Should U.S. Mint be privatized?
November 2, 2017
Last week, I lamented that, at this year’s U.S. Mint Numismatic Forum on Oct. 17, Mint personnel devoted most of the time to explaining their current operations and near-term future plans. As a consequence, they didn’t really reach out to solicit feedback and ideas as had occurred at last year’s Numismatic Forum.
I do have several thoughts to share with the U.S. Mint, most of which I submitted a year ago. To begin, here is the report I sent to Mint officials after last year’s Numismatic Forum:
1. The U.S. monetary system is one of the most stable and longest lasting of any in the world. Coins and paper money issued by the U.S. government, other than Trade dollars, have retained their legal tender status.
2. The dollars and cents monetary system has remained constant throughout the history of the U.S. government.
3. The U.S. dollar has been the dominant world currency for decades. Even though its dominance is reduced over past decades, more than 60 percent of current global central bank reserves are denominated in U.S. dollars.
4. As a consequence of the above, U.S. coins and currency are spent as legal tender in several other nations such as Ecuador, the Marshall Islands, Palau, and Panama. American money is readily spendable across much of the Caribbean.
5. There are more collectors of United States coins and currency than that of any other monetary system.
6. Americans are among the most prosperous in the world, giving a relatively high proportion of the population the wherewithal to devote discretionary assets to collecting coins and paper money.
7. It is possible to begin collecting coins and paper money at face value out of circulating coins and currency, items which a high percentage of the population handle on a constant basis.
8. During much of the U.S. Mint’s history, it issued gold and silver coins, which are metals that have been used for commerce for thousands of years. Precious metals coinage has value on the basis of its intrinsic metal value rather than solely on “the full faith and credit of the U.S. government.”
9. Of any collectible, coins and currency may have the greatest liquidity and the tightest buy/sell spreads.
10. The U.S. Mint has an outstanding track record of fabricating high-quality coins.
11. The U.S. Mint’s website has extensive free information to educate beginning collectors.
12. Coins and currency can be collected by people of all ages on just about any size of budget. There is a tremendous flexibility in defining the scope of a collection. People of diverse other collecting interests may also find that incorporating certain coins and paper money enhance their main collection.
13. Overall, the U.S. Mint operates at a profit, unlike almost all other government agencies.
14. Collections can be formed out of current issues or from any time going back 2,600 years.
1. Since 1985, according to the U.S. Department of Commerce, the United States is now the world’s largest debtor nation. This increases the risk of foreigners becoming less willing to accept U.S. coins and currency in commerce and also potentially diminishes foreign interest in U.S. numismatics.
2. Monetary systems such as the Australia dollar, Canada dollar, euro, New Zealand dollar and the United Kingdom pound no longer issue paper currencies in denominations lower than five of their units. This higher threshold has increased the usage of coins in such countries compared to the experience in the United States.
3. U.S. circulating coinage, similar to every other monetary system does not now have any precious metal content. This potentially reduces the attraction of collecting coins.
4. The purchasing power of U.S. coinage has diminished over the decades. The effect of this decline has contributed to a decline in the public’s perception of coins as a store of value and increased the thought that coins are more of a nuisance.
5. Internationally, the metric system of weights is replacing ounces and pounds, which are commonly used in America.
6. High mintages often lead to lower prices in the secondary market, which discourages future sales.
7. Inconsistent distribution methods. Sometimes there are extremely low order limits and sometimes high or no limits.
8. There is a perhaps insurmountable conflict of interest between the U.S. Mint serving the end collectors and serving the coin dealer industry that provides secondary market liquidity to U.S. Mint numismatic products. Collectors may complain about not being able to purchase a particular product direct from the Mint “because the dealers bought them all before I could get in my order.” Yet, if dealers only have the same access and prices as the ultimate collectors, that discourages them from then handling current Mint offerings for retail sale.
9. The U.S. Mint is not operated in the same manner as a business. In part, this reflects it being subject to legislation as to what it may or must produce.
10. Coins, currency and precious metals are tangible assets. Unfortunately, personal entertainment and interests are now more being enjoyed over the Internet and social media, where these items cannot be touched.
11. In years past, the U.S. Mint personnel were relatively non-communicative at sharing industry “best practices” with other mints and fabricators of precious metals products.
12. The cost of collecting one of each issue of all U.S. coins is now beyond the budgets of most potential and existing collectors.
