[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
MONEY MATTERS: COIN AND
COUNTERFEITING ISSUES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
APRIL 28, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-82
U.S. GOVERNMENT PRINTING OFFICE
96-545 WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International Monetary Policy, Trade and
Technology
PETER T. KING, New York, Chairman
CAROLYN B. MALONEY, New York
JUDY BIGGERT, Illinois, Vice BERNARD SANDERS, Vermont
Chairman MELVIN L. WATT, North Carolina
JAMES A. LEACH, Iowa MAXINE WATERS, California
MICHAEL N. CASTLE, Delaware BARBARA LEE, California
RON PAUL, Texas PAUL E. KANJORSKI, Pennsylvania
DONALD A. MANZULLO, Illinois BRAD SHERMAN, California
DOUG OSE, California DARLENE HOOLEY, Oregon
JOHN B. SHADEGG, Arizona LUIS V. GUTIERREZ, Illinois
MARK R. KENNEDY, Minnesota NYDIA M. VELAZQUEZ, New York
TOM FEENEY, Florida RAHM EMANUEL, Illinois
JEB HENSARLING, Texas CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
C O N T E N T S
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Page
Hearing held on:
April 28, 2004............................................... 1
Appendix:
April 28, 2004............................................... 39
WITNESSES
Wednesday, April 28, 2004
Ferguson, Thomas A., Director, Bureau of Engraving and Printing,
U.S. Department of the Treasury................................ 10
Fore, Henrietta H., Director U.S. Mint, U.S. Department of the
Treasury....................................................... 8
Johnson, Hon. Jay W., former Director of the Mint and now
Director of Business Development, Collectors Universe Inc...... 32
Marquardt, Jeffrey C., Associate Director, Reserve Bank
Operations and Payment Systems, Board of Governors of the
Federal Reserve System......................................... 15
McMahon, Thomas C., Senior Vice President and Chief Counsel,
National Automatic Merchandising Association................... 29
Noe, Thomas, President, Vintage Coins and Collectibles, and a
member of the Citizens Coinage Advisory Committee.............. 30
Tam, Chung Chung, Revenue Systems Engineer, Chicago Transit
Authority, on behalf of the American Public Transportation
Association, Chairman Revenue Management Committee............. 33
Townsend, Bruce, Deputy Assistant Director, Office of
Investigations, U.S. Secret Service............................ 12
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 40
King, Hon. Peter T........................................... 42
Ferguson, Thomas A........................................... 43
Fore, Henrietta H............................................ 49
Johnson, Hon. Jay W.......................................... 54
Marquardt, Jeffrey C......................................... 57
McMahon, Thomas C............................................ 69
Noe, Thomas.................................................. 74
Tam, Chung Chung............................................. 77
Townsend, Bruce.............................................. 83
Additional Material Submitted for the Record
King, Hon. Peter T.:
Letter to Federal Reserve System from Hon. Jim Greenwood..... 88
MONEY MATTERS: COIN AND
COUNTERFEITING ISSUES
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Wednesday April 28, 2004
U.S. House of Representatives,
Subcommittee on Domestic and International
Monetary Policy Trade and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 2:03 p.m., in
Room 2128, Rayburn House Office Building, Hon. Michael Castle
[acting chairman of the subcommittee] presiding.
Present: Representatives Castle, Maloney, Watt, Sherman and
Bell.
Mr. Castle. [Presiding.] Good afternoon. The Subcommittee
on Domestic and International Monetary Policy, Trade and
Technology will come to order.
I am Congressman Mike Castle, and I am chairing the meeting
for Subcommittee Chairman Peter King, who has been called to
the White House on an important matter and hopes to be able to
join us later.
So you who go back a little bit will recall that I actually
did chair this subcommittee a number of years ago for a couple
of terms, and I still serve on it.
The subcommittee meets today to discuss a number of matters
related to the important issues of coin and currency design and
the related problem of counterfeiting of U.S. currency.
The hearing is the first of what Chairman King hopes will
become a fairly regular series under the broad heading of
``Money Matters,'' dealing with the physical and virtual
aspects of money and payment systems.
As well, today's session will serve as the legislative
hearing for a bill, H.R. 3916, I introduced last month with the
co-sponsorship of the gentlelady from New York, to my right,
Ms. Maloney, entitled The Presidential $1 Coin Act of 2004.
The legislation seeks to increase the availability of the
$1 coin in the economy so that it can fulfill its promise of
controlling costs for business and thus restraining prices for
consumers. I will further describe the bill in a moment.
Today's second panel will focus entirely on the
Presidential dollar.
Testifying to us will be four experts: Mr. Chung Chung Tam,
a cash management specialist for a major public transit agency
and chairman of the Cash Management Committee of the American
Public Transportation Association; Tom McMahon, East Coast
director of the National Automatic Merchandising Association,
representing the vending industry with some 7 million machines
deployed around the country; Jay Johnson, the immediate past
director of the United States Mint, who is now director of
business development for Collectors Universe, a company
providing collector services; and Tom Noe, a coin collector and
coin dealer, who also serves as vice chairman of the Citizens
Coinage Advisory Committee, a panel advising the Treasury
Secretary on design proposed by the Mint. Mr. Noe is the
founder, owner and president of Vintage Coins and Collectibles
of Maumee, Ohio.
First, however, we have a panel of government witnesses,
some of whom no doubt will address H.R. 3916, but who are to
speak to the larger issues of coin and currency design.
We will hear from the current Mint director, Henrietta
Fore, who no doubt will tell us about the successful 50 State
Quarters Program. Everybody is collecting them, and
surprisingly, the program is now more than half finished.
I will also be interested to hear about the early successes
of the temporary redesign of the five-cent coin, an effort
spearheaded by Mr. Cantor, who formerly sat on the Financial
Services Committee, and I expect Ms. Fore also will address the
redesign proposal for the dollar coin.
The director of the Bureau of Engraving and Printing,
Thomas Ferguson, will tell us about the new $50 bank note
design that we all saw in the news yesterday and about the $20
bank note released last year.
Both new designs come as part of an ongoing effort to keep
ahead of counterfeiters who increasingly are turning to
inexpensive, readily available digital scanners and printers to
make their fakes.
Mr. Jeffrey Marquardt, associate director of the Reserve
Bank Operations and Payment Systems at the Federal Reserve
Board, will address issues relating to counterfeiting, as the
Fed is the actually issuer of U.S. currency, and likely also
will talk a little about the circulation patterns of coin and
currency.
Finally, Bruce Townsend, deputy assistant director of the
United States Secret Service, who heads the Office of
Investigations, will talk to us about current trends in
counterfeiting at home and abroad and about ways to combat the
counterfeiters.
I will be particularly interested in hearing his opinions
on the new $20 and $50 designs, his anti-counterfeiting
efforts, and about the Secret Service's successful efforts at
working with other governments to stem the flow of
counterfeits.
I see it is in a slightly different order than you sit. It
does not make much difference to us which order you go in.
The issues we will be discussing today are important.
Having a strong currency that resists attack by counterfeiters
is the bedrock of a robust, vibrant economy, and having widely
available, easily identifiable units of coin and currency is
the best way to facilitate commerce.
I would like to return to the legislation before us today
for a moment.
The Presidential $1 Coin Act of 2004 I authored with Ms.
Maloney. This legislation honors each U.S. President by placing
them on the obverse side of the $1 coin on a rotating basis.
I believe this program is a great opportunity for educating
both children and adults about the history of our country.
In addition, although it is not the goal of the program,
these new coins will likely generate as much as $5 billion for
the government.
I did not write that part about it not being one of the
goals. To me, it is a goal.
In many ways, this legislation is modeled after the
successful 50 States Quarter Program, which, at the end of last
year, reached its halfway point.
The 50 States Quarter Program, which I was also proud to
author, includes five quarters a year bearing images connected
with one of the States so that over a decade each state will
have been honored.
Before the States Quarter Program started, the U.S. Mint
was making about 400 million quarters a year, but in the first
year of the 50 States Quarter Program, it minted approximately
1.2 billion quarters.
The Mint estimates that one person in each household is
collecting the quarters, and they are collecting a full set,
not just their own state.
According to the most recent numbers from the Mint, over $4
billion worth of savings have been created for the Federal
Government with an expected $2 billion more through the life of
the program.
I appreciate the time and effort each of our panelists has
put into their jobs and the time and energy they put into their
testimony today. I say that very sincerely because I have
worked with almost all of you in some capacity or another, and
you really do an extraordinary job.
The collectors have always had, I think, the public
interest in mind here, and we always appreciate that.
And with that, I yield to a strong supporter of these
programs and one who has been extremely helpful in bringing all
this to fruition, the gentlewoman from New York, Ms. Maloney.
Mrs. Maloney. Thank you very much, Representative Castle.
I am delighted to join him on the dollar coin program.
Representative Castle was the architect of the 50 States
Quarter Program, which most Americans absolutely love and
collect, including my two daughters. We just had the Florida
coin released. We are eagerly awaiting the Texas coin. It has
been absolutely a sensational success.
So I applaud Congressman Castle. He is truly a visionary
legislator since so many people have enjoyed this program, and
I am delighted to be a partner in this new effort.
At its heart, this legislation creates a massive national
American history teaching tool. This bill combines all the best
elements of a successful coinage program: education, collecting
interest, a financial windfall for the Treasury.
Politicians and educators are always searching for a new
way to boost interest in American history.
The program also promises to be a boon to the U.S.
Treasury. Halfway through the quarter program, it has returned
more than $4 billion to the Treasury.
No doubt a similar popular dollar program would produce
another huge benefit as novices and professionals and young
people, and all people really, collect this coin and are drawn
to collecting it as a hobby.
The Presidential $1 Coin Act would also increase awareness
of this overlooked coin, the dollar coin. My hope is that we
will raise interest in the dollar coin, making it all the more
popular and increasing its use so that when the great Sacagawea
returns at the end of the Presidential program, it will be more
in circulation.
Finally, we also called for a coin program that will
memorialize each First Lady and include symbolism that is
representative of their time, again a very important teaching
tool and awareness tool.
We are also today holding a hearing on counterfeiting.
Counterfeiting is one of the most important law enforcement
issues the Congress and the committee faces. In fact, documents
seized from Al Qaida indicate that this is a means by which
they carry out terrorist operations.
