln signed this act into law on April 22, 1864.
- Coinage Act of 1873
- Sometimes referred to as the “Crime of ’73,” demonetized silver and set the standard for gold as the backing of the national currency. This act placed the U.S. Mint under the jurisdiction of the Department of the Treasury and officially established four branch mints at Philadelphia, San Francisco, Carson City, and Denver. Two assay offices were established in New York and Boise City, Idaho. The act also ended the production of the half-dime, silver three-cent piece, and two-cent coin. President Ulysses S. Grant signed this act on February 12, 1873.
- Bland-Allison Act
- Named for Rep. Richard P Bland (D-MO) and Sen. William B. Allison (R-IA), the act required the Treasury Department to buy silver from western mines and put them into circulation as silver dollars. The act authorized the striking of the Morgan Dollar. President Rutherford B. Hayes vetoed the bill but congress overrode his veto on February 28, 1873.
- Sherman Silver Purchase Act
- Signed into law by President Benjamin Harrison on July 14, 1890 and named for Sen. John Sherman (R-OH), the law increased the amount of silver the government was required to purchase from western silver mines.
- Federal Reserve Act of 1913
- President Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913 that allowed the creation of the Federal Reserve System as the central bank of the United States. It also granted the Federal Reserve authority to issue Federal Reserve Notes and Federal Reserve Banknotes.
- Pittman Act
- Named for Sen. Key Pittman (D-NV) and signed into law by President Woodrow Wilson on April 23, 1918 authorized the conversion of up to 350 million silver dollars into bullion for sale or to be used to strike subsidiary coinage. The act required the government to buy all silver mined in the United States at a fixed price of $1 per ounce above market rate.
- Gold Reserve Act of 1934
- Even though Franklin D. Roosevelt as part of Executive Order 6102 ordered the withdrawal of gold from the economy on April 5, 1933, there was one challenge and one reissue of the executive order. Congress felt that the executive order needed codification and passed this act on January 30, 1934. Roosevelt signed the law the same day. The law withdrew all gold and gold certificates from circulation and outlawed most private possession of gold with the exception of some jewelry and collector coins. This act established the nominal price of gold to $35 per troy ounce.
- Public Law 84-851 (70 Stat. 732, H.J.Res. 396)
- On July 30, 1956, this law established the national motto of the United States to be “In God We Trust.” While the motto appeared on most coins of the time, the Bureau of Engraving and Printing phased it in on currency between 1957 and 1965.
- Coinage Act of 1965
- In response to the coin shortages caused by the rising silver prices, the act eliminated silver from circulating dimes, and quarters while reducing the amount of silver used to strike half-dollars from 90-percent to 40-percent for five years. After five years, the half-dollar would be struck using the same copper-nickel clad composition as the lower denominations. The act forbade the striking of silver dollars for five year ending an experiment with the striking of Peace Dollars in 1964. Finally, the act made all coins and currency produced in the United States and certain bank issues as legal tender–which reversed the 1876 demonetization of the Trade Dollar. Signed into law on July 23, 1965 by President Lyndon B. Johnson, it is seen as the dividing line between “classic” and “modern” coinage.
- Hobby Protection Act or 1973
- Signed into law by President Richard Nixon on November 29, 1973, this act requires that replica collectibles, including coins, be marked “plainly and permanently” with the word “COPY” to indicate that the item is not genuine. This act grants the Federal Trade Commission permission to take action against suppliers who violate this act.
- Statue of Liberty-Ellis Island Commemorative Coin Act—Title II: Liberty Coins
- Signed by President Ronald Reagan on July 9, 1985, Title II of this act allowed for the U.S. Mint to establish the American Eagle Silver Bullion Program.
- Gold Bullion Coin Act of 1985
- A few months after the passage of the act to allow for silver bullion coins, this act was enacted on December 17, 1985 that lead to the establishment of the American Eagle Gold Bullion Program.
