From manufacturing to circulation: Why does the most season numismatists get it wrong

It never ceases to amaze me that even the most seasoned and esteemed numismatists do not understand how United States coinage goes from manufacturing to circulation.

Recently, Harvey Stack wrote a column that appeared as a Viewpoint in Numismatic News (November 18, 2018). In the column, he blamed the U.S. Mint for problems with the distribution of the 50 State Quarters program. In the article Stack wrote that “the distribution of the new designs did not get full nationwide distribution. The Mint sent to most banks nationwide whatever they had available, with some districts getting large quantities of the new issue and other districts getting relatively few, if any.”

The U.S. Mint does not distribute circulating coins to any United States bank except the Federal Reserve. At the end of every production line is a two-ton bag made of ballistic materials that collect every coin produced on the line. When the bag is full it is sealed and later transported to a processing center designated by the Federal Reserve.

The U.S. Mint is a manufacturer. When they complete making the product, it is packaged in bulk and the customer, the Federal Reserve, picks up the product. Once the product is delivered to the client, that product’s distribution is no longer in the U.S. Mint’s control.

During the time of the 50 States Quarters program, the U.S. Mint had an agreement with the Federal Reserve to distribute the new coins first in order to get them into circulation. When the new coins were transferred to the various Federal Reserve cash rooms in the 12 districts, the Federal Reserve did circulate the new coins first.

What gets left out of the discussion is the logistics of transferring the coins from the cash rooms to the banks. The Federal Reserve does not deliver. Like many government agencies, the Federal Reserve relies on contractors to carry out that job. The Federal Reserve “sells” the coins to the logistics companies that bag and roll the coins and eventually deliver the coins to in armored vehicles to the banks.

In order to save money, these logistics companies keep their own supply of coins. This supply comes from the Federal Reserve cash room operations or excess they are given by the banks. Sine the logistics companies were not part of the deal that the U.S. Mint made with the Federal Reserve, a bank that asked for a delivery of quarters may have received quarters from the logistic company’s stock rather than new issues from the Federal Reserve.

Logistics is the coordination of complex operations and it is the job of these logistics companies to fulfill the inventory needs of the bank in the most efficient manner possible. It was more efficient to supply the banks in less densely populated areas with coins from current stock than transporting large amounts of coins from one of the Federal Reserve cash room operations that may be hundreds of miles away.

The U.S. Mint may do many things that collectors might take exception to, but the distribution of circulating coins is not their responsibility.

Coin image courtesy of the U.S. Mint.

Weekly World Numismatic News for September 16, 2018

Before E-ZPass, I used to buy discount rolls of tokens to cross the bridges in New York City.

Even though coins and currency make up most of the transactions in the United State, one area that is being affected by the digital economy is in the area of toll collecting. This week the New Jersey Turnpike Authority announced that they will begin to remove coin machines in mainline toll plazas on the Garden State Parkway.

Rather than the coin machines, the lanes will be converted to “E-ZPass Only” lanes.

Although I am a proponent of cash, E-ZPass has been a blessing when traveling in the northeast. When I started a somewhat regular drive between the D.C. area and northern New Jersey, where my first wife is resting, I applied for the New Jersey E-ZPass. It made driving to the New York area easier by not having to stop for tolls.

Then there were the advances that allowed the New Jersey Turnpike to allow the use of E-ZPass before Maryland finally joined the party. Soon I was able to drive from Maryland to Maine without having to stop and pay a toll.

Long gone were the days where I planned a trip with a pocket full of quarters. Or when I was commuting to New Jersey from New York, buying a $20 roll of ten Triborough Bridge and Tunnel Authority tokens to cross the Verrazano-Narrows Bridge from Brooklyn to Staten Island. The one-way toll on the Verrazano Bridge was $5.00 or two tokens.

For the return home, there was a discount coupon book I bought every two weeks from the Port Authority to pay for crossing either the Goethals Bridge or the Outerbridge Crossing.

Both bridges provide a toll discount for using E-ZPass. Given the nature of traffic, it is easier to get through the toll plaza with the E-ZPass.

I will continue to use cash more than my credit card but I will not give up my E-ZPass.