So I look very much forward to the testimony to see how our
currency stands up relative to efforts in other countries.
Just recently, the new $50 bill was unveiled. This is
certainly a step forward, but it is also my understanding that
we will soon be unveiling the $100 bill, which is, according to
accounts, very vulnerable to counterfeiting. Nearly two-thirds
of $100 bills circulate overseas.
While, in the U.S., our primary defense against
counterfeiting is to use multiple colors, the new euro uses
advanced metallic foils incorporated in them during printing.
So I look forward to the panelists' discussion of this
technique.
The present budget also includes a proposal to study the
advisability of combining the Bureau of Engraving and Printing
and the United States Mint.
While I understand the stated goal is to achieve cost
savings through a reduction in administrative costs, I do have
some concerns about the study and the manner in which it is
being conducted and will ask a few questions in that area.
I congratulate the Chairman for his leadership and
wonderful ideas in coinage, and I hope we will pass this bill
and move forward readily with other projects.
Mr. Castle. I thank the gentlewoman from New York.
Since there are people out in this audience who helped
conceived the original 50 States Quarter idea and helped with
this dollar idea, I do not want to take too much credit for
being too innovative.
Mrs. Maloney. Well, you pushed it through Congress.
Mr. Castle. Well, I was just smart enough not to get in the
way. I did for about six months, but then I learned my lesson
and wised up and realized we had a good program in hand.
Does the gentleman from North Carolina, Mr. Watt, wish to
make an opening statement?
Mr. Watt. Thank you, Mr. Chairman. I will be brief because
I know you want to move on with the hearing and the markup.
I do want to applaud the Chairman for convening the hearing
because it is an important hearing both as a prelude to the
markup of the bill that we are considering today and to
establish a predicate for moving forward on a bill. I just
always think it is a good idea to build a public record about
what the bill is about.
But I also think this is an important hearing because
counterfeiting has become and is becoming more and more a
problem in our society and I hope that we are doing everything
that we can do to address that as a problem.
Three or four years ago, Chairman Oxley and I and a couple
of the other members of the Financial Services Committee
traveled to Europe and looked at some of the advanced processes
that they were beginning to implement and look at--perhaps this
was before the euro, I guess it must have been--to incorporate
into the euro, and I came away deeply impressed with the
efforts that they were making to try to combat counterfeiting.
At that time, I did not realize that some of the cutting-
edge technology that was being used in their effort, or that
was in use combat counterfeiting internationally, actually was
being generated from my congressional district right in North
Carolina.
When I got back, I got more proactive in actually going out
and looking at some of that technology and trying to understand
how the technology worked.
So I am going to ask forgiveness, Mr. Chairman, for
sounding like I know more about this than I probably do. You
know what they say about a little knowledge is a dangerous
thing.
But with that kind of background, it is hard not to get
interested in something when the magnitude of the problem is as
severe as it is. Because my service on this committee is also
parallel with my service on Judiciary, and I know that
counterfeiting is a major component of criminal activity and an
emerging component apparently of terrorism and acts that are
taking place around the world.
So I hope that some of my concerns about whether we are
doing enough in the area of anti-counterfeiting to combat the
ability of counterfeiters, and to make it possible for ordinary
citizens, not just businesses, that have the kind of equipment
and machinery to evaluate the quality of currency, to make it
possible for ordinary citizens to be able to get involved in
this anti-counterfeiting effort.
I thank the Chairman for convening the hearing, and I will
yield back the balance of my time and look forward to the
question-and-answer period and the testimony.
Mr. Castle. Well, thank you, Mr. Watt. I must comment on
your comment that you may sound as if you know more about
something than you do. I think that is the true mark of a real
congressman when we get in that position. We work hard to get
to that point in our life.
The gentleman from California, Mr. Sherman, is yielded to
if he wishes to make an opening statement.
Mr. Sherman. Thank you, Mr. Chairman.
I have always thought that the only skill I bring to
Congress is how to be ignorant without looking stupid, and
sounding like I know more than I do is an important part of
that.
Mr. Chairman, I thank you for holding these hearings.
There are important issues as to whom we commemorate on our
coins and States and localities and people. Putting those
aside, I see two important issues about our currency, one
dealing with coins, one dealing with printed money.
With coins, we ought to be talking about abolishing the
penny. We are always often talking about abolishing the penny.
People do not want to abolish the penny. This is because they
think that somehow when they buy something at the store that
they are paying exactly the amount they agreed to pay, which is
not true.
Every transaction at every store in every state that has
sales tax--and I speak as the former head of the largest sales
tax agency in the country--is rounded to the nearest penny. So,
in fact, you buy a bunch of things at the store. California
imposes 8 and a quarter percent sales tax. You then owe $99.123
cents or $99.128 cents. That is rounded to the nearest penny.
Certainly in a sophisticated, computerized age, we could
round to the nearest nickel. There would be no way for stores
to try to get an advantage out of this because, when I go to
the 99-cent store, they do not know how many things I am going
to purchase. So whether I buy six or eight or 10 with the
applicable sales tax either means things are rounded up or
down.
Furthermore, they do not know at many stores whether I am
going to pay with a credit card. If the bill came to $108.12, I
could pay with a credit card and pay only 12 cents. If I paid
cash, they would round down to 10 cents. I save two cents. Boy,
I hope I have more important things to worry about.
So we can abolish the penny and round to the nearest
nickel.
The savings on the pants pockets alone would more than be
worth it, not to mention what we would save as a country and
how we would find another use for the zinc and copper involved.
We probably will not do this because if you poll on it, it
does not poll well.
This is not ``Profiles in Courage.'' Perhaps our
subcommittee could actually look at this independent of the
polling and perhaps save an awful lot of our natural resources,
not to mention pants pockets.
Now, let us talk about printed currency.
We have $700 billion of printed currency in circulation.
This is because the dollar is a storehouse of value and a
medium of exchange around the world, and that is an important
thing for the United States to preserve and an important
benefit.
Just from the seigniorage, the fact that, in effect, the
world is loaning our Federal Government $700 billion interest
free, that is worth at least $15 billion, probably more as
interest rates go up, to the Federal Government every year.
You know, when you print a Federal note, a 10-year note,
you pay interest on it. When you print a Federal Reserve note
like the one illustrated here, you do not pay interest on it.
It is like a non-interest bearing $50 bond. If you are the
Federal Government, that is a good business to be in.
So that is just one advantage of our currency, being this
storehouse of value.
It also enhances our status around the world and the status
of our financial markets. We need to have currency that is not
subject to counterfeiting.
As the gentlelady from New York pointed out, there are
technical means to make our new currency even less
counterfeitable than the new currency you folks have just come
up with, which is wonderful and beautiful and looks pretty hard
to counterfeit, but maybe not as good as it could be.
The issue, though, that comes up is: What about all this
stuff you printed in the last century? It's still in
circulation.
Now, I know the average bill is only going to last a couple
or three years. You figure you are going to pull it all in. But
you are not.
A lot of folks are going to have the old bill. As long as
it remains legal tender, you do not have to counterfeit the new
bill. You can counterfeit the old bill. That is legal tender
too.
I would hope that you would address in significant detail
the positives and negatives of having a currency recall,
perhaps excluding some of the ancient bills that are valuable
to collectors and that are worth far more than face value.
But to recall all the currency that we printed last
century, to say ``You have until 2007 to turn it in for the new
stuff'' would tremendously inconvenience the drug dealers, the
terrorists and the tax scofflaws around the country and around
the world who ought to be inconvenienced.
It will help us catch some of them as they try to launder
the old money into new money.
And, by the way, it will put out of business everybody who
is still counterfeiting the old money that could continue to do
so for many years to come.
So I hope you will address the benefits of this.
But let us not mince words. The tax scofflaws and the drug
dealers have powerful friends in high levels around the world,
and their complaints will be heard on this. But I would think
that flushing them out would be a good thing to do and also
something that would protect our currency from counterfeiting.
I want to hear more about it. I am just reaching initial
conclusions based on the ignorance I was so proud of at the
beginning of this statement.
I yield back.
Mr. Castle. Thank you, Mr. Sherman. We appreciate your
comments. You certainly have the right witnesses here to answer
your questions, except maybe the pants pockets. I do not know
if there are any tailors out there, but the rest of them could
probably answer a lot of the questions you have raised here
today.
Mr. Sherman. Mr. Chairman, if I can just insert one other
thing?
I am told that out of the $700 billion in circulation, only
$40 million of it is counterfeit. I hope you folks address that
because I believe that is way too low a number. I mean, that is
such a small percentage, and the world is so filled with so
many people who would like to counterfeit our currency.
Thank you.
Mr. Castle. We are going to return to sort of our regular
order of business, and let me just sort of lay it out for you.
I understand our last vote is around 3:30 to 4:00. That
sometimes changes.
But we have this panel, and each of you will have five
minutes. We will have a question and answer, if I just go
through whoever is here, one time. Then we will go to our
second panel, probably following the same format. And then we
have a markup after that.
So we have a lot of business to get done today, so we are
going to try to stay as efficient as possible.
Each of your statements will be made a part of the record,
your written statements. We hope you can try to live by the
clock as much as possible in your oral statements. I am looking
at this up here. We do not have this in the Education
Committee. It says: talk, sum up, that is one minute, stop. We
will not enforce it precisely, but we would like to keep it
relatively close.
Each of us will have five minutes, as most of you know, on
the back-and-forth. So there is a lot to be done.
I know if the director of the Mint wants to start with the
whole penny issue or perhaps other things she was going to talk
about, but we start with Henrietta Fore, and we will go right
down the line in order thereafter.
STATEMENT OF HENRIETTA H. FORE, DIRECTOR, UNITED STATES MINT,
U.S. DEPARTMENT OF THE TREASURY
Ms. Fore. Thank you, Mr. Chairman.
And thank you, Congresswoman Maloney, members of the
subcommittee.
I will, with your permission, give a short summary for oral
testimony.
The United States Mint's mission is to fulfill our
congressionally mandated role as the Nation's coiner of money,
and we will proudly mint and issue the coins, medals and
numismatic items that Congress authorizes in legislation.