- 50 States Commemorative Coin Program Act
- Considered one of the most significant act affecting circulating coinage since the Coinage Act of 1965, this act lead to the very successful 50 State Quarters Program. Section 4 of the act, named the “United States $1 Coin Act of 1997” changed the composition of the one dollar coin to be “golden in color” which lead to the creation of the Sacagawea “Golden” Dollar. President Bill Clinton signed this bill into law on December 1, 1997.
Jul 26, 2012 | counterfeit, news, policy
Maybe you have seen them or have heard about them, but counterfeit coins primarily from China is a problem in the numismatic industry. But collectible coins are not the only problem. Great Britain has been having problems since the issue of new £1 coins entering circulation starting in 2010. Even though arrests have been made, there remains an undetermined amount of counterfeit coins in circulation.
Recently, counterfeiters were arrested in Greece and Turkey for producing fake 2 Euro coins. These counterfeits look very similar to the standard 2 Euro coin with the standard Greece reverse. A real 2 Euro coin is a bi-metalic coin that does not separate. The counterfeits will separate and are lighter than the real version.
Canada recently made a move to prevent counterfeiting of their new $1 (Loonie) and $2 (Toonie) coins. New Loonies and Toonies produced by the Royal Canadian Mint will have micro-engraved images of a maple leaf and a virtual image using an angled design. The RCM hopes these fine details added to the Loonie and Toonie will prevent them from being counterfeited.
While the United States does not have a problem with counterfeit circulating coins yet, it is a problem for collectible coins. Why counterfeit a quarter when you can make more money counterfeiting a Morgan or Trade dollar by selling it online to unsuspecting online buyers?
The problem perpetuates itself when the buyer looks to cover the money spent turns around and tries to resell the coin. Some people will purposely buy better counterfeit coins that will begin to fool dealers and try to resell them in the United States using a U.S. address to try to give the coin an air of credibility.
Currently, the Hobby Protection Act (15 U.S.C. §§2101-2106 and 16 CFR 304) does not allow for enough protection for the buyer. Aside from requiring the word “COPY” to appear on a copy, it does not allow for buyers or the government to take action against resellers, only the manufactuers.
When the Hobby Protection Act was first enacted in 1973 and updated in 1988, the online world did not exist the way it does today. It was easier to trace the manufacturers and the overseas sellers than the distribution channels are today. By the time a counterfeit coin reaches the United States, it could have been bought and purchased several times before being noticed. Then there is no remedy for those who have been duped.
Another problem is that the counterfeiters are learning to counterfeit slabs. Both NGC and PCGS have seen their slabs counterfeited or altered holding counterfeit coins. Both NGC and PCGS have the same problems with trying to protect their brands against counterfeiters.
A significant step forward would be to update the Hobby Protection Act!
Last month, H.R. 5977, the Collectible Coin Protection Act was introduced in the House of Representatives by Representatives Lamar Smith (R-TX) and Fred Upton (R-MI). Since then, Representatives Pete Sessions (R-TX), Henry Waxman (D-CA), and Bill Cassidy (R-LA) has signed on as co-sponsors.
The introduction of the bill is the result of the work of the Industry Council for Tangible Assets (ICTA) and Gold and Silver Political Action Committee (GSPAC), and the numismatic community working with key representatives to craft an effective legislation. It is also written to ensure support from congress. Benefits of the new law are as follows:
- Include the distribution and sale of items not properly marked as being a COPY
- Expands the provisions to include “any person who provides substantial assistance or support to any manufacturer, importer, or seller” who knowingly engages in any act or practice that violates the Act;
- Expands the ability for those who were sold counterfeit items to include the counterfeiter, their agent in the United States, or anyone who knowing “transacts business” in violation of this Act;
- Extend trademark violations and remedies to help third-party certification services protect against counterfeit holders.
These new provisions will allow collectors, dealers, and grading services to bring legal actions that are much more effective, with much stronger remedies than previously existed. It will allow those harmed to work with the Justice Department to bring criminal actions, where apporpriate.
WE NEED YOUR HELP
The only way to ensure that H.R. 5977 becomes law, especially since we are approaching the end of this session in an election year, is to contact your member of congress will let them know that the numismatic community supports this Act and that their support is important.
