Originally posted – Apr 02, 2014
Jon Cameron’s career in U.S. currency began in 1972 at the Baltimore Branch of the Federal Reserve Bank of Richmond. In 1987, moving from cash operations to cash policy and Reserve Bank oversight, he transferred to the Board of Governors of the Federal Reserve System. In 2007, Mr. Cameron joined the Department of Treasury and led the Bureau of Engraving and Printing’s Eastern Currency Facility in Washington, D.C. for six years as the associate director.
In July 2013, he transferred to the United States Mint, to establish the Office of Coin Studies, which is responsible for monitoring cash usage trends, emerging payment technologies, and trends and policies of other national mints. In addition, the Office of Coin Studies is leading the Mint’s industry outreach regarding the alternative metal research and development as required by the Coin Modernization Act. During his career, Mr. Cameron worked with new currency design programs, the dollar coin program, and served as the program director for the International Currency Awareness Program, which studied the use and counterfeiting of U.S. currency abroad.
Can you briefly explain the mission of the U.S. Mint’s Office of Coin Studies? What is your mandate? In other words, what drives what you do?
First and foremost, the mission of the U.S. Mint and the Bureau of Engraving and Printing is to provide trust in U.S. coins and notes to facilitate commerce.
Specifically for coin studies, what we’ve been tasked to do is monitor cash usage trends and look at the emerging payments technologies – and certainly with mobile payments there is a lot of activity on that front. We also monitor the trends and policies of other national mints around the world, because there is a lot going on with currency and coins internationally.
The way we go about accomplishing that mission is through outreach and meeting with various industry stakeholders – such as vending, retail, public transportation, coin recyclers and, of course, industries like the coin laundry industry.
The Office of Coin Studies came to life in July of last year. We really got our feet under us last October, and we’ve been running as fast as we can ever since.
How have U.S coins changed over the years?
It’s been almost 50 years since there was change to the dime and quarter. Then, a few years after that, there was the change to the half-dollar – where it went from a silver coin to the current copper-nickel clad composition. Next, in 1983, the penny changed from copper to a copper-plated coin.
The next big change was the introduction of the golden dollar in 2000, which replaced the previous Susan B. Anthony version. That’s a good one to look at, because at that time vending had certainly changed from what it was when we changed from silver to copper-nickel clad. One of the requirements of the legislation regarding the dollar coin was that it had to be seamless for the vending industry. There was a good understanding at that point as to what it takes for a coin to truly be seamless.
Is there a future for cash?
Yes. What we’ve learned from Federal Reserve research, as well as studies from industry and academia is basically that cash has a future. It’s going to continue.
We are going to conduct public surveys to better understand consumer behavior to discover why people choose to save or hold onto certain coins, and why they choose to spend and use others.
What we do know at this point is that the $20 bill is the ATM note – it’s sort of the threshold for all denominations. In other words, all denominations and coins below that value facilitate making change and cash purchases.
In looking at the research, we’ve learned that the transaction value is the leading factor in when a consumer decides to use cash. According to the studies, what it comes down to is that, with a $10 transaction, 65 percent of the time it’s going to be cash – and, as you go up in price to just under $25, that figure drops down to 45 percent.
This suggests that the price point is really a factor that determines a lot of consumer decisions regarding the transaction. Certainly, we have found that the quarter is our workhorse for circulating coins. We find that consumers tend to use the quarter for subsequent transactions and activities, whereas other coins they tend to receive in change move to a save-and-hold category, rather than being spent on the next transaction.
How has the public’s attitude toward coins changed over the years?
That’s what we want to learn as we conduct our surveys. We’ve certainly seen that coin production last year was significantly higher than what it was in 2012.
What drives our manufacturing are orders of coins by the Federal Reserve, which in turn provides them to the depository institutions to meet the needs of the public, the retailers and so on. In 2014, the Fed is on track to order close to 14 billion coins. So, we’re actually what I would describe as in a pretty healthy position.
Just as a comparison, in 2013, we shipped almost 10.7 billion coins, and in 2012, it was 9 billion. There is a steady trend there, and that’s where we need to balance our manufacturing facilities to meet that demand.
The Coin Modernization, Oversight and Continuity Act went into effect in 2010. Can you briefly explain the purpose of this legislation?