We are working diligently to evaluate the manufacturing
processes that the United States Mint would use to execute H.R.
3916, The Presidential $1 Coin Act of 2004.
Working together, I am confident we can deliver to the
American people the coins provided by the bill.
With the benefit of 212 years of experience, the United
States Mint believes that redesign of America's coinage sparks
interest in our history, culture and values.
The enormously successful 50 States Quarter Program and the
redesign of the nickel have demonstrated that Americans embrace
coin redesign.
The United States Mint has passed the halfway point of the
50 State Quarters Program and the release of the Michigan
quarter in January.
More than 130 million Americans collect the 50 States
Quarters, and at its midpoint, this program is responsible for
the United States Mints depositing more than $4 billion into
the Treasury general fund.
This coin program is educational. Teachers and students
have downloaded the United States Mint free lesson plans on the
state quarters more than 1.5 million times.
This March, the United States Mint has also delivered the
first newly designed nickel in 66 years. The American 5-Cent
Coin Design Continuity Act of 2003 is the commemoration of two
remarkable events in American history: the bicentennials of the
Louisiana Purchase and the Lewis and Clark expedition.
We are telling the story through a series of new nickel
designs.
New United States Mint nickel lesson plans are also being
downloaded across the Nation.
In August, we will release the second new nickel in the
series.
An essential facet of this renaissance in coin design is
the United States Mint's new Artistic Infusion Program. With
the assistance of the National Endowment for the Arts, we have
selected 24 professional artists and student artists throughout
the country. Along with the United States Mint's sculptors and
engravers, they have submitted their first-candidate designs
for the 2005 nickels.
Similarly, the United States Mint is evaluating the latest
techniques and materials being used to manufacture coins around
the world. As you know, the specific composition of all United
States circulating coinage, except the dollar coin, is
legislated by Congress.
With the rise in metal prices this past year, we are
renewing our commitment to research coinage materials so that
Congress has the most current information on the best and most
economic materials for United States coinages.
Now let me touch briefly upon the piece of legislation to
be considered by the subcommittee later during this hearing,
The Presidential $1 Coin Act of 2004.
We applaud the efforts of Congress to honor the history of
our Nation.
The United States Mint has learned a great deal from its
past experiences with coin design and dollar coin programs. A
design change will make a coin more attractive to collectors
and educators, but it is not likely to have an appreciable
effect on how many are used in retail transactions. There are
barriers to Golden Dollar circulation, and a design change does
not mitigate those barriers.
As you know, the United States $1 Coin Act of 1997
authorized the Golden Dollar. More than 1 billion coins were
produced the first two years of production. Since then,
however, circulating demand has dropped steadily.
The United States Mint has more than 262 million Golden
Dollars in inventory, and we estimate that about 300 million
are in commercial circulation.
Golden Dollars make up only about 4 percent of the total
daily transactions involving dollars.
Americans are holding on to two-thirds of their Golden
Dollars, over 600 million, for their collections and not re-
circulating them.
The change in design of the dollar coin may spark strong
enthusiasm and collector interest, but it appears to have had a
modest effect in circulation.
We now produce about 10 million Golden Dollars per year to
satisfy numismatic demand.
Barriers for businesses that choose to use the Golden
Dollar are: the commingling of the Golden Dollar with the Susan
B. Anthony in mixed rolls and bags; lack of sustained consumer
demand; the cost of converting coin-operated machines; the high
costs incurred by armored carriers and banking institutions
handling the coins.
The United States Mint continues to work with the Federal
Reserve to improve coin demand forecasting and coin ordering
systems.
We want to gain efficiencies, streamline the supply chain,
reduce order lead time, and preposition the coin.
In conclusion, I would like to share how our commitment to
meet our customers' needs has been recognized.
The United States Mint received the highest ranking of any
Federal agency in the University of Michigan Business School's
American Customer Satisfaction Index for 2003. The ACSI
measures more than 180 private American corporations and
between 60 and 70 government agencies.
Thank you, Mr. Chairman. I would be pleased at this time to
answer any questions you may have.
Thank you.
[The prepared statement of Henrietta H. Fore can be found
on page 49 in the appendix.]
Mr. Castle. Thank you, Ms. Fore. We appreciate that.
We will now hear about our paper money.
Mr. Ferguson?
STATEMENT OF THOMAS A. FERGUSON, DIRECTOR, BUREAU OF ENGRAVING
AND PRINTING, U.S. DEPARTMENT OF THE TREASURY
Mr. Ferguson. Thank you, Chairman Castle. It is also a
pleasure to be before all the members of the subcommittee.
Thanks for holding this hearing.
The security of the United States currency was enhanced
last fall with the introduction of the new redesigned $20
Reserve Note, which included subtle colors. This marked the
culmination of a multi-year, cross-agency effort that included
unprecedented outreach and collaboration with industry
stakeholders to develop a new design.
The new design is aimed at deterring threats to the
security of the Nation's currency posed by technology advances
in digital printing and reproduction technology.
Counterfeit deterrence efforts continue as we prepare for
the introduction of a redesigned $50 note later this year,
followed by a redesigned $100 note and potentially a $10 note
in subsequent years. At this time, we have made no decision
about a $5 note, and we will not be changing the $1 or $2
designs.
These efforts are coordinated by the Advanced Counterfeit
Deterrence Steering Committee chaired by Treasury Under
Secretary for Domestic Finance Brian Roseboro, and we have
participation from the Federal Reserve, the Secret Service,
Treasury Department, as well as the BEP.
In order to provide the public with the most secure and
reliable notes, the ACD Steering Committee has developed and
follows a comprehensive counterfeit deterrence strategy that
depends on: high-quality currency designs with effective overt
and covert counterfeit deterrence features; a well-planned and
executed public education campaign; and aggressive law
enforcement.
Fortunately, the United States has one of the finest law
enforcement agencies involved in counterfeit deterrence, the
United States Secret Service, and Mr. Townsend will testify on
their efforts following.
So I will focus on the currency redesign efforts and public
education campaign.
The redesigned Series 2004 $20 note contains an array of
sophisticated counterfeit deterrent security features, some of
which are visible and easily recognized by the public--such
things as the watermark, the security thread, color-shifting
ink, the new colors, fine-line printing, and that traditional
feel of U.S. currency--and some are covert or machine-readable
only.
The signature covert feature of the redesigned $20 note is
an anti-digital counterfeiting system that was developed under
the auspices of the international Central Bank Counterfeit
Deterrence Group in cooperation with major digital printer and
software manufacturers. This U.S. effort was led by the Federal
Reserve system.
The anti-digital system, which is being used in a number of
countries, relies on a hidden marker embedded in the note
design that can be read or detected by new digital technology
printers and software.
This new system design heralds a vibrant and growing
partnership between the public and private sector to protect
the Nation's currency. It is intended to thwart increased
counterfeiting by means of digital reprographic technology.
This is a significant investment in the future of currency
and will greatly assist in preventing counterfeiting by anti-
digital technology as this technology becomes dominant in our
marketplace.
To date, more than 1.2 billion of the new $20 notes have
been issued into circulation, about 25 percent of the total
$20s in circulation.
The BEP worked very closely with manufacturers of vending
and ATM banking machinery in order to assure that these notes
would go into circulation without any major inconvenience to
the public.
On April 26, the Secretary of the Treasury, John Snow,
unveiled the new $50 note. I have samples I can show the
committee later. The new $50 will contain the same robust
family of counterfeit deterrent features. However, the
background colors will be different to assist the public in
differentiating between the different denominations.
For redesigned $100 notes, the ACD Steering Committee has
directed the BEP to issue a solicitation to the private sector
seeking additional counterfeit deterrent features that may be
added to increase the security of the $100 note.
The $100 note, which is the most circulated U.S. note
internationally, is subjected to the most sophisticated
counterfeiting attempts.
The possible new features will be subjected to adversarial
analysis by an interagency working group made up of the
Treasury, Bureau of Engraving and Printing, Secret Service and
Federal Research system.
It will also involve using the auspices of the European
Central Bank to do adversarial analysis to assure that we are
providing an effective and durable currency.
The public education program is a critical element of the
overall anti-counterfeiting effort in the United States as well
as around the world. The American dollar is the most
recognized, trusted and accepted currency in the world.
While the features render the notes more secure, the
success of government anti-counterfeiting efforts depend
foremost on the public and cash-handlers as the first line of
defense.
To defend against accepting counterfeiting, the public must
be aware of the potential counterfeit threat and, most
importantly, know how to authenticate their notes.
Results from research conducted before the issuance of the
Series 2004, based on when we did the 1996 change, indicated
that we needed to do more to get the word out.
We also found that the way to get the word out best was to
utilize television.
A media strategy was planned to concentrate the greatest
share of our paid media dollars in the visual medium that
people spend the most time with, and that is in fact
television.
Research conducted one month following the fall 2003 paid
media program revealed public awareness of the impending
currency changes went from 30 percent to over 80 percent and
that the public's ability to describe at least one counterfeit
feature increased by over 10 percent.
It is the responsibility of the government to provide the
public with the information required to protect themselves from
fraud or economic loss associated from counterfeiting. The
public education program was designed to provide this
information to the public and to maintain the integrity of the
dollar both at home and abroad.
The better informed the public is, the less likely they are
to fall victim to currency counterfeiters. It is our
responsibility as stewards of currency to protect the public by
enhancing the security of our currency through redesigning it,
by informing the public of how to protect their hard-earned
money.
With the release of the redesigned $50, the public
education campaign will continue. However, due in part to the
overall success of the $20 program, it will be conducted on a
smaller scale than the initial campaign and will consist of no
paid media in the United States.
This concludes my opening remarks, and I will be happy to
respond to any questions.
[The prepared statement of Thomas A. Ferguson can be found
on page 43 in the appendix.]
Mr. Castle. Mr. Ferguson, I assume this is the old $50 and
the new.
Mr. Ferguson. The old one, and the new one over on the
side.
Mr. Castle. Well, I played basketball. I never knew where
my left particularly was. I only looked over here at the one on
the right, and I was trying to figure out the differences in
it. I was thought it was supposed to be in color, and now I
realize what is happening.
Mr. Townsend, the Secret Service has been complimented. We
appreciate what you do in terms of protection of our money. We
would like to hear in detail what you can tell us about that.