And now the news…

 September 8, 2018

Hundreds of ancient Roman gold coins have been discovered on the site of an old theatre in Como in northern Italy, the Ministry of Culture said.  → Read more at thelocal.it


 September 10, 2018

Ultimately a judge did not have to decide which mint was in the right. The case was dismissed after they agreed to a ‘collaborative’ cross-licensing agreement  → Read more at nationalpost.com


 September 12, 2018

Plans to sell them as ‘sacred coins’ to non-resident Telugu society  → Read more at thehindubusinessline.com


 September 14, 2018

Mike Alessia chuckled when he thought about the days before E-Z Pass and paying your way down the Garden State Parkway doubled as a skill sport.  → Read more at pressofatlanticcity.com


 September 15, 2018

Madurai: An ancient coin, dating back to the 14th century was discovered near Palani recently.  → Read more at timesofindia.indiatimes.com


 September 15, 2018

A drop in silver prices this year has attracted investors seeking a bargain, prompting a temporary sellout of the 2018 American Silver Eagle bullion coins at the U.S. Mint this month.  → Read more at marketwatch.com


 September 15, 2018

The battle to end taxation of constitutional money has reached the federal level as U.S. Representative Alex Mooney (R-WV) today introduced sound money legislation to remove all federal income taxation from gold and silver coins and bullion.  → Read more at moneymetals.com

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The United States is not going cashless… oh, look at that butterfly!

With the discovery of every new technology, there are the inevitable predictions that it will make the old ways obsolete. Although the automobile reduced the reliance on horses, the basics of the internal combustion engine have not changed in over 100 years. Take away the electronics around the engine, the technology increasing the air intake, and cleaning up the exhaust, and you still have an engine block with pistons that go up and down in the classic suck-bang-blow rhythm that was used in the Model T.

The latest technology that is being touted as being the doom for physical money, which can also be the end of numismatics, is cryptocurrency.

There are two aspects of cryptocurrency that its fans say are its biggest strength. First, it is not bound by the traditional means of generating wealth. You can think of cryptocurrency as digital gold. It is mined using computers and a lot of complex arithmetic to generate one unit of the currency, sometimes referred to as a bitcoin. Like physical gold, there is some work required to mine for these bitcoins. It lies in the ability to create a computing environment capable of performing these intensive mathematical operations. You may not be panning for gold but you might spend as much on equipment and travel.

For a good basic description of the blockchain technology, see the article on Medium.

The other aspect about cryptocurrency is that the blockchain technology allows for both anonymous and secure transactions. Think of the blockchain as a giant ledger that is copied wherever bitcoin is accepted with regular updates. There is no single source that could control the ledger nor is there a single point of failure.

However, both its strengths are its greatest weaknesses.

While the value of money is regulated by their respective government there are no blockchain regulations. There is no regulation on the number of generated bitcoins but is arbitrarily set by the creator of the cryptocurrency. There is no guarantee of value as a state-sponsored currency. Bitcoin investors are betting on the value of electronics and math, something many of these investors does not fully understand.

The blockchain also provides its own problems. In order to use the cryptocurrency, you have to have your own copy of the ledger and be able to pass the information to the party you want to pay. Think about having a checkbook with everyone’s information. You cannot read the information because it is encrypted but you have to have a copy. Then you need to pay someone. You hand over the checkbook in order to complete the transaction.

Think about the amount of data that would be if the blockchain supported 1,000 people. What would it take to support 1 million people? What if the government decided that everyone would do their business in bitcoin and everyone would have to have a way to deal with the blockchain in order to facilitate payments. How cumbersome will that ledger be if all 325.7 million people in the United States had to carry that around?

Each blockchain is its own entity. While you can trade in bitcoins on the same blockchain, you may have to participate in more than one blockchain if you want to accept bitcoins from several different people. It is like different currencies today. I can go anywhere in the United States and use dollars. But if I wanted to go to Canada, I can either arrange an exchange or find someone who will trade.

Cryptocurrency that has to operate across different blockchains is just like going to Europe and having to change your dollars for euros.

1881 Tracy’s Counterfeit Detector and Bank Note Reporter (Image courtesy of the Numismatic Bibliomania Society)

As with anything that is computer-based and managed, there is always the security issues. Blockchains have been hacked. Although most of the hacks are based on compromised passwords, each hack yields millions of dollars in stolen cryptocurrency to the hackers and everyone who then does business with them on the same blockchain.

Eventually, this will lead to a cryptocurrency version of a Bank Note Reporter and Counterfeit Detector as was popular during the broken banknote period. Then it will be followed by a Cryptocurrency Act similar to the Currency Act that ended the broken banknote period proving George Santayana right as we repeat history.

Cryptocurrency is the darling of the technology industry and those in the financial industry that trade in high-risk investments. Even traditional financial services companies are spending a limited amount of risk capital on cryptocurrency investments. However, by all statistics, the number of consumers using cryptocurrency for transactions is less than 1-percent.

