Mint Considers Starting Coin Reserve

By David C. Harper

Coins are in surplus now but the Mint is thinking about a reserve of coins to provide a buffer supply in times of high demand, or unexpected disruption, Mint Director Edmund C. Moy said in an interview with Coin Chat Radio May 20.

Right now the Mint produces coins month to month to match orders from the Federal Reserve System, which oversees the banking system's supply of coins and paper currency. It has no extra supply in on hand.

"It would be nice to have a bank of coins to draw on," he said.

During some recent months the orders for coins exceeded the Mint's capacity to produce them, Moy pointed out. A reserve of coins would allow the Mint to meet comfortably this higher demand.

"We've decided that the strategic reserve was a good idea to explore," Moy explained.

"If this costs a lot of money and it's cheaper for us to find other ways to meet the demand, that's where we're going to go."

Why examine this possibility in a year when coin demand and production is expected to drop by 70 percent from the 10 billion coin level of 2008?

Moy said it is a question that first came up two years ago when the Mint's distribution center was hit by a tornado.

With Washington intervening with the automobile manufacturers in Detroit, is a coin reserve some way to keep blank and strip suppliers to the Mint in business?

Moy said at this point suppliers have not officially been part of the discussion, but he noted that if one of them is acquired by another firm or goes out of business, it could create difficulties for the Mint. 

How big a stock of coins would be needed?

Moy said that is something that is under consideration and a specific target is not yet defined.

"We were created to create coins for use in commerce. The worst thing that can happen is that we have a shortage of coins," Moy said. "It's better to have a little bit extra."

To that end, "We're studying all the past trends," he said.

Because coin demand began falling even before the current recession, has there been a paradigm shift such that future demand for coins would be lower than what used to be the case?

Moy noted that coin demand at the commercial level has been holding up and coins are used in about one-third of commercial transactions. It is the demand for checks that has been declining. 

"Checking has gone down by roughly half its volume," Moy said.

He expected fundamental underlying demand for coins to continue to hold up.

The Mint is also evaluating the impact on Mint production of what Moy called coin aggregators, a term for Coinstar, which is a business that puts coin counters in commercial establishments and allows consumers to exchange coins for store credits or paper money.

This has the effect of meeting commercial demand for coins without additional new supplies being needed from the Mint.

"We hope to make some decision about this this year," Moy said.

Should the Mint decide to proceed with the concept of a strategic reserve, he said that nickels and dimes would be good denominations to strike for inclusion in it because so few of them have been struck this year and because their designs are not changing regularly as is the case for quarters and dollars.

This might be a warning to collectors who are drooling over the current relatively low mintages so far this year and the prospect that no more nickels and dimes will be produced.