STATEMENT OF BRUCE TOWNSEND, DEPUTY ASSISTANT DIRECTOR, OFFICE
OF INVESTIGATIONS, UNITED STATES SECRET SERVICE
Mr. Townsend. Thank you, Mr. Chairman, and good afternoon.
I would like to thank you, as well as the distinguished
Ranking Member, Ms. Maloney, and the other members of the
subcommittee for providing an opportunity to discuss currency
issues and the role of the Secret Service in the enforcement of
our counterfeiting laws.
Let me say at the outset of this hearing that the Secret
Service has long enjoyed its relationship with this
subcommittee, and we are extraordinarily grateful for your
longstanding support of our mission and our employees.
As this subcommittee is aware, the Secret Service has been
responsible for the integrity of our currency since 1865. It is
our founding mission. And while we recognize that the public
today is far more aware of our protective mission with regard
to the President and Vice President, it is important to
understand that every special agent on protective detail today
began his or her Secret Service career investigating
counterfeiting and other financial crimes cases.
I want to assure the members of this subcommittee that
counterfeit currency investigations remain a high priority for
the Secret Service. Although our agency was transferred to the
Department of Homeland Security in March of 2003, we retained
all of our personnel, resources and investigative jurisdictions
and responsibilities.
Additionally, we have preserved important ties and
relationships with key entities in the Department of the
Treasury, the Bureau of Engraving and Printing, the Mint and
the Federal Reserve.
The Secret Service has maintained that economic security is
vital to homeland security, and as such, the safeguarding of
our financial infrastructure and monetary framework continues
to be a cornerstone of our worldwide investigative efforts.
It is estimated that some $700 billion of genuine U.S.
currency is currently in worldwide circulation and as much as
two-thirds of that is circulated outside the United States.
While current levels of counterfeiting represent a tiny
fraction of this amount and do not have a meaningful impact on
our economy as a whole, the losses incurred by individuals or
businesses from these counterfeit notes can be significant.
Because of the dollar's stability and value, as well as its
widespread use overseas, it continues to be a target for
transnational counterfeit activity.
The counterfeiting of U.S. currency also continues to be
associated with organized crime and drug trafficking.
Recent trends in the counterfeiting of U.S. currency
indicate a growing globalization in production and distribution
of counterfeit notes. Because not all nations report the
passing of counterfeit currency, other than their own, it is
difficult to provide precise figures detailing how much
counterfeit U.S. currency is passed on a global scale each
year.
The Secret Service estimates that approximately $37 million
in counterfeit U.S. dollars were passed successfully in the
United States in Fiscal Year 2003. This would represent about a
14 percent reduction from the amount of counterfeit U.S.
currency passed in the previous fiscal year.
Secret Service statistics also show that approximately $63
million in counterfeit U.S. currency was seized last year by
the Secret Service and other authorities worldwide. Of this
amount, approximately $11 million was seized in the United
States. The remaining notes were seized overseas, with over $31
million seized in Colombia alone.
In recent years, the Secret Service has enhanced its
international anti-counterfeiting efforts. Today, our agency
maintains 17 foreign offices and continues to target strategic
locations throughout the world where significant counterfeiting
activity is detected through joint task forces with our foreign
law enforcement partners.
Our investigative history has proven that the effective
suppression of counterfeiting operations requires a close
partnership between our foreign field offices and their local
law enforcement counterparts, as well as an immediate response
by the law enforcement community in order to develop
investigative leads generated when a new counterfeit note is
detected or an arrest is made.
The Secret Service has long believed that strategic
placement of personnel promotes more aggressive law enforcement
operations because agents are able to respond in a timely and
consistent manner.
Additionally, the ongoing presence of our agents in foreign
locales allows the Secret Service to build the same trusted
partnerships with our foreign law enforcement counterparts that
we have successfully built with our local police partners in
the United States.
Today, Colombia is the single largest producer of
counterfeit U.S. currency in the world, accounting for
approximately 26 percent, or $10 million, of the $37 million in
counterfeit dollars passed in the U.S. last year.
Public education and training continues to play a large
role in the Secret Service's efforts to suppress the
manufacturing, distribution and sale of counterfeit U.S.
currency both domestically and abroad.
Secret Service personnel conduct training seminars on
topics such as combating counterfeit, financial crimes and
computer forensics, in an effort to assist our domestic and
foreign counterparts in their local law enforcement communities
and augment the Secret Service's mission.
Mr. Chairman, this concludes my prepared remarks. I would
be pleased to answer any questions you or other members of the
subcommittee may have.
[The prepared statement of Bruce Townsend can be found on
page 83 in the appendix.]
Mr. Castle. Thank you very much, Mr. Townsend. As I
indicated, we appreciate what you all do, and it is a good
education for every member of Congress.
Ultimately, Mr. Marquardt, all the money goes to the
Federal Reserve, as I understand it. If you can share with us
in five minutes how you manage all that, we would appreciate
it.
STATEMENT OF JEFFREY MARQUARDT, ASSOCIATE DIRECTOR, RESERVE
BANK OPERATIONS AND PAYMENT SYSTEMS, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Mr. Marquardt. Thank you, Mr. Chairman, and thanks to the
subcommittee for inviting me to report on the Federal Reserve's
activity in support of new currency design and coin
distribution.
My statement contains a number of observations on currency
design and counterfeit deterrence. Given today's focus on
coins, in the interest of time, the rest of my remarks will be
addressed to this topic.
The Federal Reserve worked with the Mint to implement the
popular 50 States Quarter Program in 1999, the Golden Dollar
Program in 2000 and most recently the Westward Journey Nickel
Program.
The 50 States Quarter and Westward Journey Programs have
been both innovative and challenging, as implied by the term
``commemorative circulating coin'' that is sometimes used to
describe the coins in the programs; innovative because the goal
is to satisfy the demand for both a transactional and
commemorative coin in a single coin, which is distributed
through normal wholesale distribution channels and whose design
changes frequently; challenging because frequent design changes
have affected the Reserve Banks' inventory and payment
processes that are designed to meet wholesale demand very
efficiently; challenging also because of heightened public
interest, the other side of this heightened public interest, is
that expectations for commemorative circulating coins that may
be widely available can place added pressure on the wholesale
distribution system.
To adjust to these new commemorative circulating coins, the
Reserve Banks have changed their payment practices.
For example, as the Mint issues each new coin design,
Reserve Banks have suspended their normal payment practice of
first paying out previously circulated coins to depository
institutions and instead have paid out the new designs for
initial introduction periods ranging from a few weeks to two
years, in the case of the Golden Dollar.
The recent experience of the Reserve Banks with changes in
coin design has generally been that inventories and operating
costs have increased. Reserve Banks acquired enough dollar
coins in the first two years of the Golden Dollar Program to
satisfy demand by depository institutions for the following two
years.
Despite efforts by the Reserve Banks, the Mint and
depository institutions to manage this demand, inventories of
quarters at the Reserve Banks are now more than triple their
1999 level.
From 1999 to 2003, total Reserve Bank direct costs for
distributing coins have increased at an average annual rate of
more than 12 percent, three times the increase in similar costs
for distributing notes.
The Reserve Banks and the Mint have used lessons learned
from the Golden Dollar and States Quarter Programs to help
manage the distribution of the new Westward Journey nickels.
Several factors have led to a more orderly initial rollout
of the first new nickel in the program: Modest initial
publicity about the new design tempered public demand, and
perhaps most importantly, there will be no more than two new
nickel designs this year and next; slower rates of
introduction, which is particularly important for the nickels
because they have lower payout ratios than the quarters.
Although the initial introduction of the nickels has gone
smoothly, it is still a bit early to fully assess the impact of
the program on nickel inventories.
Turning to the demand for dollar coins, the GAO has
reported a number of barriers to widespread circulation of
dollar coins, including the following, which I will just tick
off, that are widely known from the GAO report.
Obviously, the public generally appears to prefer at this
point notes because they weigh less; network effects, the
interdependency of demand in that individuals are unlikely to
use dollar coins until retailers stock them and retailers will
not stock them until the public uses them; banks and armored
carriers may not invest in inventory equipment to handle the
coins, particularly to meet spikes in demand because they do
not yet perceive significant benefit, and there may be higher
fees in some cases for distribution of coins and notes.
Nevertheless, on this point, there is regular use of dollar
coins in certain markets, and I think the second panel will
address this. The Reserve Banks report average monthly dollar
coin payments of $15.2 million, average monthly receipt of $9.2
million, and average monthly net payouts of dollar coins of
about $6 million.
Overall, it is important to recognize that there are
significant uncertainties about the effects of additional
changes to circulating coin designs, particularly to the dollar
coins. The Federal Reserve's experience since 1999 suggests
that flexibility in implementing new coin programs, along with
care in publicizing them, will allow us to better address the
inventory and distribution challenges of these programs.
For example, the smooth introduction of the first new
nickel and experience so far suggests that there are advantages
to releasing no more than two new designs per year. This rate
of introduction, at least for widely circulating coins, allows
the Reserve Banks more lead time to draw down inventories of
old designs and build up stocks of new designs for the initial
distribution. More time can also allow for more flexibility to
wrap coins, which I know is an issue on the committee's mind,
to meet initial demand for these coins.
If experience shows over time that higher rates of
introduction can be managed effectively, the Reserve Banks and
the Mint could increase the rate of introduction in accordance
with carefully prepared plans, which are so important to the
logistical issues.
In addition, alternative distribution strategies that
complement wholesale distribution could be explored.
Finally, we would advise against unduly stimulating public
interest in new designs, which appears to cause an intense
initial interest and to place significant pressure on the
Reserve Banks and depository institutions, with limited long-
term changes in transactional demand. If long-term demand grows
slowly, depository institutions and the Reserve Banks may need
to limit the amount of dollar coins they order each year in
order to manage ever-growing inventories that can occur because
of this problem.
We are very concerned that there could be significant
public frustration with both depository institutions and the
Reserve Banks if some expectations are not met for the
distribution of new coins, and if and as long-run demand does
increase, of course, the Reserve Banks will work closely with
the Mint to meet demand in accordance with our obligation to
provide for an elastic currency.
I thank the committee.