If Not Cryptocurrency The What About Credit Cards

Credit and debit cards remain the primary target that proponents of a cashless society use to promote their agenda. However, when faced with the realities of life in the United States, there are three statistics that work against their arguments:

  1. The Bureau of Engraving and Printing, the printer of United States currency, reports a year-over-year increase in production of just over 4-percent.
  2. The U.S. Mint, the manufacturer of United States coinage, is reporting a year-over-year increase of 6-percent striking circulating coinage.
  3. According to CreditCards.com, “In 2013, 20 percent of whites did not have access to a credit card compared with 47 percent of African-Americans and 30 percent of Latinos.”

The primary customer for the Bureau of Engraving and Printing and U.S. Mint is the Federal Reserve. If the Federal Reserve needs the money for its operations, they buy it from these government bureaus. The Federal Reserve only orders what it needs. If it does not need the money, then it is not produced.

Aside from the over 50-percent of the population without access to credit cards, there continues to be a demand for physical currency. Whether the currency is used in a vending machine or to buy other items, cash is still king and shows no sign of slowing.

While there continues to be a demand for the products from the U.S. Mint and Bureau of Engraving and Printing, these bureaus will continue to produce coins and currency giving us more opportunity to collect their products.

Weekly World Numismatic Newsletter for February 25, 2018

Here we go again. Another story about how one country is starting to go cashless and the pundits crawl out of the woodwork saying that the United States should do the same.

There are a lot of reasons why this will not happen in the United States. One of the biggest reason is the overall economic impact that can affect the actual strength of the U.S. dollar as the world’s reserve currency.

The strength of the U.S. dollar is based on the (relative) security of our government and that the Gross Domestic Product (GDP), the measure of all goods and services produced within a country. According to The World Bank 2016 data (the latest available), the United States has the largest economy with a GDP of over $18.6 trillion. Sweden, the world’s 22nd largest economy, has a GDP of over $514 billion. Their economy is 2.76-percent the size of the United States’s economy.

It is the difference between dumping a bucket of water versus draining an Olympic-sized pool.

But wait, you exclaim, the United States already has an economy that is already electronic and should be able to follow suit. According to the Federal Reserve Bank of San Francisco, based on 2016 data, 31-percent of all transactions are made in cash. Most of the cash usage, 60-percent, are for transactions of $10 or less with lower income people preferring cash over middle and higher income consumers.

“Since 2009, the compound annual growth rate (CAGR) for the number of notes in circulation has been 5.6 percent, with the value of currency in circulation growing at a 7.4 percent annual growth rate,” reports the San Francisco Fed.

When we are not using cash, we are using cash equivalences such as debit cards and pre-paid debit and credit cards. Credit-related purchases account for approximately 20-percent of all transaction.

Cash is not going away anytime in the near future which means that the U.S. Mint and Bureau of Engraving and Printing will continue to produce collectible numismatics for quite some time.

And now the news…

 February 18, 2018

At a public toilet in a shopping centre in Gothenburg, a struggle is taking place between old and new Sweden. Last year, the the shopping centre installed cash-free toilets, forcing customers to pay with their mobile phones – a process new to most. → Read more at theguardian.com


 February 18, 2018

South African Reserve Bank subsidiary, the South African Mint, has announced new collectables product ranges that will appear in the global coin market this year, including the ‘Celebrating South Africa’ series, which will commemorate the life of former President, distinguished Statesman and global icon Nelson Mandela. → Read more at m.engineeringnews.co.za


 February 19, 2018

The coin, dubbed the Jewelled Phoenix, was crafted from 99.9 per cent pure gold and inset with 1.22 carats of rare, natural fancy pink diamonds from Rio Tinto’s Argyle diamond mine in Western Australia. → Read more at jewellermagazine.com


 February 21, 2018

FOR 60 years, generations of children have grown up with the lovable, marmalade-eating bear, created by the late Michael Bond. But now, it has been announced the Queen has ordered a batch of specia… → Read more at thesun.co.uk


 February 23, 2018

CHAMBERSBURG, Pa. — The Franklin County (Pa.) Veterans and 9/11 Memorial Park now has a commemorative coin for guest speakers, dignitaries and donors. → Read more at heraldmailmedia.com


 February 23, 2018

Japan’s government has unveiled designs for 5 commemorative coins for the 2020 Tokyo Olympics and Paralympics. → Read more at www3.nhk.or.jp


 February 23, 2018

CHANDIGARH: When the collection of original Sikh coins is available at half the price in the open market, the Punjab Government has paid lakhs of rupees to a private firm just for minting duplicate coins. → Read more at tribuneindia.com