13. The U.S. government does not help provide secondary market liquidity for the numismatic products that it sells, though this may well be for the best.
14. The U.S. Mint needs to elicit better cooperation from the Federal Reserve in dispersing new issues of circulating coinage that collectors would seek.
1. The 50 State Quarters® Program was immensely popular with the public, which resulted in the U.S. Mint sparking tens of millions of beginning coin collectors. The program also generated a higher profit to the U.S. Mint than originally projected. The popularity of this program sparked other issues of changing designs including the Native American dollars, U.S. Presidential Dollars and America The Beautiful Quarters®. Some of these beginning collectors expanded their collecting interests to other coins and currency. Issuing circulating coinage of regularly changing designs can both stimulate interest in coin collecting and potentially increase profits at the U.S. Mint. While the 10-11 years series of coins is probably too long for children and grandparents to comfortably collect, a collection of coins issued over a 3- to 5-year time frame would likely be popular. Among possible design series for circulating coins are:
A. Historic inventions by state
2. If the U.S. government were to discontinue the $1 and $2 Federal Reserve Notes, that would significantly increase demand for coins of these denominations. Studies have shown that replacing the $1 paper currency with a coin would also be more cost effective for the U.S. Treasury. Further, half dollars could again be struck for circulation, using a series theme.
3. The current America The Beautiful Quarters® Program does not allow for public input on designs. My experience soliciting public input for the 2004 Michigan State Quarter demonstrated a high degree of interest, especially from teachers who used this as an educational experience.
4. I have proposed a thesis that children who collect coins and paper money, on average, grow up to be more successful adults. There are no known studies to confirm or disprove this thesis. However, I have discussed this idea with hundreds of people over the years who all intuitively concur. The skills developed in handling money and forming a collection help prepare children for similar activities in school, the workforce, and living as independent adults.
5. Coins and paper money can be excellent low-cost teaching materials. Learning is enhanced when a greater number of the senses is involved. Using touch to handle coins and paper money can reinforce lessons learned by sight and sound. Coins can be used to teach art, communication, economics, geography, history, languages, math and other subjects.
6. The U.S. Mint could issue precious metals coins that are legal tender but not denominated in dollars. Perhaps they could be measured in metric weights rather than ounces.
7. Discontinue production of the one cent coins, which costs the U.S. Mint more than face value to produce. A handful of countries have stopped producing the equivalent of this denomination.
8. Consider the proposal by Hugo Salinas Price, an American-born Mexican businessman, investor, and philanthropist. He is urging the Mexican government to issue coins with a small quantity of silver content to help stabilize the value of that nation’s monetary system. Such coins may be hoarded by the public, even though the intrinsic metal value and production cost is well below face value.
9. The U.S. Mint could expand its efforts to strike coins for other nations as it has done over the years and perhaps even incorporate such coins into numismatic offerings.
10. The U.S. Mint could be more helpful at providing the public, coin clubs and dealers with quality artwork to be used to help promote numismatics.
11. The U.S. Mint could increase its efforts to trade a variety of information on best practices with other mints and private ingot and medal fabricators.
12. The U.S. Mint could initiate an internship program of high school or college students in the Philadelphia area to work with the Mint’s artists.
13. The U.S. Mint could make available kits used by the Boy Scouts and the Girl Scouts in their coin collecting merit badge/patch activities. Try to make sure each set of requirements includes the need to access usmint.gov website to complete.
1. The use of coins and currency in everyday commerce has mostly been replaced by the use of electronic transactions. This trend is increasing over time. An example: in the 1960s many newspapers were personally delivered by children, who also collected payment for them. In handling coins and paper money for this purpose, a high percentage of paper carriers developed into coin and paper money collectors. Today, printed newspaper circulation has declined sharply. Those newspapers that are delivered are less likely to be handled by children. Subscription payments are now almost all handled by the business office of the periodical.
2. The expansion of intangible entertainment and education of the public through the Internet and social media.
3. A significant economic downturn could impair collector demand.
4. To the extent that the U.S. Mint succeeds at selling numismatic products to the public and collectors, that can reduce potential sales made by dealers, assuming that there is only a finite total amount that buyers would spend on numismatic products.
5. Sweden is abolishing the use of coins and currency from everyday commerce, which is a trend that could expand to other nations. Merchants may completely refuse to accept any coins and currency. In that country, only about 2 percent of transactions are paid in coins or currency. In the Netherlands, merchants are allowed to decline payments of coins and currency.