[The prepared statement of Jeffrey C. Marquardt can be
found on page 57 in the appendix.]
Mr. Castle. Well, thank you. It has all been very
interesting, and we will try to probe into this a little bit.
I will yield to myself for five minutes to begin. I am
looking for fairly swift answers on this.
First of all, Mr. Ferguson, on the $50 bill, was that all
earned media? Was that all free media? Or did you have a PR
allotment for the publicity you have gotten in recent weeks on
the $50 issuance?
Mr. Ferguson. All the publicity that we have gotten on the
$50 bill has been free. It has been news media as a result of
the events.
Normally, the problem is, you do not get exactly your
message out, but, yes, that has been free.
Mr. Castle. Well, I congratulate you because I think the
message is both out and seems to be delivered correctly.
Mr. Ferguson. Thank you.
Mr. Castle. So it seems to have worked out pretty well.
Mr. Townsend, with the issuance of the new $20--you may not
be able to judge this yet, I do not even know how much
counterfeiting there is on $20 bills.
But with that issuance, have you noticed a decrease--you
may have even mentioned this at some point--a decrease, or is
that just not a bill that is very often counterfeited, with the
issuance of the new $20? Obviously, the $50 is too early to
tell yet.
Mr. Townsend. What we have seen is to be viewed in context
of really the last redesign, because that was our first
experience in 50 or 60 years with redesign.
After the last redesign, the 1996 redesign, which I believe
appeared in 1998, we did see a spike in counterfeiting, which
was not unexpected. Counterfeiters like to take up a challenge,
and we have seen that same spike right now.
However, I want to emphasizes that the data is very
preliminary and that these numbers are still coming in. We are
taking a real close look at it.
We also believe--and I do not want to get over into the
design features too much and out of my expertise--that the
investment has been made in securing the design of the note and
the technology with which it would be counterfeited on is not
yet fully realized.
So we think that investment to be a good one for the
future, but we will keep a close eye on this and keep the
subcommittee advised.
Mr. Castle. Good. I mean, I think it is an important
subject, and we should be advised on that. I appreciate that.
Let me turn to a subject of some concern, and I am going to
get in an area of which I do not understand it well enough to
even perhaps articulate the question correctly.
I think I am asking the question of you, Mr. Marquardt, but
I think that Ms. Fore may be involved in this as well, and I
want to try to straighten some things out.
I am concerned about some of the things that you spoke
about when you spoke in terms of the inventory and the ordering
and depository banks being concerned about being able to get
things or whatever. Because I would get complaints at home
about people being unable to get--because they knew I would
have been involved with the quarters-be unable to get the
quarters and, of course, you get the mix of the quarters after
they have been around the first time and that kind of thing.
What people essentially want to do is order, you know, the
quarters and whatever denominations that there are, and
obviously that will probably be true of the dollar coins as
well.
Apparently it comes down to order forms--and this is where
I get a little confused about exactly who is preparing these
things and how they are going out and how you actually make a
decision on what you are going to deliver to a bank.
In the past, I know there has been some finger pointing
between the Mint and the Fed, and I do not much care about all
of that. I just want to make doggone sure that we do not add to
some of the concerns that you have about overinventorying and
not being able to make your deliveries as is needed.
What can we do, particularly with the use of computers, et
cetera, in terms of making sure we understand what is being
ordered, getting that out so that the banks will get them out
the door and keep things moving, particularly in terms of some
of these forms that have been in question?
I do not have them in front of me, I cannot sit here and
tell you how to change it or whatever, but I assume you know
what I am talking about. Perhaps you could help me.
Mr. Marquardt. Mr. Chairman, I think the forms have been
discontinued. That was part of the history with the Golden
Dollar.
Let me just quickly describe the strategy for payouts of
the new quarters and the nickels.
Basically, the idea is: The Reserve Banks pay out only the
new issue, and they accumulate a stock.
The figure for the quarter program is on the order of 450
million initially of the new coin. That is what they pay out
then for about a two-to four-week period, and so that is the
effort, is to meet that initial spike in demand, particularly
by coin collectors and general households.
In overall management of inventories, we have worked much
more closely in the last few years--and the activity at the Fed
is centered at the San Francisco Fed--with our Cash Product
Office. They have daily phone calls, weekly planning sessions
to manage coin ordering on a national basis, and we are working
right now on changing the lead time of these orders from 30
days to, you know, twice a month.
So that is going on, and I think inventory management
overall has improved significantly over the last few years.
Mr. Castle. Would you agree with that, Dr. Fore? Or do you
have any comments about that or anything else that we should be
doing? I am just trying to resolve a problem; I am not trying
to start a fight.
Ms. Fore. We have been working very closely with the
Federal Reserve on inventory management and it is improving.
There probably is still some difficulty for many banks to
be able to order the type of quarter, or in this case, of what
is proposed in the bill, the type of $1 coin. So it is
something that we would have to work on with the Federal
Reserve Bank to see if there is a way that we can handle that.
Mr. Castle. Okay. Well, we think it is important.
My time is up, but I do want to put one thing on the record
because Director Fore and I have had a couple of meetings in
the last couple of days.
One of the adjunct aspects of the dollar coin legislation
is to have a spousal coin--generally referred to as First
Ladies, but you never know in the time this all goes along--and
part of it was to have, I guess, a .999 bullion coin and then
some discussion later of cutting that in half.
Then we have had some further discussions since then of
doing, I guess, brass--is brass the right expression, is that
right?
Ms. Fore. Bronze.
Mr. Castle. Bronze, excuse me--bronze coins in a much
lesser figure to make them more collectible for young kids, et
cetera, or that kind of thing, or maybe some combination of all
these.
We will probably go ahead with the legislation today
without addressing that particular issue.
But I think it is important to put on the record that we
have had this discussion so that if we develop a better way of
doing this that would be of more interest to coin collectors in
America, that we can step into that at some point before the
legislation goes through on the floor.
I thought you might want to comment on that.
Ms. Fore. Yes. We have a very popular bronze metal program
for the Presidents, and Presidential spouses would also be very
fine in bronze metal, both the large three-inch size as well as
the smaller size. It would be very collectible and affordable
and, thus, a very good educational tool in classrooms and
across America.
Mr. Castle. Thank you. This is just a comment, no question,
and then I will turn to Ms. Maloney.
But this may sound a little like a wish list, so do not
take this as gospel or fact, but my hope is that we are going
to sort of derive the use and commerce of the dollar coin to a
degree with this.
It is my hope that when little Johnny who is 9 years old
and little Mary goes into McDonald's, they are going to insist
on getting the Presidential coins in change. If they are going
to go next door to Burger King instead and get them there,
maybe they are going to have to stock them at McDonald's or
whatever the store may be.
Maybe we will even have the various other retail
establishments around the country think about having a place
where they can actually keep dollar coins because there is
going to be hopefully enough collector demand for them so that
the average collector, people like me who are not really coin
collectors, hopefully, will start to drive a little bit of
that.
I agree that we are not going to do anything with the
dollar bill. It is still going to be there. We do not intend to
do anything about it. I have looked at that issue, and I do not
intend to touch it ever again.
But on the other hand, there is no reason they cannot
coexist, and hopefully that will work out.
As I said, that is a little bit of a wish list and a dream
as opposed to potential reality, but my hunch is, based on what
I have seen with the quarters, it might happen. So we will just
have to see how it all works out.
I yield to Ms. Maloney.
Mrs. Maloney. Thank you very much.
Dr. Fore and Mr. Ferguson, could you please comment on
OMB's expectations for this study?
According to the RFP that Treasury circulated for its study
of the BEP/Mint merger issues, ``Treasury needs to address OMB
expectations on Mint/BEP that were raised in the OMB fiscal
year 2005 budget pass-back.''
What specific concerns has OMB conveyed to you about the
operations of BEP and Mint? And how do you expect this study to
address those concerns?
Mr. Ferguson. The OMB pass-back did not have any specific
concerns with either of our agencies or bureaus, but rather the
potential of cost savings that could possibly be derived by
combining some or all of the functions of the bureau and the
Mint, everything from the potential of administrative services
at the headquarter level to potentially operating facilities,
getting within a single security environment, et cetera.
At this point, the study has just I think been going on for
a little over a month and is due to be completed by the
beginning of July. That may be a little premature.
I believe that OMB and the department feel that if there is
significant efficiencies that can be obtained that they should
be looked at. It is something that has been looked at a number
of times over the years, and we have not yet identified great
savings, but there is always the potential out there.
Mrs. Maloney. Well, Mr. Ferguson, in testimony before
Congress in 1997, the General Accounting Office indicated that
neither of the studies done to date on merging the operations
of the U.S. Mint and the Bureau of Engraving and Printing nor
any of the Treasury officials that GAO interviewed for its
testimony provided information on the savings that would accrue
from a merger of the two entities.
I am all for saving money. That is one reason why I like
the Castle-Maloney bill. It will actually make money for the
Treasury. I think that is a good thing, particularly when you
have a $500 billion deficit.
But in addition, the 1987 Treasury study also did not
provide support for cost savings from a Mint/BEP merger.
Does the Treasury Department or OMB or your office have any
new cost-savings information, since both of these studies were
conducted that would now justify a merger of these two
entities?
Maybe Dr. Fore would like to start this time.
Ms. Fore. Well, I think what is envisioned here is that it
be a fresh look at both of these two entities.
We are both manufacturing bureaus, we both manufacture the
money used in the United States. And so if there are cost
savings, we would like to deliver those savings to the
taxpayer.
So that is the hope of this study, and it will be done by
the Department of Treasury.
Mrs. Maloney. Thank you.
Getting to the new dollars, or the $50 and the $100 bill,
that we are working on, what is the effectiveness of the anti-
counterfeiting features on the recently redesigned $20 bill?
Specifically, Mr. Ferguson, did the color change really get
to the heart of the problem, especially since so many
counterfeits are made using computers and color printers?
I think this is particularly important, given the testimony
of Bruce Townsend about the high degree of counterfeiting,
particularly outside of our country, and that Al Qaida types
and drug dealers, et cetera, are counterfeiting it and using it
really against our citizens and against our people.
So we really need to really crack down on counterfeiting.
I am stunned at these numbers. $31 million received in
Colombia? You wonder how much went through the hands.