 February 23, 2018

JIM THORPE — Jim Thorpe Neighborhood Bank on Broadway was very busy with customers looking to get the latest Native American $1 coin. Take a closer look and you’ll see why. The coin has the face of the borough’s namesake etched into it —  Jim Thorpe. "We actually heard about it at another store that they were getting coins issued for Jim Thorpe. It was very enjoyable to find out so we decided to walk down and come over here to the bank," said David Knarr, Hellertown. → Read more at wnep.com


 February 23, 2018

Kitco News' Weekly Gold Outlook recaps how the week's events affected the gold market, and where expert analysts think the metal is headed next. Every Friday, get an in-depth look into the metals space and see how experts see the fundamentals set up gold in the week ahead. → Read more at kitco.com


 February 24, 2018

THERE’s a new 50p coin causing a stir with collectors. → Read more at dailystar.co.uk

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Cash is being called spooky!

Cash seems to be the new 4-lettered word.

Swedish CurrencyIn February, former Treasury Secretary Lawrence Summers authored an opinion article that appeared in The Washington Post calling for the end of high-denomination banknotes. Summers cites a paper that claims to make a compelling case to stop issuing high denomination notes and possibly withdraw them from circulation because of its use in crime and corruption because large denominations are easier to carry. The paper claims that criminals have nicknamed the €500 note the “Bin Laden.”

Last May, the European Central Bank announced will stop printing the €500 banknote by the end of 2018 when the €100 and €200 banknotes of the Europa series are planned to be introduced. Although the announcement did not quote the Summers article, the announcement had addressed some of the issues he addressed.

In June, Sweden became the first nation to announce a formal policy to become a cashless society within five years. According to reports, Riksbank, the Swedish central bank, claims that just under 2-percent of all transactions are made by cash. They expect that number to drop to one-half of one-percent by 2020. Most shops report that 20-percent of sales are made using cash.

Sweden may be an outlier. Globally about 75-percent of all sales are made using cash.

In the United States, it is being reported that some higher-end retailers have stopped taking cash.

Retailers have been looking to the convenience industries as an example of the future. There are parking lots that no longer take coins in their parking meters. Pay stations now only accept credit cards. Some toll roads now require a special transponder to be mounted in your car because there are no booths to collect tolls. Those transponders must be linked to a credit card. Airlines no longer take cash when you buy beverages or snacks on the plane because handling the change is too difficult.

New payment options have entered the market. Smartphone-based Apple Pay, Samsung Pay, and MasterCard Master Pass have worked to make it easier to separate you from your money by allowing you to wave your phone at the reader and pay. For most retailers, there is little they have to do in order to accept these payment methods as long as they are accepting chip-based transactions. Since the transaction cost to the retailer does not change, it is an incentive for them to accept these types of electronic payments.

Although electronic payment options make up 13-percent of all cashless transactions you have to remember that this market barely existed a few years ago.

Even as banks and large retailers push to increase the number cashless transaction, there are problems that society faces when moving to a cashless retail system.

The biggest problem is one of scale. The United States makes more money, spends more money, trades more money, and has more economic impact than any other country in the world. It is the world’s single largest economy with a strong capitalistic culture where most of the commerce is done with small businesses. Amongst all business, 55-percent of retail merchants are cash-only enterprises. They are too small to consider paying the 3-to-5 percent fees for using a credit card, known as the “swipe fee.” Of those that do take credit cards, at least 36-percent require a minimum purchase.

Once you get past the problem of scale, then there are the issues of the poor who do not have bank accounts. Aside from not having the economic power to work with the banks, there are some communities that are culturally opposed to the banking system. Even if they can afford to have a bank account, many choose not to open one. The near failure of large financial institutions in 2008 did not help in the trust factor.

Of course, the one cultural issue that cannot be ignored is privacy. Cash transactions are private. Only the buyer and seller knows the details of the transaction (unless the buyer volunteers their loyalty or rewards account information). With the problems of hacking around the world, how do you know that your credit card transaction are safe? Should we ask the victims of the computer hacks on Target and Home Depot?

Aside from privacy, credit cards can be costly to the customer. High-interest rates, debilitating debt, and collection issues see the use of consumer credit dropping when there is an economic downturn. During the Great Recession that began in 2008, spending went down and, when the economy began to improve, savings went up. When wages began to rise in 2010, more money was being spent paying down debt than adding to the economy. Rather than stimulating the economy, this creates a stagnant effect since the economy thrives more on the selling of goods and not by the managing of cash.