First of all, it authorizes the Mint to conduct research on alternative metals. Certainly, we’re in continuous improvement regarding our manufacturing operation; however, when it comes to looking at other potential metals for circulating coins, the legislation gave us the green light to do the necessary research and development for alternative metals.
The second most important part of the Act is that we need to solicit input. We need to understand from the stakeholders’ perspective, what happens if these things change? What would that mean for the small-business owners out there? What would that mean for commerce? Again, our mission is to meet the needs of commerce by providing these trusted U.S. coins.
The third part of the Act requires us to report back to Congress on what we learn. With that said, you’ve got to go a bit further into the legislation – it’s really the factors that we need to consider that make our work much more complex. The factors the legislation asked us to look at include the impact on the coin material suppliers? If they’ve got a production stream underway with current materials, what happens if we decide to make a change? What’s that impact?
Also, and this is directly from the Act, we need to ensure “to the greatest extent practical that any new coins work without interruption in existing coin acceptance equipment without modification.” That’s a pretty tall order, but it’s certainly a factor we need to consider.
Also, just to make that all of the bases are covered, the Act also says we need to consider “any other factor as defined by a stakeholder as a factor.”
Those are the key points – we’ve got to conduct the research, solicit the input and report back to Congress. And we’ve got to be open to all of the potential concerns and impacts to the stakeholders.
Under the Act, you’re required to submit biennial reports to Congress. In 2012 report, no changes to any coins were recommended. Why was that?
We reported that there were no viable alternative metals for the penny that would reduce the manufacturing cost below its face value.
With that report, there also was a roughly 400-page attachment on concurrent technologies. It discusses how we tested 29 different metal formulations, so there was a lot of work that was undertaken to look at those.
The 2012 report also includes our initial industry outreach, and one of the things we learned was that the electromagnetic signature is critical not only to the vending industry, but also to much of the other coin authentication and acceptance equipment that’s deployed.
We learned that there is a need to provide significant advanced notice of any changes – a two- to three-year window.
One of the important things for us was that the initial research confirmed that the Mint employs state-of-the-art coin manufacturing equipment and processes. Therefore, it’s not area in which we can make huge gains to reduce the cost of manufacturing and circulating coins by incorporating new manufacturing processes.
With the first report, there was no definitive change. However, considering the legislation, we covered a lot of ground in those first two years. And, now, we’re doing further work with both the research and development of other alternative metals and industry outreach.
What exactly is studied for these reports?
Specifically, Congress asked us to talk about a production-cost analysis, and give them the latest on what we are seeing regarding manufacturing. They are asking for any recommended changes to coin composition, as well as whether or not we see a potential for savings by changing that way that we produce coins.
Of course, for the R&D portion of these reports, we want to fully understand how the coins’ electromagnetic signature, weight and appearance can affect the stakeholders.
When will the 2014 report be completed? Do you know if there will be any coin changes recommended in this report?
The target date for that report is December 2014. Certainly, our R&D effort is underway. We’ve actually constructed a lab at our Mint in Philadelphia to facilitate this process, where we’re literally doing test strikes of metals. Depending on how hard or soft a metal is, the current dies we use for striking the coins may need to change. The effort underway is looking at how the coins potentially would wear, as well as their manufacturability.
As for stakeholder outreach, we recently conducted a meeting here at our headquarters with 50 representatives from various industries, including the coin laundry industry. In addition, we will be publishing a notice in the Federal Register, where we will solicit industry comments on these potential alternative metals and how it may affect various industry stakeholders.
We’re going to conduct public surveys. Plus, we’re going to continue to meet with different industries – either through conference calls, face-to-face meetings or at their own conferences where we can talk to their groups.
The December 2014 report probably will go into a bit more discussion regarding where we are with the R&D at this point, as well as a bit more focus on industry feedback.
The possibility of changing the penny and the nickel were mentioned in President Obama’s 2015 budget. What does it cost to make these two coins?
Let me start with the fact that, in the production of circulating coins, we are generating positive revenue and, as a reflection of that, we transferred $350 million to the U.S. Treasury’s General Fund last year.
As far as the cost of the penny and the nickel, my hat is off to the folks in the manufacturing area of the Mint. In 2013, the cost of the penny was 1.8 cents, and the cost of the nickel was 9.4 cents. However, as recently as two years ago, the cost of the penny was 2.4 cents, and the cost of the nickel was just over 11 cents.