To contact your representatives, visit house.gov and enter your Zip Code at the top right of the page. When you contact your representative, you should mention that H.R. 5977 is revenue neutral and will not require additional appropriations. The bill will go a long way in combating counterfeit rare coins in the marketplace, saving collectors and investors millions of dollars in fraudulent transactions.
DISCLAIMER; I am working as Political Coordinator for the Gold and Silver PAC.
Images courtesy of the Gold and Silver PAC.
Jul 17, 2012 | legal, legislative, policy, web
Concern is circulating through the numismatics industry after the Wall Street Journal published a story that the Republican Governors Association supports the collection of sales tax for Internet sales within their state.
The process started earlier this year as governors, looking for a way to close budget gaps, started to consider forcing companies like Amazon.com to collect sales taxes for goods shipped to their states. In February, New Jersey Governor Chris Christie (R) negotiated a deal with Amazon to collect sales taxes for purchases shipped to New Jersey. As part of that deal, Amazon will be opening a warehouse and shipping center in New Jersey.
What was not reported was that the reason Amazon opened a facility in New Jersey was that federal law currently prevents the collection of taxes for sales shipped across state lines for companies that do not have a presence in the state. Since Amazon now has a presence in New Jersey, they can collect sales taxes on purchases. Otherwise, federal law exempts Amazon and any other company selling on the Internet from paying sales taxes to states they have no presence in the state where the item was shipped.
Sales tax on Internet-based purchases will affect everyone that sells online including the eBay seller, coin dealers, auction houses, and bullion sellers. If you sell online, you will have to figure out how to collect sales taxes. While larger companies may have the facilities and resources to collect sales taxes and pay them to the state. The rest will have to work with a service provider to be compliant with the law. Any time a small business has to add new capabilities using an outside service, it will be an additional expense to the small business.
In the numismatics industry, most of the dealers are small businesses. Many work from their homes shipping orders throughout the country while others may work from shops with a local clientele that also provides some Internet sales.
Aside from the administrative overhead to collect taxes, states have different rules for what is taxable and what is not. Some states do not tax bullion sales while other states tax bullion sales, but do not tax them over a certain limit which could be different from state to state. Some states do not tax coin sales while other states do, but when the sales are lower than a threshold, which can change between states.
This will not only hurt numismatic sales, but all small business sales across the Internet.
While Governor Christie and his fellow governors look at Amazon as their fiscal savior, Joe’s Local Coin Shop that may do a few thousand dollars in sales from the Internet now has to figure out how to collect sales taxes for the states or stop taking Internet-based orders, reducing income. Talk about a “job killing tax plan!”
Three bills have been introduced into congress that will end the restrictions to collecting sales taxes on Internet-based sales:
- S. 1452—Main Street Fairness Act and its companion H.R. 2701. Not only will this bill open up the collection sales taxes across state boundaries, but it “asks” the states to create Unified Rules for collecting sales tax.
- H.R. 3179—Marketplace Equity Act: This bill will open cross state sales tax collection but has an exemption for small businesses. To qualify for the small business exemption, the company would have to sell less than $1 million nationwide and less than $100,000 in the state. However, the bill would allow the states to adjust these limits and affecting administrative costs to small businesses.
- S. 1832—Marketplace Fairness Act: Simiar to the Main Street Fairness Act, it has no exemptions for small businesses, but limits the sales tax to goods and services sold while exempting shipping and handling.
Adding these additional administrative burdens to small businesses in the dealer community will close or restrict interstate markets especially for the buyer in rural America who depends on Internet sales to build a collection. There will also be an impact with online auction sites that makes coins available from all over the country. It will drive up costs to run these auctions and drive sellers away.
Time is going to come when states will have to start to collect sales taxes from interstate sales. However, congress has to do its job as a regulator of interstate commerce to protect the small businesses, like coin dealers, from having to manage 50 different sales tax rules.
Contact your member of congress and let them know that if they are going to allow sales tax to be collected from Internet sales, they need to do their job under the commerce clause to prevent this from putting dealers out of business.