It seems that every six months there is yet another “Chicken Little” story that either we are or should stop using cash. But when society seems to be set in using cash even when there is anecdotal evidence that makes it appear that we are on the brink of a cashless society, they become quiet as if they ended up in Foxey Loxey’s den!

Reports of cash’s eventual demise appear to be as amusing as it is greatly exaggerated. For numismatists, this means that our hobby will continue to grow with new, fresh material for years to come. Happy collecting!

image courtesy of The Guardian

Prop counterfeiting is the new threat

One of the strangest set of stories about the problem of counterfeiting was the several stories that came out at the end of August about people trying to make purchases with movie prop money. This has caused regional U.S. Secret Service across the south to issue warnings.

Prop movie money is designed to look close enough to real U.S. currency so that a moviegoer would not be able to tell the difference on screen. When these notes are examined closely, they are clearly marked with “THIS NOTE IS NOT LEGAL TENDER” and “FOR MOTION PICTURE USE ONLY.” Prop money is smaller than real U.S. currency and does not have the anti-counterfeiting features of a real Federal Reserve Note. But that has not stopped people from trying to pass these notes as real currency.

Here is a sample of the reports about people trying to use prop money as real currency:

In Athens, Georgia, a 30 year-old man beat a customer with a baseball bat at a fast food restaurant when he alleged the customer bought marijuana using two prop $100 notes.

Police in the Gwinnett County, a suburb of Atlanta, are looking for two suspects who went on a spending spree by buying two cars and paying with prop money.

Prop money has shown up in Morristown, Tennessee, northwest of Knoxville.

U.S. Secret Service issued a warning in the Tampa Bay area when someone tried to buy a smartphone using prop money and noted that there has been an increase in the use of this currency.

Areas of East Texas have reported several cases in which prop money has been used. Texas Bank and Trust reported that they have seen a few of these notes were deposited into accounts at their bank.

Sources have not confirmed the source of this recent uptick in prop money usage but noted that the currency can be purchased online. Although eBay rules do not allow for this type of currency to be sold on its site, a recent search yielded several listings offering prop money. There is no restriction on Etsy where searches lead to over 300 listings of all types of prop or replica money.

Why was the criminal in the in the Dateline video attached to my post “How easy is it to pass counterfeit currency” so successful? Like he said, nobody pays attention!

Prop Movie Money

Prop Movie Money

Board games going cashless! What’s this world coming to?!

Monopoly Ultimate Banking, a cashless version of the famous board game.

Monopoly Ultimate Banking, a cashless version of the famous board game.

Could toy maker Hasbro be projecting the future of money?

At the 2016 New York Toy Fair, Hasbro announced that it will release an “update” the famedMonopoly game creating the Monopoly Ultimate Banking Game where the cash has been eliminated for electronic bank cards. The bank is now a hand-held unit that will scan the bank cards to make transactions.

As part of the game, the bank card is used to pay rent, taxes from the cards, and buy property. The new property cards will now have bar codes for the players to scan in order to make the purchase or mortgage their property.

This version of Monopoly will still have Chance cards. Previews suggest that the Community Chest cards have been eliminated. Chance cards will now allow for market crashes, fluctuations in rent, and other “real life” scenarios faced in the modern age.

Hasbro does have an Electronic Banking edition that uses a similar hand-held device. A Hasbro representative said that the Electronic Banking edition is the traditional Monopoly game using the bank card technology. It does not have the ability to scan property cards for transactions and requires more manual input than will be allowed for the Ultimate Banking Game.

Recently, the advocates for a cashless society or one that uses a limited amount of physical currency have been on their virtual soapboxes trying to find every reason to eliminate cash. One story that appeared on the CNBC website reported about a San Francisco-area restauranteur who tried to accept only credit cards had to reverse the decision because of backlash from customers.

There are segments of our culture who do not trust banks. There are industries that work better when the transactions are made in cash. There are some of us who do not like the electronic trail non-cash transactions create. These are only some of the reason cash will continue to live on.

Hasbro said that the Monopoly Ultimate Banking Game will be released later this summer. My only question is will it support house rules like double payment for landing on Go or having the taxes paid to the Free Parking pool for the next player that lands there?

All images courtesy of Mashable.

Is the $100 bill the next to go?

The latest attack on the money in your pocket is the talk about eliminating the highest denomination banknotes. This discussion was intensified in the political policy world with the article by Lawrence Summers that appeared in The Washington Post. Summers is a professor at Harvard and had once been the Secretary of the Treasury and Director of the White House’s National Economic Council.

Summers cites a paper by Peter Sands of Harvard and students that claims to make a compelling case to stop issuing high denomination notes and possibly withdraw them from circulation because of its use in crime and corruption.