As virtually this entire list is still relevant, I am including last year’s report in the suggestions I am passing along to the Mint this time around. But I have more points to add.
At this year’s Numismatic Forum, one of the handouts given to attendees was titled “United States Mint Fiscal Year 2016-2020 Strategic Plan Overview.” It lists three goals (Foster a safe, flexible, diverse and engaged workforce; Improve enterprise management and governance; and Integrate technology into operations and support lines), ten objectives (Training; Professional development; Recruitment and hiring capabilities; Workforce environmental safety; Creating maximum efficiency within operational lines; Customer-focused environment; Working cross functionally across business lines; Enterprise systems that support more efficient use of technology; Capital investments to upgrade or improve systems as needed; and Proactive cyber and physical security culture), and seven initiatives (Training development; Career development and succession planning; HR operational efficiencies; Numismatic and bullion enhancements; Internal collaboration; Policy management; and Cyber and physical security).
If you read through all 20 of these points, you notice that only one directly involves the Mint’s customers (Customer-focused environment)! This focus on operating the U.S. Mint for the sake of running the organization (rather than identifying what existing and potential customers want, the price levels they are willing to pay, and the level of service needed to generate repeat business) I consider a huge drawback in how the U.S. Mint is organized and operates. For example, in last week’s column, I mentioned that I had pointed out at the forum how the Mint’s prices for many numismatic products were considered excessively high for the value received. The response from Mint officials referred to their costs rather than to any consideration of customer demand.
So, this year, I have some additional points to add to last year’s ideas. Here goes:
1. The U.S. Mint does not absorb costs of credit or debit card charges, returned check fees, or PayPal transaction fees. These costs are absorbed by the Treasury’s Bureau of the Fiscal Service. Consequently, the Mint potentially has lower operating costs than other sellers.
1. Although the U.S. Mint has significant data about its customer demographics, it apparently has little demographic information about the entire market or about potential additional customers.
2. Since the Mint is not operated as a private business, it is less focused on serving customers than it is on its internal costs. This pretty much makes it inevitable that the Mint will be slower to adjust to market changes.
1. One input requested at this year’s Numismatic Forum was ideas on what the U.S. Mint could issue as a coin series once the America the Beautiful® Quarter series is finished in early 2021. Here are some possibilities beyond those mentioned last year:
A. A second series of America the Beautiful® Quarters honoring different places.
2. Issue coins containing precious metals only from specific individual mines or mining regions (such as California, the Comstock Lode, Yukon, Cripple Creek, Montana, Nevada, the Carolinas and Georgia, and so forth).
3. With states such as Arizona, Oklahoma, Tennessee, Texas and Utah proposing or having adopted legislation to establish either a state precious metals depository, or that gold and silver are explicitly legal tender, or that transactions involving gold and silver U.S. coins are exempt from state income taxes, consider offering to strike gold or silver coins for specific states upon their request. This proposal complies with the Article 1 Section 10 of the U.S. Constitution. Metal content standards could, but would not necessarily, match that of federal coin issues of the same face value. Should any state choose to sponsor such coinage, I expect that demand would be quite strong.
4. Privatize the U.S. Mint. The U.S. Mint already obtains its cent blanks and silver Eagle planchets from outside sources. The government of the Netherlands sold its mint to a Belgian manufacturer in November 2016. The Royal Canadian Mint is a crown corporation. Although it is technically independent of the Canadian government, it is wholly owned by that government. By operating as a private entity, though it may have long-term contracts to supply coinage to the U.S. Treasury, the U.S. Mint would be forced to shift its focus to customer wants and needs rather than pretty much focusing on its internal costs.
1. Until the past couple of years, the problem of counterfeit circulating U.S. coinage was inconsequential. Now, though, this has been a growing problem for the U.S. Mint involving Kennedy half dollars that may need attention. Just this year, the Royal Mint in the United Kingdom issued a replacement one pound coin because the quantity of counterfeits in circulation was becoming a problem there.
While the idea of privatizing the U.S. Mint may seem radical, understand that the U.S. government is not required to operate one under the U.S. Constitution. It may be an idea now worth considering.
Next week, look for my observations about the Citizens Coinage Advisory Committee, where I ate dinner with eight of the 11 members after the end of this year’s Numismatic Forum.