To find your member of the House of Representatives, go to house.gov and enter your zip code in the box on the upper right of the page. Follow the instructions to contact your representative.
For the Senate, go to senate.gov and use the pull-down menu at the top right of the page, select your state, press the “Go” button and click on your senator’s web form address and let them know what you think.
The only way to help preserve our ability to continue to buy numismatics via the Internet from any dealer, anywhere!
Jul 9, 2012 | coins, counterfeit, grading, policy
I attended the event sponsored by the Gold and Silver Political Action Committee (GSPAC) on June 27, 2012 to lobby them for passage of the Collectible Coin Protection Act (H.R. 5977) introduced last month by Rep. Fred Upton (R-MI), Chairman of the U.S. House Energy and Commerce Committee, and Lamar Smith (R-TX), Chairman of the U.S. House Judiciary Committee. This is a bill that everyone in the numismatic committee should support and ask their member of congress to support.
For now, I will let the folks at PCGS tell you their experiences at the event (their press release follows). I will follow up at some point with my own thoughts and commentary on the topic. Also, while the press release has one picture, there are three more that I posted to Pinterest that I think are more interesting, including a Morgan Dollar that was cut in half to marry a specific date with a mintmark that was placed in an altered PCGS holder and sent to PCGS for verification. It is fascinating what some people will do and what they get away with.
PCGS Gives Congressmen A Close Look At Counterfeiting Problems
(Washington, DC) – During June 27, 2012 meetings with numismatic leaders in Washington, DC, influential U.S. Congressmen and congressional staff members learned about rare coin authentication and were shown examples of counterfeit coins from the Professional Coin Grading Service (www.PCGS.com) reference collection and examples of counterfeit PCGS encapsulation holders. PCGS has detected over 5,500 counterfeit coins submitted in the last 12 months, a higher number by far than in any previous 12-month period.
PCGS representatives showed Congressmen counterfeit U.S. coins in counterfeit PCGS holders during their recent meetings in Washington, DC. (Photo courtesy of PCGS.)
Vartian met with Rep. Fred Upton (R-Michigan), Chairman of the U.S. House Energy and Commerce Committee, Lloyd Doggett (D-Texas), a member of the House Ways and Means Committee and staff members for other Congressmen including Howard Berman (D-California), the second ranking Democrat on the House Judiciary Committee.
“It was a very successful series of meetings. The Congressmen and staff members focused on the items we brought; actual counterfeit coins and counterfeit holders, and heard about the on-going efforts by PCGS to combat dealers who sell fake coins and holders. We also talked about educating collectors and dealers. But now the numismatic community must come together and urge other members of Congress to support and approve changes to the law.”
Those proposed changes are in HR5977, the Collectible Coin Protection Act of 2012, a bill that would amend and significantly strengthen the Hobby Protection Act of 1973. The Washington meetings were aimed at educating members of Congress about the counterfeiting problems and the need for stronger laws.
“Every collector, every dealer, should personally contact their Congressional representatives now and specifically request they support HR5977,” Vartian emphasized.
“There are several very positive elements in the bill (HR5977) for PCGS and for all collectors and dealers who buy and sell PCGS-certified coins. One provision provides for triple damages for counterfeiting third-party holders such as the patented, sonically-sealed PCGS tamper-evident holders,” said Don Willis, PCGS President.
HR5977 was introduced on June 20 by Congressman Lamar Smith (R-Texas), Chairman of the U.S. House Judiciary Committee, and co-sponsored by Congressman Upton.
The Washington meetings were organized by the Gold & Silver Political Action Committee. In addition to PCGS, representatives of the Industry Council for Tangible Assets (ICTA), the Professional Numismatists Guild (PNG) and Numismatic Guaranty Corporation (NGC) also attended along with former Louisiana Congressman Jimmy Hayes, a long-time collector.
The Hobby Protection Act, first enacted in 1973 and amended in 1988, requires manufacturers and importers of imitation numismatic items to mark them plainly and permanently with the word, “COPY.” The Collectible Coin Protection Act would expand and strengthen the consumer protections to provide remedies against sellers of such items and others who substantially assist them. It also would increase penalties for fake coins fraudulently sold inside counterfeit grading service holders.