Crime is mostly a cash-based enterprise. Criminals do not use gold, checks, or credit cards. As those of us who use cash over other payment types understand, cash is more anonymous. Cash transactions can be used to perform untraceable transaction that could be used to evade taxes. Criminals use cash to avoid law enforcement and terrorists use cash to fund their activities outside of the monitoring of financial transactions. In fact, Sands notes that these criminals have nicknamed the €500 note the “Bin Laden.”

In order to carry out cash-based transactions is the ability to carry the cash. Sands’ paper and Summers’ article both say that lower denomination currency will make it difficult to carry large volumes of currency in order to make these transactions. Considering the weight of United States currency, carrying $1 million worth of $100 Federal Reserve Notes would weigh about 10 kilograms (22.0462 pounds). Using a 15 liters (just under 4 gallons) as the “standard” briefcase capacity, you could carry $1 million in 0.7 cases.

As a comparison, $1 million worth of $50 Federal Reserve Notes would require 1.4 briefcases and 3.5 briefcases when using $20 notes. If the $1 million was being paid using €500 notes, it would weigh 2.2 kilograms or about 4.85 pounds that takes up a quarter of a briefcase.

Weight of $1 million using U.S. Federal Reserve Notes

Comparison of the weight of the equivalent of $1 million using U.S. Federal Reserve Notes

Weight of the equivalent of $1 million using euro currency

Comparison of the weight of the equivalent of $1 million using euro currency

Sands says:

By eliminating high denomination, high value notes we would make life harder for those pursuing tax evasion, financial crime, terrorist finance and corruption. Without being able to use high denomination notes, those engaged in illicit activities – the “bad guys” of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their “business models”.

Summers agrees with Sands and even suggests that the baseline currencies, specifically the dollar and the euro, should “stop issuing notes worth more than say $50 or $100.” Both consider demonetizing these high denomination notes a step in the right direction.

$207 Million in $100 notes seized as part of a drug raid in 2007

$207 Million in $100 notes seized as part of a drug raid in 2007

In the world of policy analysis there is the concept of the three-legged stool. The first leg is to identify the policy, which is what Sands’ paper does. Next would be to translate the policy idea into something that could be used as the basis for a law. The final step is something to drive the policy to be considered by the lawmakers in order to do something with the policy.

This is how the one cent coin went from being 95-percent copper to being copper-covered zinc. There was the idea to change the composition of the coin in order to save money. After the idea, there was the research and the law writing that went into changing the composition. As part of that second-leg exercise was the creation of the 1974 aluminum cent pattern. Finally, by 1982, the costs were so out of line that it became the driver that forced action.

Although the article and report has been well discussed as part of the financial press it is not likely to be acted on in the near future. It is only the first leg. It will take time before this stool gets its two other legs.

Images were copied from the report “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes,” by Peter Sands, et. al.

From ordering to circulation

Marriner S. Eccles Building

Marriner S. Eccles Building where the Federal Reserve Board is located

After spending time digging out from the Blizzard of 2016, I was reading email and was reminded about a conversation I had earlier this week. Someone asked when they would see 2016 coins in their change. As someone who also hunts through pocket change, I thought it would be interesting to discuss what is involved with what business would call the movement of inventory in the supply chain.

The process begins when the Federal Reserve places their annual order with the U.S. Mint for coins and the Bureau of Engraving and Printing for currency. Like any organization that deals with inventory, the Federal Reserve will estimate its order based on a projection of demand.

Inventory management for the Federal Reserve requires them to know how much currency is in circulation, how much will be required based on world-wide economic factors, and what would be required to replace the current currency supply. Since the Federal Reserve ships U.S. currency world wide, especially the $100 Federal Reserve Notes, someone has to project what the world is going to demand based on economic factors that it has no participation in.

Life Expectancy of U.S. Currency
Denomination of Bill Life Expectancy (Years)
$ 1 5.9
$ 5 4.9
$10 4.2
$20 7.7
$50 3.7
$100 15

Not only does the Federal Reserve has to track the amount of money in circulation but they also have to account for the different denominations in order to replace torn and worn notes. For instance, it was once estimated that 90-percent of the order for $1 Federal Reserve Notes were delivered to replace worn notes in circulation.

Once the order is placed by the Federal Reserve, the U.S. Mint and the Bureau of Engraving and Printing work to fulfill that order. The U.S. Mint strikes the coins and has they placed in one-ton ballistic bags for delivery. The Bureau of Engraving and Printing bundles the currency in packs. Multiple packs make a brick. Bricks are then piled on pallets that are used for delivery.