We’ve put a lot of focus, effort and energy into the manufacturing side, and we’ve learned that we’ve done about all we can to reduce the manufacturing cost of these two coin and that the metal cost is really the variable we can’t seem to get past to bring the manufacture of the coins below their face value.
Last year, legislation was proposed to construct all coins from American steel? Would this ever be an option?
Of the alternatives for the nickel, a couple of them are plated steel. This means the core would be steel, and there would be nickel plate on the outside. If we look to our neighbors to the North, this is what Canada has employed. Likewise in the U.K., they have made a similar change with their circulated coins.
Another alternative would be stainless steel.
Is steel an option? Congress will make the determination and needs to pass legislation regarding what we make coins from. If such legislation were to pass, we would manufacture coins using steel.
What are the SAVE and the SAVE II Acts? Can you elaborate on those?
Basically, they would prohibit the manufacture of coins and notes having a manufacturing cost that exceeds their face value. In essence, it would direct the Mint to cease production of the penny and the nickel – but that’s part of the reason we’re doing stakeholder outreach, to understand what something like that would mean to commerce overall.
Of course, coin laundry owners are most interested in any potential changes to the quarter. Are you aware of any plans to upgrade or change the quarter in any way?
As I mentioned, we certainly see the quarter as the workhorse for our circulation. Our initial analysis indicates consumers find utility in the quarter and that they tend to use the quarter more frequently than other denominations.
This is where industry outreach becomes very important. Some of the feedback in the initial report that went to Congress at the end of 2012 suggested that, if there were a change to coins, that change should be to all coins rather than any incremental change. So, in that aspect, is the quarter part of our R&D? Yes, we’re certainly conducting research on looking at potential metals for all circulating coins, as directed by the legislation.
With that said, the representatives we’ve talked to within the coin laundry industry and a few other industries have been very clear that they like the quarter just the way it is, and that’s important feedback.
What does it cost to manufacture a quarter?
In 2013, the quarter cost 10.5 cents. So, certainly it’s profitable in its current metal content and manufacturing.
What does it cost to make a dollar coin?
Keep in mind that in December 2011 the Treasury, after discussions with the Federal Reserve, suspended production of the circulating dollar coin. The Fed isn’t ordering dollar coins. Their current inventory of dollar coins was sufficient to where they felt they didn’t need additional supply at this time.
Prior to suspending production, we were at about 18 cents to 21 cents to manufacturer the dollar coin. We believe now with the improvements we’ve seen in the other circulating coins that the cost to manufacture a dollar coin, if we were to go back into production, would be less than what we experienced the last time.
What’s the future of the quarter and the dollar coin?
These coins are on two different paths. As I mentioned, at this point the Fed is not ordering the dollar coin for commerce.
On the other hand, the quarter certainly is healthy. We delivered more than a billion quarters to the Federal Reserve last year, and we fully anticipate that we’ll be close to delivering another billion quarters in 2014.
What’s more, keep in mind that we are currently in the midst of our America the Beautiful quarter program, which showcases national parks and other national sites. We recognize that we reach out and touch the public every day in the use of our coins – and what a great way to provide a little history of the United States.
So, I would say the future of the quarter is bright.
What would you say to laundry owners and other small-business operators who would be financially impacted by non-seamless changes in the weigh and/or composition of today’s quarters?
Any change would require Congress to enact legislation requiring a change to the metal content of the quarter.
To laundry owners, we need to hear from you. I can’t stress that enough. Yes, we need to hear from the industry as a whole, but we also need to hear from the small-business owners themselves. There is a general perception that these are large industries that may be affected by changes in the coins. However, more and more we’re finding out – with vending and certainly coin laundry – it’s small businesses and small-business owners that would be impacted, and changing their coin authenticators is a costly proposition for them. We need to hear that.
When we go out with the Federal Register notice, we really need to have that feedback. What would it cost you? What is the impact to your business? How much time would you need to make the change? That’s the type of information we collect.
Yes, the Mint can manufacturer the quarter using a different metal for a lower cost, but how would that impact commerce? And what are the impacts to small business? It’s important to take a look at the whole picture.
What’s the main takeaway that today’s coin laundry owners should get from this interview?
By hearing from them, we can be more sensitive to their needs. The next report that goes out will focus more on what the impact to commerce might be. What are the consequences of change and the impact on commerce within the coin laundry industry? We recognize that it’s not an easy change.
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