Barry Stuppler, Chairman of the Gold & Silver PAC, said if approved by Congress and signed into law by the President the new law would:
- Include not only the distribution but also the sale in commerce of prohibited items;
- Add a provision expanding the Hobby Protection Act to include “any person who provides substantial assistance or support to any manufacturer, importer, or seller” knowingly engaging in any act or practice that violates the Act;
- Expand the venue for legal action to include not just having an agent present, to include “transacts business” — or wherever venue is proper under section 1391 of Title 28, United States Code;” — and
- Add a section on Trademark violations specifically written to include the certification services and adds remedies to the Hobby Protection Act that currently exist under the Trademark Act of 1946 (U.S.C. Title 15, Sections 1116-1118) for violations of the Hobby Protection Act.
In a statement prior to the meetings, Willis stated: “Chinese counterfeiting is the most serious challenge faced not only by the collectibles markets and brand name products, but also by the United States Treasury. Entire industries have sprung up in China to manufacture virtually anything made in America including U.S. Government issued coins. These factories and industries operate in the open and with the full support of the Chinese government. By its lack of action to stop the activities, the Chinese government endorses the counterfeiting of U.S. coins.”
“Even worse, Customs and the U.S. Government do little to stop counterfeits from entering the U.S. Once in the US little effort is made to arrest and prosecute individuals selling counterfeit material. Consequently the U.S. has been flooded with counterfeit products, including coins, resulting in the loss of billions of dollars in revenue each year,&rdquo Willis explained.
May 17, 2012 | commentary, dollar, Federal Reserve, policy
Following up on the lobbying efforts by Crane & Company’s to maintain its business producing currency paper for the Bureau of Engraving and Printing to continue to print the $1 Federal Reserve Note, according to the public filing [PDF] by the Gephardt Group, Crane & Company spent $60,000 for these services.
According to the filing, the specific issue being lobbied for is “preservation of the dollar bill; S.1624, Currency Efficiency Act of 2011.” The Currency Efficiency Act of 2011 was introduced in the Senate by Massachusetts Senator Scott Brown (R) and co-sponsored by Senator John Kerry (D) on behalf of the Dalton, Massachusetts-based Crane & Company. No companion bill has been introduced in the House of Representatives.
The unique provision of S.1624 is that it declares the $1 coins being held in the Federal Reserve be declared as surplus. According to the bill, “Surpluses of $1 coins which can be most efficiently eliminated through destruction shall be deemed to consist of ‘obsolete and worn coins withdrawn from circulation’ under section 5120(a) of title 31, United States Code.”
It is uncertain what the impact of eliminating the $1 Federal Reserve Note will have on Crane and Company. I reached out to Crane and Company for comment and their spokesperson declined to comment.
Crane & Company, BEP, and the Federal Reserve continues to try to resolve a creasing issue discovered during the production of the new $100 Federal Reserve Note. The release of this note has been delayed twice before being delayed indefinitely. When contacted for comment, a BEP spokesperson referred the question to the Federal Reserve. A spokesperson for the Federal Reserve provided a standard response that included no additional information.
Apr 14, 2012 | cents, history, policy
Since the Canadian government has proposed the elimination of their one-cent coin from production and putting in measures to remove them from circulation, proponents of a similar policy in the United States have been pointing northward and the past to support their position. When they point to the past, the target is the Half-Cent, established as part of the Coinage Act of 1792 and eliminated by the Coinage Act of 1857.
The common argument is that if the United States could eliminate an unpopular low-denomination coin in the 19th century, why can’t we do this in the 21st century?
In order to understand why that question is a non-sequitor, you have to look back at the history of the half-cent.
After the passage of the Constitution by the constitutional convention, Alexander Hamilton wrote extensively for both the Federalist Papers and spoke in many venues how the a strong, centrally managed currency would improve commerce between the new states and promote the nation as a whole in foreign trade. While this view was shared by others, how to implement a new currency system became controversial.