From Philadelphia and Denver, the coin bags are loaded onto secured trucks and transferred to the Federal Reserve for distribution. A similar transfer happens at the Bureau of Engraving and Printing in Washington and Fort Worth where the pallets are shipped to the Federal Reserve.

Although there may be a few warehouses and other distribution processes involved, the coins and currency are shipped to one of 26 “cash rooms” around the country based on need. These cash rooms are special warehouses operated by the Federal Reserve branch that store the physical currency before being distributed to the member banks.

Federal Reserve Bank of New York

Federal Reserve Bank of New York

Since the New York Federal Reserve Bank processes currency orders for overseas shipping, they order the most currency of the 12 regional banks. San Francisco provides banking services for Alaska, Hawaii, and other transactions throughout the Pacific Rim, orders the second most amount of currency.

Before currency can enter circulation, a member bank places an order with the Federal Reserve. It is then delivered to them from the closest cash room with the appropriate inventory necessary to fulfill the order.

Your personal bank is like the corner store in the ordering system. When the shelves are bare or threatening to go bare, they order the inventory of currency they need. The corner bank just do not order money from the Federal Reserve. Banking companies work on behalf of their branches to manage inventory. The big bank may have their own cash management operations that help ensure that they not only have the appropriate amount of currency available but they do not have too much in storage. Like product inventories, idle money is not good for business.

Federal Reserve Bank of Richmond Baltimore Coin Storage

Federal Reserve Bank of Richmond Baltimore Coin Storage

Federal Reserve Bank of Atlanta Cash Operations

Federal Reserve Bank of Atlanta Cash Operations

Many banks hire logistics companies to help with the flow of their currency inventory. These companies are the ones driving the armored trucks you see around town that delivers currency on order. While these logistic companies are registered currency distribution services and have permits to pick up inventory from the Federal Reserve cash rooms on behalf of the member banks, they also provide storage and delivery services.

Although your corner bank has a vault, each banking company limits the amount of currency they keep on site because of security concerns. When they need additional currency or have an excess that needs to be stored, they call the logistics company to physically move the inventory.

Four of the largest cash logistics companies

Four of the largest cash logistics companies

These logistics company do not take the currency and put it on the shelf until the bank calls back and asks for it to be returned. If a bank deposits a bag of quarters with the logistics company but another bank asks for bags of quarters, that bag could be transferred to another bank. Banks may order currency from the Federal Reserve or smaller banks from other cooperating banks, the logistics companies fulfill the orders from existing stock before accessing new stock.

Depending on how fast the currency is needed to circulate by your corner bank, existing currency can circulate through the logistics processing center long before the new inventory is placed into circulation.

During the recent downturn in the economy, the banks’ inventories of coins increased as people emptied jars, jugs, and bottles of coins for necessities. As the coins were returned to the bank the inventories rose beyond what they needed for circulation reducing the requirement for the banks to order more coins from the Federal Reserve. This is why it was not surprising that many people did not see current year coins until as early as April.

It is more difficult to gauge when currency reaches circulation unless there is a change in the series designation. The Series of a note is the date followed by a letter indicating that there is a change, usually to the autograph of the Treasurer or the Secretary of the Treasury. Although there is no rule, the Series date changes with an administration and the letter is added and changes as the autographs changes. Sometimes, the series date changes with the design of the currency. These are recent conventions and not the rule. All printing and design decisions are made by the Federal Reserve, Bureau of Engraving and Printing, and the U.S. Secret Service as a team.

If you want to know when the 2016 coins will reach circulation, the answer is “I don’t know.” Considering the economy is in better shape than in years past, money continues to circulate, and the U.S. Mint has produced more coins in a single year than any other in its history, if you have not seen a 2016 coin in your pocket change soon, then my best guess will be in mid-February—if the weather holds up!

Credits

  • Eccles Building image courtesy of the Federal Reserve.
  • Federal Reserve Bank of New York building courtesy of the Federal Reserve Bank of New York.
  • Image of the Federal Reserve Bank Baltimore Coin Room courtesy of NPR.
  • Image of the Atlanta Federal Reserve Bank Cash Operations courtesy of Glassdoor.com.
  • Armored vehicle image courtesy of Prinéa.

Can the U.S. go cashless?

Could the call to end the 1p and 2p coins in the UK have an effect in the US?

Could the call to end the 1p and 2p coins in the UK have an effect in the US?

There have been stories running around the Interwebs talking about the end of money.

Not necessarily the end of money but the end of physical currency.