So did the color really deter counterfeiting?
Mr. Ferguson. Thank you, Congresswoman Maloney.
With the addition of the color to the $20 and now to the
$50, the color itself has never been claimed as a security
feature in itself. In fact, U.S. currency maintained its lack
of color for a number of years.
Mrs. Maloney. Well, then why are we doing it if it does not
deter? I thought the whole purpose was to deter counterfeiting.
Mr. Ferguson. I am going to get to that.
Mrs. Maloney. Okay.
Mr. Ferguson. As I mentioned in my testimony, the hallmark
of that design and of this design is the inclusion of this new
system which we have worked out in conjunction with computer
manufacturers, hardware manufacturers, and software
manufacturers so that there is a code built into that color
print. We had to use color, had to use offset-type printing,
which is that type of tint printing.
Mrs. Maloney. But this code I could not see or a
counterfeiter. A regular person could not see it, but if you
put it in the machine, you could see it? Is that what you are
saying?
Mr. Ferguson. No. When a person tries to scan the note and
reproduce the note on a machine that has been built in the last
few years, the machine will stop printing. It will only print a
portion of the note. It will stop. It will tell you that the
system does not support that type of reproduction.
It gives you a Web site to go to, www.rulesforuse.org,
which will tell you which country to go to. So the note cannot
be reproduced on that type of equipment. The $20----
Mrs. Maloney. So our note cannot be reproduced with this
code in it. Is that what you are saying?
Mr. Ferguson. On a system that has been manufactured and
sold in the last couple of years.
Mrs. Maloney. Well, I just Xeroxed a $50 and, you know,
with the color you can really Xerox it very well.
I just got back from Iraq. I have a counterfeit Iraqi
dinar. I did not know when I bought it there. I thought it was
a real one. But this has color in it. Someone just told me it
is a counterfeit one.
But the euro has the magnetic deal on it. When I was in
Iraq, in Afghanistan, in Kuwait, they are all using the
magnetic code. At first, I thought it was a decoration, and
apparently we are paying, meaning our government is paying, to
print the Afghani dollar or currency and the Iraqi currency,
and they apparently are having a more sophisticated form of
deterring counterfeiting than we have in our own country.
So I am wondering why we do not have the same standard.
And to a second point, because I know the Chairman likes to
raise money for the Treasury, I have a bill in with my
Republican colleagues that would allow our country to print
currency for foreign countries.
Why in the world are we giving a contract to another
country to print currency that we are paying for, in this case
Iraq and Afghanistan?
By all accounts, they say this magnetic field deal is a
deterrent and, quite frankly, I think a deterrent in
counterfeiting has become a national security priority.
We are always trying to fight drugs. Well, if we can crack
down on the money, you can crack down on the drugs. You are out
of business if you do not have the currency, and anything we
can do to crack down on counterfeiting.
I thought the numbers that Mr. Townsend threw out on what
was being done overseas was incredible.
And then, lastly, because my time is running out, the new
dollar bill, I read in the paper and I cut it out, and it was
in the New York Post, a big article on it yesterday--this is
The Washington Post.
But it said that the most counterfeited piece of currency
in the world is our $100 bill, the U.S. $100 bill. Though we
like to counterfeit the $20 bill here in the U.S., the $100
bill is the most counterfeited currency in the world.
Are we going to use this new magnetic code to, you know,
prevent counterfeiting?
Mr. Ferguson. Congressman Maloney, I am not exactly sure on
the magnetic code you are talking about. We will have to check.
I was involved somewhat with the design and production of
that Iraqi currency, so I do know----
Mrs. Maloney. Well, then let's just go to the euro since
that is more well known, the strip on the euro, or the English
note?
Mr. Ferguson. On the issue of the $100 note, as I mentioned
in testimony, given the type of counterfeiting that happens
with $100s, which does tend to be international and much more
sophisticated than the type of the digital counterfeiting that
we see on $20s and $50s domestically, the ACD Steering
Committee has directed us to go out for the solicitation to
look at what additional security features are available.
That solicitation will be out within the next two weeks on
the street. It will be open for everyone out there with
technology to submit so that we can in fact look at what
technologies are available.
We will test all those technologies looking for what will
gives us the most efficient, against-counterfeiting, durable,
cost-effective, good, security features that we can add to the
$100 bill so that we can have a sophisticated, secure, well-
circulated $100 bill.
Mrs. Maloney. All I can say--my time is up--why in the
world are we paying to print in foreign countries a currency
that is more secure than the one that we have here--referring
to the Afghani bill that has a metallic code on it, like
England and like the euro? It does not make sense.
Mr. Castle. Thank you, Ms. Maloney.
Do you want a response to that?
Mrs. Maloney. Yes. Well, if he----
Mr. Castle. Yes. Do a brief response, please.
Mr. Ferguson. I would not necessarily agree with that
supposition on some of those currencies being more secure than
ours. For the counterfeiting of all those currencies, the
statistics have to be looked at, a number of the features.
Again, as I said in testimony, if the public is not well
educated--some of these very sophisticated features, if the
public does not know how to use them, are not very effective.
You need to have this combination of good features, good public
education and outstanding law enforcement.
Mrs. Maloney. Well, I think this is critically important.
Congressman Castle and I have spent a lot of time on the
Financial Services Committee on cracking down on money
laundering, on drug money and on the movement of terrorist
money around the world. And if something can be done as simple
as putting a magnetic field on it so that you cannot
counterfeit.
I have the Saudi money, it has that magnetic field, and
then I have one that they tried to counterfeit. You cannot copy
the magnetic field.
I just would like to ask that the record remain open on
this question so that I and others can submit further questions
in writing.
I truly do believe that this is a security issue. It is an
issue of combating terrorism and drug laundering of money.
Since counterfeiting is so prevalent, particularly in foreign
countries, if we do not do everything to crack down on it, then
we are not being responsible.
Mr. Castle. The record will remain open for a while.
Mr. Ferguson, you suggest that perhaps you could have a
conversation, too, which might be helpful.
Mr. Ferguson. I would certainly be available at any time.
Mr. Castle. Good.
All right. With that, thank you----
Mrs. Maloney. Excuse me. I said magnetic, I meant metallic.
Mr. Ferguson. Actually, that helps, Congresswoman, thank
you.
Mr. Castle. Thank you, Ms. Maloney.
At this time, we will yield five minutes to the gentleman
from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman.
I actually did not come in to ask any questions about the
$1 coin, but my lawyer background kicked in when I heard the
testimony. Because I got the distinct impression from Ms.
Fore's testimony and Mr. Marquardt's testimony that you did not
necessarily think this was a good idea to be doing this coin.
Can you just tell me whether my impression is correct or
not? Just say yes or no.
I do not want to get you into dutch with the Chair and the
Ranking Member. They are not listening anyway. You can just
whisper it.
[Laughter.]
You can just whisper your answer to me.
Ms. Fore. All right, I will start.
Mr. Watt. Yes or no?
Ms. Fore. It will be very popular among the numismatic
collectors, the series coin collectors, and it will be very----
Mr. Watt. No. My was question is: Do you think this is a
good idea or not?
Ms. Fore. Design change is always a good idea. It
encourages Americans to look at their money.
Mr. Watt. So you support the $1 coin?
I know I am putting you on the spot, but I thought that is
why you came over here, to tell us whether you thought this was
a good idea or not. I guess this a policy consideration, a
political consideration.
But it sounds to me like it is going to be terribly
cumbersome to move this coin around. There are some real
disadvantages.
Am I misreading what you are saying, Mr. Marquardt?
Mr. Marquardt. Mr. Watt, first of all, let me say our board
does not have a position on this at all.
Mr. Watt. Okay, well, that is fine.
Mr. Marquardt. So our remarks today are----
Mr. Watt. Fine, okay.
Mr. Marquardt.--designed to provide the committee with, you
know, in a straightforward way, technical information about
some of the challenges.
Mr. Watt. I appreciate it.
Mr. Marquardt. There are also positives----
Mr. Watt. Let me get on to what I came here for. I am
obviously not going to get a direct answer to that question
because this is a political hearing.
But, Mr. Ferguson, is the $100 bill the most counterfeited
currency in the world?
Mr. Ferguson. I would give that question to Mr. Townsend.
Mr. Watt. Okay. Yes or no. I am just trying to get a
straight answer here.
Mr. Townsend. Outside the United States, the $100 Federal
Reserve note is the most counterfeited U.S. bank note.
WATT: Okay, that is fine. That is the answer I am looking
for.
Mr. Ferguson or Mr. Townsend, is the $50 bill that we just
produced the most secure bill that could have been
technologically produced. Or is there something beyond that
that we should have been doing?
Mr. Ferguson. Mr. Watt, we believe that that is against the
type of threat that was posed against the $50, the type of
counterfeiting, that the package of features are the most
effective, giving us a solid base of security, durability----
Mr. Watt. Yes, but you keep talking about security
enhancements and deterring when it seems to me we ought to be
talking about preventing, if we have the capacity to prevent
and there is technology available to make that possible.
While it is nice to have a wonderful law enforcement
backup, that is like saying I should not put the best security
on my front door because there is a police station down the
street.
Isn't it my responsibility to make my own situation as
secure as I can possibly make it? Isn't that our
responsibility?
Mr. Ferguson. Yes, sir.
Mr. Watt. I mean, is not our currency the most
counterfeited worldwide?
Mr. Ferguson. Actually, I do not believe that is true, but
I will leave that up to Mr. Townsend.
Mr. Watt. Is an optically variable device embedded in a
piece of currency better than what we have done with this color
stuff, or is it not?
Mr. Ferguson. Sir, we have an optically variable device on
our currency.
Mr. Watt. Can I read it?
Mr. Ferguson. Yes. The lower number on that note--in fact,
if I gave you this note, it changes color from copper to green.
Mr. Watt. All right. So I could pick that up and I would be
able to tell that that was a counterfeit in my own daily
living?
Mr. Ferguson. Yes. The vast majority of counterfeit notes
do not reproduce the watermark that is in the paper, the
security strip that is in our paper, it says USA----
Mr. Watt. A guy in my neighborhood is going to be able to
pick up this $50 bill and determine by looking at it whether it
is a counterfeit, or is he not?
Mr. Ferguson. Yes, should be able to.