On January 28, 1791, Hamilton submitted the Secretary of the Treasury Report, “On the Establishment of a Mint” to the House of Representatives. Hamilton tied the value of the basic unit to the Spanish Milled Dollar (8 reales) and called the basic unit a “dollar.” In that report, Hamilton proposed a simple system of currency that included a ten and one dollar gold coins, one and one-tenth dollar silver coins, and one-hundredth and two-hundredth copper coins. Hamilton surmised that using smaller denominations would standardize production around a few coins that could be produced in sufficient numbers to supply commerce.
While mostly in agreement with Hamilton’s report, Thomas Jefferson had another idea. Jefferson thought it would be better to tie subsidiary coins tied to the actual usage of the 8 reales coin. At the time, rather than worry about subsidiary coinage, people would cut the coin into pieces. A milled dollar cut in half was a half-dollar. That half-dollar cut in half was a quarter-dollar and the quarter-dollar cut in half was called a bit.
The bit was the basic unit of commerce since prices were based on the bit. Of course this was not a perfect solution. It was difficult to cut the quarter-dollars in half with great consistency which created problems when the bit was too small, called a short bit. Sometimes, short bits were supplemented with English pennies that were allowed to circulate in the colonies.
As an aside, this is where the nickname “two bits” for a quarter came from.
Jefferson felt that in order to convert the people from bit economy to a decimal economy, the half-cent was necessary to have 12½ cents be used instead of a bit without causing problems during conversion from allowing foreign currency to circulate as legal tender until the new Mint can produce enough coinage for commerce.
Much against Hamilton’s wishes, congress agreed and made the half-cent along with the eagle, half-eagle, quarter eagle, silver (not gold) dollar, half-dollar, quarter-dollar, disme (later renamed dime), cent, and half-cent. After the bill was passed and signed by President George Washington on April 2, 1792, Washington decided to put the new Bureau of the Mint under the jurisdiction of Secretary of State Thomas Jefferson to ensure that the currency system would be implemented since Secretary of the Treasury Alexander Hamilton objected to these provisions of the law.
As the new Mint ramped up production, there were other issues with U.S. coinage that overshadowed any perceived controversy that the half-cent would have received. Over the next 60 years, laws were passed to change the composition of coins, ratio of gold-to-silver, and even the problem with melting that caused the suspension of producing the silver dollar in 1804.
The half-cent would come into focus in the 1850s when the cost to produce the United State’s copper coins was nearly double their face value. In 1856, the Mint produced the first of the small cents, the Flying Eagle small cent, and produced 700 samples to convince congress to change to the small cent. As part of the discussion was the elimination of foreign currency from circulation making the U.S. Mint the sole supplier of coins.
There is no record of outcry from the public on the elimination of the half-cent. Its elimination came four years after the Coinage Act of 1853 that created the one-dollar and double eagle gold coins in response to the discovery of gold in North Carolina, Georgia, and California. The gold rush caused a prosperity and inflation that not only made the half-cent irrelevant but not something on the public’s mint. In that light, the Mint and congress felt that it just outlived its usefulness and would not be necessary with the elimination of foreign currency from circulation.
More controversy was generated in 1857 over the demonetizing foreign coins in the United States than the elimination of the half-cent. While the half-cent continued to circulate, it was estimated that one-third of the coins being circulated were foreign, primarily reales from Mexico. Redemption programs did not go smoothly, but in the end foreign coins were taken out of the market and the American people adapted and it could be said we prospered.
Comparing the elimination of the half-cent in 1857 with the trying to eliminate the one-cent coin today is like saying one baseball player is better than another because he hits a lot of home runs. Just like there is more to consider than hitting home runs in baseball, there is more to the discussion than pointing to an event that happened 155 years ago without considering entire picture.
Apr 9, 2012 | cents, coins, currency, policy
Since the Canadian government announced that the Royal Canadian Mint will stop striking “pennies” in the Fall of 2012 and that cash transactions will be rounded to the nearest five-cent increment. Non-cash transactions will not be rounded.