With all the talk about ending the production of low value coins, whether it is the one-cent coin here in the United States, or the one or two pence coins in Great Britain, there seems to be movement to reduce the dependence of coinage.

Amongst the examples cited by those looking to make these changes are Canada, who ended the production of their one-cent coin in 2012, and Sweden, where physical currency makes up 3-percent of the economy.

Could the DC Metro’s Smartrip Card be the future of a cashless society?

Could the DC Metro’s Smartrip Card be the future of a cashless society?

Sweden is an interesting example that may not apply to the United States. The country that introduced the first banknotes to Europe in 1661 has transformed itself into a larger digital economy. Many shops and most banks have stopped handling cash. In areas that were traditional cash-related transactions, there has been a ticket or electronic system in installed. Busses require pre-paid tickets. Other mass transit relies on credit cards or pre-paid debit cards like the Metrocard in New York or the SmartTrip Card in Washington. These cards are less expensive to produce than paper tickets or tokens.

But could a cashless society work in the United States?

A key measure of the power of an economy is the Gross Domestic Product, the total cost of goods and services produced by the economy. As of 2012, the most recent statistics available, Sweden’s GDP is $184.8 billion (converted to US dollar equivalent) versus $1.56 trillion for the United States—eight times the Swedish economy. Sweden’s economy ranks 28th and the U.S. 2nd only behind the combined European Union.

For the record, China’s 2012 GDP, third on the list, was $8.36 trillion, just over half of the U.S. GDP.

The United States makes more money, spends more money, trades more money, and has more economic impact than any other country in the world.

The first problem with trying to replicate what Sweden is doing is one of scale. The United States has the single largest economy in the world. While the European Union has a larger GDP, it is made up of cooperating countries with their own sovereign interests. While some might say that it is the same as the 50 states, the federal structure of a single republic versus several cooperating republics of Europe makes like the equivalent of swallowing the ocean in one gulp versus several gulps controlled by cooperating governments in Europe. Even when European governments do not cooperate, they can individually work better than what has been going on in the United States.

Another key indicator is the poverty rate. It is important to consider those in poverty because they usually do not have the resources to participate in the advanced structures of society. People living in poverty do not have access to credit regardless of where they live, even if they do have some access to the technologies that support cashless access. Although companies are giving away smartphones in many poverty stricken areas, those customers continue to have problems paying their bills. These are the people who rely on cash.

What may account for Sweden’s low use of cash is their low percentage of its citizens in poverty. With a poverty rate of 3.97-percent, this may account for the 3-percent average currency usage. Poverty in the United States is 5-times more than Sweden at 20.59-percent. While this in itself may not be a definitive indicator, it could explain why there is a vocal opposition of anti-poverty groups when discussion turn to eliminating the cent or a cashless society.

Those who preach a cashless society and point to Sweden also fails to consider one factor that only few countries have faces: the United States has probably one of the most diverse populations. Current politics notwithstanding, the United States has historically been more open to immigration than most other nations. Sweden, while a wonderful place, has a lesser and more homogenous population. Swedes are rightfully proud of themselves, their heritage, and history and has a culture more conducive to working together.

When was the last time that we saw the United States all together? Even after the attacks of September 11, 2001, there were segments of the population that has called it a hoax and said that the government bombed itself to press an agenda.

1853 Braided Hair Half Cent Obverse

1853 Braided Hair Half Cent Obverse – The last lowest denomination coin eliminated by the congress.

Even those who want to end production of the one-cent coins and uses the end of the half-cent as an example of the U.S. ending production of a no longer needed low denomination coin gets the reasons wrong for the reasons why its production was ended. Those who know better reminds them of the reasons and many stammer in shame before puffing out their chests and saying they are right, anyway.

In 2015, the U.S. Mint and Bureau of Engraving and Printing produced more coins and currency than ever. Both government agencies produce their main products because it was ordered by the Federal Reserve, the central banking organization of the United States. Even though paper currency may be exported, most coins are circulated in the United States for domestic use.

If there is any indication that the United States is moving to a cashless society, then why is currency production at its highest in history?

Interestingly, 2015 was the 50th Anniversary of clad, non-silver coinage except for the half-dollar that was produced with 40-percent silver until 1969. To this day there are people to decry the use of fiat money.

Regardless of what pundits say, the United States economy is more broad, diverse, and not as easy to control as in Sweden. If the United States ever gets to the point where it can support a cashless society, it might not be during the lifetime of anyone reading this today. These pundits do not see beyond their caramel macchiatos to understand the Real World.

Keep collecting this coins. Your great grandchildren may enjoy them but their grandchildren may find them interesting curiosities.

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