Mr. Watt. All right. So you are saying what you did on this
$50 bill is as effective or more effective as an optically
variable device, if you put it in there?
Mr. Ferguson. Sir, again, it does have an optically
variable device, that being the color-shifting ink. It has
several features that are not reproduced by typical printing
means in the strip and the watermark that area available for
the public. It also has----
Mr. Watt. Let me ask this question directly since you did
not necessarily answer it when Ms. Maloney asked it kind of
circuitously.
Is our $50 bill as secure as the one that we just approved
and are putting into circulation in Afghanistan? Isn't it a
fact that currency is more secure than this $50 bill that we
just made?
Mr. Ferguson. Sir, I would have to say I am not familiar
with Afghanistan's currency.
Mr. Watt. Mr. Townsend?
Mr. Ferguson. Iraqi currency, yes. Not Afghanistan's.
Mr. Townsend. Well, if I could make a couple of
observations, I----
Mr. Watt. Would you mind answering my question and then
making observations, rather than making observations instead of
answering my question?
Mr. Townsend. I have to tell you that the Secret Service
does not routinely investigate cases of counterfeit Afghani
currency. Therefore, I am not in a position to discuss its
security features, nor do I have statistical data on how much
it is counterfeited, nor do we have data on the counterfeiting
of many of the world's currencies because those countries do
not make it available to us.
Mrs. Maloney. Would the gentleman yield?
Believe it or not, I happen to have counterfeited Saudi
Arabia money with the original where there is a metallic--it is
called the optically variable device-a metallic thing shines at
you, and, when you reproduce it, it comes out like paper.
So I would be glad to let you look at it, if you would
like.
Thank you. I yield back.
Mr. Watt. I am not trying to be argumentative, but it seems
to me that our obligation is to try to produce the most secure
currency that we can produce, and it does not seem to me that
we are doing that currently.
While this $50 bill seems to be a step to enhance the
security, it does not seem to me that the $50 bill has gotten
us anywhere close to the gold standard that we ought to be
seeking to achieve to secure our currency when counterfeiting
is such a serious issue and a growing terrorist issue and a
growing gangster issue.
I do not know, maybe I am missing something here. If I am,
tell me what it is I am missing.
Don't we want the most secure currency we can get?
Mr. Ferguson. Yes, we do, sir. And I believe that there is
no single security feature out there, including the ones that
are out there, which are not counterfeited regularly. There is
no silver bullet. There is no panacea.
We have to look at having a layered effect, having multiple
security features, and building a very secure design that in
fact stops, as you said, counterfeiting, putting things in,
working with the digital industry so that we stop
counterfeiting before it occurs, providing features in there
that people on the street can recognize.
We are looking at all those features.
As I said, we have a solicitation going on the street to
look at all those features you mentioned, that Congresswoman
Maloney had up there, and others that potentially could be
added. But they have to be features that are going to last on
the currency, features that in fact are going to add security,
that while they may not be copied on a copying machine, cannot
be very easily simulated with other features and, thus, in fact
remove security from the design.
Mr. Watt. Thank you.
Mr. Ferguson. So we need to have a whole sophisticated
package.
Mr. Watt. The Chairman has told me my time is up.
I think you are missing one very obvious thing, though,
which is the first line of defense against counterfeiting is
the people who receive a counterfeited piece of currency, and
if there were some obvious way to make that determination,
people would not accept the currency.
Mr. Ferguson. We agree completely, Congressman.
Mr. Castle. Thank you, Mr. Watt.
Mr. King actually had three questions he wanted to ask, and
I think what Ms. Maloney and Mr. Watt have asked actually
answered two of them, and I am trying to wrap this panel up so
we can get to the next one.
So I am going to ask Director Ferguson the one question
that I think is left.
Then I do want to reinforce one or two points very briefly.
``The House has passed nearly identical versions of the
foreign currency printing bill in four or five Congresses now
with little or no action on the Senate side. We feel pretty
strongly here that it is important for this to be signed into
law. What plans do you have to meet with senators to get this
legislation moving? And is there any chance that Under
Secretary Bodman will meet with senators about it, or Under
Secretary Designee Levy?"
Mr. Ferguson. Thank you, Mr. Chairman.
And I do thank this committee. We fully support that bill.
We feel that it would be a great boon to our being able to look
at other security features. If we had done some other
production, we would have even more knowledge of security
features, how they could be incorporated into U.S. currency. So
we appreciate that.
We are attempting to work the issue on the Senate side. I
cannot speak for Deputy Secretary Bodman or the Secretary on
this issue but will pass along your comments to them.
We are meeting with the Senate Banking Committee in order
to attempt to get this moving in committee.
Mr. Castle. Mr. King's comments might have been more
strength than my comments.
I am just wondering about something Mr. Watt asked. I want
to make sure that we are on the same page here before we get
off on this.
But, Director Fore, with respect to the support of the
dollar coin, you and I have had a number of conversations about
this, I want you to state--and I will be leading you, if you
will--where your support level is for the Presidential $1 Coin
Program, if you would, please.
Ms. Fore. Coins provide many facets in an economy.
One is for trade and commerce. So one piece that the dollar
coin provides in our economy is as a coin that is the dollar
denomination. We have been working diligently in the past few
years to try to get the coin into greater circulation so that
you receive it in your change every day. You have been hearing
from Mr. Marquardt and myself that that is a continuing
challenge.
Coins also are very important to collectors. It is a
worldwide international market. It is a source of profits for
us and for the general treasury of the United States. Any coin
design immensely helps that, and we hope that a coin design
will help increase the circulation, but it cannot guarantee it.
Coins can also be used for education. A design change is an
enormously powerful educational tool. Children across America
and adults across America will learn about the Presidents of
the United States and about first spouses and what they can
possibly contribute to their own lives, and that is a very
powerful symbol.
So coins have many uses in American society. They reflect
our values and they reflect also the currency of the nation.
So any design change is enormously popular and effective in
the United States.
Mr. Castle. Thank you.
And, Mr. Marquardt, I understood exactly what Mr. Watt is
saying because your comments hit me a little bit the same way,
too. But I sort of interpreted a little bit differently, and
that is that at the Fed, you have to manage inventory, you have
to manage the speed of change and getting things out the door,
part of inventory management, but I did not take that as
opposition to a coin change.
It is a question of how it is done and how it is managed
and that kind of thing. I would just like you to expand on that
slightly, if you would, to make sure that we are at a comfort
level with that.
Mr. Marquardt. Thank you, Mr. Chairman.
As I said to Mr. Watt, our board does not have a position
on the bill itself. What I was trying to do is present to the
committee the technical issues, as you say. But, in general,
one of our missions is to provide for an elastic currency. We
work very closely with the Mint on a daily basis, and we will
work if the bill passes. Of course, we will work closely, just
as in the case of the nickels, the quarters, the Golden
Dollars, with them to implement the bill.
Mr. Castle. Okay. Well, if you will do that and keep our
interest rates down, we will be very pleased with the
performance of the Federal Reserve.
I just wanted to make sure that the points are clear.
Because, obviously, you are very significant people in this,
and we want to make absolutely sure that we understood where
you were.
If there are no further questions, I would like to move
along to the next panel. Let me thank all of you again for your
service and for being here today, and we will take just about a
minute break to shift name plates around and get the next panel
up.
Thank you.
Okay. We are ready to proceed with the second panel. We are
going to try to move along fairly rapidly here, so we are going
to try to stay as close to that five minutes as we can. I may
start ratcheting things up here simply because of the session
on the floor, et cetera.
However, having said that, your testimony is very valuable.
We will go in the order in which you are seated, and we will
start with Mr. McMahon--I have already mentioned all of you in
the earlier introductions; I think you are all here--who is the
East Coast director of the National Automatic Merchandising
Association.
Actually, you people shifted around the order almost
entirely here.
Mr. Noe is a coin collector and coin dealer who has served
as the vice chairman of the Citizens Coinage Advisory
Committee.
Jay Johnson, a former member, is the immediate past
director of the United States Mint, who is now director of
Business Development for Collectors Universe.
Mr. Tam is the cash management specialist for a public
transit agency.
So all your testimony is very important. We are pleased to
have you here.
And with that, we will start with you, Mr. McMahon.
STATEMENT OF THOMAS C. MCMAHON, EAST COAST DIRECTOR, NATIONAL
AUTOMATIC MERCHANDISING ASSOCIATION
Mr. McMahon. Thank you, Mr. Chairman.
My name is Tom McMahon. I am senior vice president and
chief counsel of the National Automatic Merchandising
Association.
I realize that we are running late, so I am going to
summarize very briefly my statement.
The vending industry has been a strong proponent of a
circulating dollar coin for about 25 years.
We very much support H.R. 3916. We think that it stands a
pretty good chance of stirring up interest in the dollar coin,
and we hope that it might lead to more use of that dollar coin.
Our industry sells about $30 billion a year of food and
beverages to the American people through vending machines. We
think that if this legislation works and it leads to the
circulation of more dollar coins, it could have a positive
impact on our industry of about $1 billion per year.
That would be about an increase of $300 million in sales
because, right now, we lose sales to degraded or worn-out $1
bills, and all of those sales would be captured if the American
people had a dollar coin in their pocket or purse.
We also spend about $700 million a year on service calls
due to jammed bill acceptors. A lot of that cost would be
eliminated if the American people had a circulating dollar
coin.
So we support the legislation because it would have a
positive economic impact on our industry.
We have four suggestions that we think would lead to a
circulating dollar coin which would help our industry.
One is enact the Presidential Coin Act of 2004. As I said
earlier, we think it stands a good chance of stimulating
interest in the $1 coin and getting more people to use.
Two--and this is very important--get the Susan B. Anthony
dollar coin out of circulation. Too many people do not know
what it is. It is not a problem for our industry. Vending
machines accept both the Susan B. and the Golden Dollar coins.
But the over-the-counter retailer who wants to try the program
ceases the program as soon as he goes to a bank and gets a role
of coins half of which are Susan B's.
So the second step after enacting H.R. 3916--I think that
is the number of it--would be get the Susan B. Anthony dollar
coin out of circulation.
The third step that you can take to ensure the success of
this coin is make the Golden Dollar coin available to the
American people. And you can start with Federal buildings.