As part of the transition to the centless society, Canada will withdraw these coins from the market using redemption programs to allow citizens to return the coins for compensation. The Canadian government has also committed to working with charities to use this as an opportunity to raise money for their causes.
Since the announcement, there has been a lot of chatter from around the world regarding the elimination of the lowest denomination coin from various countries, including here in the United States. While other countries have eliminated their lowest denomination coin, Canada is the largest economy who have made this move.
Canada’s proximity to the United States has generated a lot of discussion about the United States doing the same. Those arguing for the elimination of the cent begin with that it costs the U.S. Mint 2.11-cents to produce one coin, losing 1.11-cents per coin. Similarly, Canada began their discussion with that it costs the Royal Canadian Mint 1.6-cents to produce their one-cent coin.
If Canada can drop their penny, then why can’t we do that in the United States?
In 1986, Canada stopped producing one-dollar currency notes and went to exclusively coins. Nearly ten years later, Canada began to produce two-dollar coins eliminating the two-dollar paper note from circulation. If Canada can drop their lowest paper currency denominations, why can’t the U.S. do the same?
Those of us who use the argument that other countries no longer use paper currency as their basic unit of currency are told (paraphrasing) “we are the United States, we don’t have to do what others are doing.” Now those same people who want the U.S. Mint to stop striking cents are pointing to Canada using a similar argument and bristle when given the same response to their argument.
Every study by even the most partisan group shows that the government will “save money” by eliminating the one-cent coin, change the composition of the nickel, and produce the dollar coin rather than paper. The differences in the studies are what they call opportunity costs—the cost borne through the changes and processing by the businesses, banks, and citizens affected by the changes.
The concept of the government “saving money” is wrong. Production of money does not cost taxpayers any money. The high production costs of the cent and nickel does reduce the amount of seigniorage the government earns when the coins are sold to the Federal Reserve.
Ending the production of specific denominations is not new to U.S. coinage. The last change occurred in 1933 when the gold was no longer used for coinage eliminating the quarter eagle, half-eagle, eagle, and double eagle coins. At times in the past, the U.S. Mint also produced half-cent, 2-cent nickel, 3-cent, 20-cent, and dollar gold coins. All were seen as a good idea at the time but fell out of favor for many reasons and were discontinued.
At some point, the decision criteria must be baselined in order to come up with a fair analysis in order to determine the best policy. To start that analysis, let the policy basis be on the least amount the government could do in order to maximize seigniorage while treating all markets fairly. Based on those guidelines, eliminate the one-cent coin, but also eliminate the half-dollar and the one-dollar paper note. Even if the five-cent coin does not undergo a composition change, all studies show that the government will earn more in seigniorage than any other option.
Based on other studies, this policy will have an economic impact on the markets outside of the government and the Federal Reserve. But that is for the markets to work out on their own and not for the government to dictate.
It is also a policy recommendation that will make everyone upset on all sides of the issue, meaning that it wreaks of compromise—which should not be a dirty word when making serious policy decisions.
Mar 30, 2012 | commentary, dollar, policy
During my perusal of the coin and currency related news on the Internet, I came across a story, “Survey shows dislike of Schweikert’s Coins Act” on the website for the East Valley Tribune, a newspaper based on Tempe, Arizona. The story is about alleged opposition to Rep. David Schweikert (R-AZ) sponsored the COINS Act to transition the one-dollar federal reserve note in favor of a one dollar coin. Schweikert represents Arizona’s 5th District that includes Tempe.
NOTE: The rest of this posting will discuss the survey, its backers, and the politics behind the paper currency versus coin debate. If you are not a fan of the discussion of the nexus between numismatics and politics, you should stop reading here.
The article discusses a survey that was “conducted by the independent public opinion research firm Lincoln Park Strategies”that was paid for by an organization named Americans For George. Lincoln Park Strategies (LPS) was founded by Stefan Hankin who has worked on behalf of “numerous Democratic politicians and organizations, including President Barack Obama and the Democratic National Committee.” Although Hankin has tried to position his company to be non-partisan, his LPS’s portfolio boasts of the firm’s association with many Democrats and left-leaning organizations.
