Testimony of Louise L. Roseman
Director, Division of Reserve Bank Operations and Payment Systems
The golden dollar coin
Before the Subcommittee on Treasury and General Government of the Committee on Appropriations, U.S. Senate
May 17, 2002
Thank you for this opportunity to report on the Federal Reserve System's activities supporting the golden dollar coin. Before I discuss the Federal Reserve's experience with the golden dollar coin, it may be helpful to describe briefly the Federal Reserve's role in coin distribution.
One of the Federal Reserve's responsibilities is to ensure that enough currency and coin are available to meet the public's needs. In that role, the Federal Reserve provides cash services to over 11,000 of the 20,000 banks, savings and loans, and credit unions in the United States. The depository institutions that choose not to obtain their cash directly from the Federal Reserve obtain cash services through correspondent banks. As of March 31, 2002, coin in circulation represented $32 billion, or about five percent of the total $642 billion of U.S. currency and coin in circulation.
The U.S. Mint is responsible for manufacturing an adequate volume of coin to meet the public's demand for transactions. It determines annual coin production and monitors Reserve Bank inventories to identify trends in coin demand. The Reserve Banks order coin on a monthly basis and the Mint pays to transport the coin from its production facilities to Reserve Bank offices. In addition, the Reserve Banks use more than one hundred coin terminals to handle nearly eighty percent of the Reserve Banks' coin volume. These coin terminals are operated by armored carriers, acting for the Federal Reserve, and help create an efficient coin distribution system by reducing duplicative processing and transportation between Reserve Banks and their customers.
The Reserve Banks primarily act as wholesalers by providing coin to depository institutions in minimum quantities of two thousand pieces or more, depending on the denomination. Independent of their role as Federal Reserve coin terminal operators, armored carriers often provide coin in smaller increments and also provide wrapped coin for a fee to depository institutions and retail customers. Depository institutions order coin from the Reserve Banks to meet their customers' demand. Reserve Banks normally fill these orders from their inventories by first paying out circulated coin, and once the inventory of previously circulated coin is depleted, using new coin to meet demand.
Golden Dollar Demand
The Reserve Banks returned to their normal practice of first paying out circulated coin in January 2002, reflecting their general practice of treating all designs of circulating coin as interchangeable to satisfy requirements for the public's transactions. They have continued to accommodate, however, the request of any depository institution for golden dollars only. Reserve Banks will continue filling requests for golden dollars until their inventories of new coin are depleted, which could be within months. Most major dollar coin customers, such as transit authorities and the U.S. Postal Service, have been satisfied by shipments of commingled golden dollars and Susan B. Anthony dollars. Chart 1 at the end of my testimony illustrates the Reserve Banks' dollar coin payments and receipts since 1976; chart 2 shows net payments since 1998.
Because legislation requires that the golden dollar and the Susan B. Anthony dollar have similar metallic properties and the same diameter, and because the Reserve Banks and armored carriers do not have processing equipment to distinguish between the two, excess coins returned to Reserve Banks cannot be mechanically segregated between golden dollars and Susan B. Anthony dollars. As the public continues to return its excess dollar coins, the Reserve Banks are accumulating considerable amounts of commingled inventory. At the end of April, Reserve Banks had sufficient inventories to fulfill all dollar coin orders for more than a year, assuming demand stays at its current level, without taking into consideration future dollar coin deposits that will be returned to the Federal Reserve from the banking industry. This inventory consists of approximately seventy percent commingled dollar coins and thirty percent new golden dollars that have not yet been paid out to depository institutions. Normally Reserve Banks strive to maintain about thirty days of payable inventory of coins of all denominations. Because Reserve Banks are holding such a large inventory of dollar coins, they have ordered no new golden dollars since January 2002, but will begin ordering new coin again when their inventories reach levels they would typically hold.
I appreciate the opportunity to discuss these issues with you and would be happy to answer your questions.