Americans for George claims to be a coalition “of like-minded individuals, businesses, and organizations seeking to ensure that the citizens of the United States maintain the ability to choose their preferred currency.” Their coalition members includes bars, restaurants, vending machine companies, companies that supply vending machine parts, armored car services, a few taxi services, Bingo World in Baltimore, and the Alabama Forestry Association an advocacy group for renewable forest resources in Alabama.
Unless you followed the paper, vending machine, and armored service industries, none of the coalition members are a household name outside of their home towns except one: Crane & Company, the Dalton, Massachusetts company who has the exclusive contract to supply currency paper to the Bureau of Engraving and Printing. Also listed as a coalition member is The Crane Family Council, a group of the extended Crane family that still owns and operates the paper company.
In other words, Americans for George is a front for Crane & Company to promote the business agenda of Crane & Company.
From 2005 through 2011, Crane & Company has paid Russell Wapensky, a lobbyist and former State Department employee, to lobby on their behalf. Wapensky was paid $80,000 by Crane & Company for his services in 2011. Wapensky has not filed disclosure paperwork and an office listed in the last discovered address in Washington, D.C. does not list him as a tenant. Disclosure records shows that for the last three years, Crane & Company was his only lobbying client.
In February 2012, Gephardt Government Affairs filed lobby registration forms (PDF) declaring Crane & Company as their client with the lobbying issue of “preservation of the dollar bill currency.” Gephardt Government Affairs was founded and run by former Rep. Dick Gephardt (D-MO) who served in the House of Representatives from 1977 through 2005. No disclosure regarding how much Crane & Company has paid the Gephardt Group is available since the Lobbying Activity Reports for the first quarter of 2012 are due on April 20.
Dick Gephardt was a mainstay in the House for 28 years having climbed the ranks to become House Majority Leader (1989-1995) and Minority Leader (1995-2003). He ran for president in 2004, losing in the primaries to John Kerry and was mentioned as a potential vice presidential candidate in 2004 and 2008. Gephardt remains well respected by many congressional veterans.
House rules allow members to keep their membership pins when their service ends. These pins allow their owners access to the House floor and other areas where the public is not allowed without escort. Gephardt should know his way around the Capital building. Buying this type of access and potential influence to Capital Hill is not cheap and shows that Crane & Company may be afraid that the political will is there to make a change that would cut a significant portion of their business. Currency paper for the one dollar Federal Reserve Note has to be the least expensive of the papers Crane & Company manufactures for the BEP. It is the only note that does not include features like watermarks or embedded security ribbons that has to make the process more expensive.
Without full disclosures from both Crane & Company and the BEP, it is impossible to determine the exact loss of revenue. The BEP is not required to report what they pay individual vendors and Crane is a privately held corporation, they are not required to file financial disclosure reports. However, we can make assumptions based on information provided by the BEP 2010 CFO Annual Report (PDF), the last available, and other public information.
How much revenue could Crane & Company lose if the the law was changed to eliminate the dollar note? Let’s assume the BEP produces 405 million $1 Federal Reserve Notes (rounded average of the last five years production). Let’s also assume that it costs the BEP $33.48 per one thousand notes to produce Federal Reserve Notes (the 2009 cost adjusted for inflation) of which 55-percent ($18.41) is the cost of the paper (calculated from 1990s information). In order to produce 405 million Federal Reserve Notes, Crane & Company would be paid about $7.45 million to supply the paper—estimating that the potential revenue loss from eliminating the one dollar Federal Reserve Note would range from $7 million to 10 million.
Crane & Company has over 7 million reasons to hire a powerful lobbyist like Dick Gephardt.
As a citizen, numismatist, and blogger, I have made it clear that I am in favor of transitioning from the paper note to the dollar coin. As the process continues, I will watch the public reports by Gephardt Government Affairs and any other information available on Crane & Company’s manipulation using the patriotic sounding front group, Americans for George.
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