This government cannot go to McDonald's or 7-Eleven or Wal-
Mart or anybody else in the private sector and urge them to use
dollar coins and make coins available to their customers if the
Federal Government itself does not do it. And, right now,
except for stamp vending machines in post offices, it is not
doing it.
So that is the third step. Make the coin available and
start with the Federal Government itself.
And the fourth is, engage the Nation's retailers in the
Presidential Coin Program. If Wendy's offers Presidential coins
to its customers, and those coins bring business in the door,
you can bet McDonald's will follow suit. And if Target offers
Presidential coins to their customers, and those coins bring
business in the door, you can bet Wal-mart will follow also.
If you take those four steps, I think we will have a
reasonably successful circulating dollar coin that will help
our industry, and the American people will then have a
convenient, useful, cost-efficient alternative to the $1 bill.
Thank you.
[The prepared statement of Thomas C. McMahon can be found
on page 69 in the appendix.]
Mr. Castle. Thank you, Mr. McMahon. Thank you for the
suggestions.
We will go down the line.
Mr. Noe?
STATEMENT OF THOMAS NOE, VINTAGE COINS AND COLLECTIBLES AND A
MEMBER OF THE CITIZENS' COINAGE ADVISORY COMMITTEE
Mr. Noe. Thank you very much. Thank you, Chairman.
Representative Maloney, thank you so much for letting me
speak here today.
Good afternoon, everyone.
My name is Tom Noe. I am president of Vintage Coins and
Collectibles located in Maumee, Ohio.
As a collector of coins and other historic memorabilia
since 1962 and a full-time numismatist, or coin dealer, for
over 30 years, I am truly honored to address this committee on
a number of issues related to H.R. 3916.
Let me begin by congratulating Congressman Castle for his
continued leadership on behalf of all of the collectors and
dealers of United States coinage.
I think an editorial by Beth Deisher in the March 22 issue
of Coin World sums it up best: ``The 50 States Quarters Program
has become the most successful coinage program in U.S.
history.''
I see no reason why a new circulating $1 coin depicting the
former Presidents of the United States will not be as
successful.
Furthermore, the size of the dollar coin will allow larger
images and more relief and details than that of the quarter
dollar.
As chairman of the Ohio Commemorative Quarter Commission, I
learned that people do care about our coinage. We had over
7,000 design suggestions for the Ohio quarter alone. The
healthy debate within the state on which design to ultimately
recommend for the governor's approval caused many citizens to
analyze the state's rich heritage and history.
More importantly, the increase in the U.S. collector base
has been too large to even measure. Grandparents, parents and
children flock to banks and coin shops looking for the newly
minted state quarter. It has given a father and son or a mother
and daughter a reason to collect something together. This is
something I have not seen since my childhood over 40 years ago
when U.S. silver coinage and the occasional Indian head penny
or buffalo nickel were still available.
The final point to the States Quarter Program has been the
tremendous demand for those coins from teachers who wish to use
all of them in their classrooms as tools to teach American
history of all 50 States. That is why I think a $1 coin
depicting U.S. Presidents is an idea whose time has come. What
better way to teach children about our U.S. heritage than to
issue four new coins annually that can be used as an impetus to
learning?
Another portion of 3916 I would like to address is the
design portion.
The ability to design a larger portrait by moving required
dates, mint marks and mottoes to the coin's edge will enhance
the historical significance by making the President the focal
point of each and every coin.
As vice chairman of the Citizens Coinage Advisory
Committee, the number one complaint we hear from our members is
the lack of relief and details on many of the state quarters.
The $1 coin will give the artists and designers the ability to
work with the U.S. Mint and their sculptors to create dramatic
and dynamic coins we can all be proud of.
The last area I would like to comment on is Section 4 of
H.R. 3916, regarding the introduction of the First Spouse
Bullion Coin Program.
As we learned from the success of the States Quarter
Program, U.S. citizens like new coinage and paper money.
In a recent Internet poll, people were asked, ``What do you
think about the new $50 design?'' With over 250,000 responses
in a day, 80 percent said they liked it and only 4 percent
responded that they did not like it.
A new gold bullion coin depicting America's First Ladies
will be very successful and a welcome change. I also project
that the sales will be extremely high due to not only the
design change, but also the fact that the content will be .9999
percent pure gold.
We will finally have a gold bullion coin to compete
directly with the Canadian maple leaf and other world .999
percent gold coins.
I would be remiss if I did not take a moment to comment on
U.S. coinage in general.
I look at the States Quarter Program as a good start in the
total redesign of U.S. coinage. H.R. 3916 takes it all one step
further. This would be a great opportunity to analyze all U.S.
coinage in regards to design, size, content and use for the
visually impaired.
It has been almost 100 years since the Lincoln penny was
introduced in 1909. Let us all work together--Congress, the
United States Mint, the dealers, the collectors and the media--
to plan the future of U.S. coinage for the next 100 years.
In conclusion, I would like to commend the sponsors of this
bill and offer any assistance that you might require to ensure
the successful passage of this bill and the subsequent minting
and marketing of these coins.
I know I speak for the millions of collectors and thousands
of dealers when I say that we look forward to these new coins
and the future total redesign of all U.S. coinage.
Mr. Chairman, thank you very much, and I would be happy to
answer any questions.
[The prepared statement of Thomas Noe can be found on page
74 in the appendix.]
Mr. Castle. Thank you, Mr. Noe, we appreciate that.
Jay Johnson, it is a pleasure to have you back with us,
sir.
STATEMENT OF JAY W. JOHNSON, FORMER DIRECTOR OF THE MINT AND
NOW DIRECTOR OF BUSINESS DEVELOPMENT, COLLECTORS UNIVERSE, INC.
Mr. Johnson. Thank you, Mr. Chairman, Ranking Member
Congresswoman Maloney. I thank you very much for this
opportunity to testify before you and the committee on this
exciting piece of legislation. And I said it is exciting
because of reaction I have heard from coin collectors, coin
dealers, and folks I have talked to in recent weeks since this
legislation was announced.
Let me say that, for the most part, all of the reaction has
been positive. Naturally, as anyone who is involved with coin
collectors knows, you can find a lot of varied opinions about
any coin redesign.
But, overall, collectors like the idea of new designs on
U.S. coins. Many have called for redesign for years.
What I think is an obvious goal of this legislation is more
than just coin redesigns. The multiple goals of trying to re-
ignite the interest in coin collecting, increase the use of the
dollar coin in regular circulation and help promoting the
educational history of our Nation are all excellent reasons to
make changes to a relatively new coin, like the Golden Dollar
or the Sacagawea Dollar.
I can tell you, as Mint Director, I made it one of my goals
to be a booster, a promoter, a strong advocate for the Golden
Dollar. It debuted prior to my arrival at the Mint with what we
remember was a spectacular TV advertising campaign and
promotion at some stores.
Despite this--and for many other reasons, which have been
enumerated today--the general public has not seen nor have they
used regularly the dollar coin on a circulating basis.
Yet, the amazing popularity of the Mint's 50 States
Quarters Series increased the circulation, the personal
accumulation, the collectibility and the popularity of not just
quarters but all coins. And that is just one reason, I
believe--one reason alone--that the dollar Presidential Coin
Program will help to do much the same for the little-used
Sacagawea Dollar.
Also, as a former member, I also appreciate the sense-of-
Congress language in this legislation, which gives the Mint
directives to promote the new Presidential dollar coins in all
areas of commerce.
Coin collectors--indeed, many in numismatic businesses--
have urged for years there be new designs. The 50 States
Quarter Series proved the ultimate correctness of their views.
It was an idea that helps generate new revenue for Federal
coffers. It also generates new collectors who come to
appreciate the story that new and old coins tell about our
history.
I also applaud the legislation for the addition of the
bullion part of this dollar coin program and the additional
revenues it can bring to government coffers, as well as an
interest in innovative coinage from the U.S. Mint.
Other mints of the world produce bullion coinage, but you
should know the U.S. leads all the other countries in its
bullion production and is the most prized of bullion coins.
So new, collectible and valuable gold coins can and should
be another source of revenue for Federal coffers.
To those who collect U.S. gold coins, this offers another
numismatic addition as a collectible, as well as another choice
for gold buyers who appreciate these gold coins for their
bullion value, their beauty and their value.
And this concludes my testimony. I would be happy to answer
questions.
[The prepared statement of Hon. Jay W. Johnson can be found
on page 54 in the appendix.]
Mr. Castle. Thank you very much, Mr. Johnson, we appreciate
it.
Mr. Tam, you are the cleanup there.
STATEMENT OF CHUNG CHUNG TAM, REVENUE SYSTEMS ENGINEER, CHICAGO
TRANSIT AUTHORITY, REPRESENTING THE AMERICAN PUBLIC
TRANSPORTATION ASSOCIATION, CHAIRMAN, REVENUE MANAGEMENT
COMMITTEE
Mr. Tam. Thanks.
Mr. Chairman and members of the subcommittee, on behalf of
the American Public Transportation Association, APTA, thank you
for this opportunity to testify for the Presidential $1 Coin
Act of 2004, which would provide for the issuance of new $1
coins and other purposes.
My name is Chung Chung Tam. I am chair of the APTA's
Revenue Management Committee, and I also chair APTA's Financial
Management Committee of the Universal Transit Fare Card
Standards Program.
I am a revenue systems engineer with the Chicago Transit
Authority, CTA.
Transit systems have been longtime supporters of efforts to
increase the use of dollar coins, and they strongly support the
efforts of this committee in that regard. The use of dollar
coins clearly reduces costs for operators of public transit
systems.
APTA's 1,500 public and private member organizations serve
the public by providing safe, efficient and economical public
transportation service and by working to ensure that those
services and products support national economic, energy,
environmental and community goals.
APTA member organizations include public transit systems
and commuter railroads; design, construction and finance firms;
product and service providers; academic institutions; and State
associations and departments of transportation.
More than 90 percent of the people who use public
transportation in the United States and Canada are served by
APTA transit system members.
Mr. Chairman, in the face of budget constraints at the
local, State and Federal levels, the Nation's transit systems
are operating in the most cost-effective ways they can. In the
past, APTA was pleased to be a member of the Dollar Coin
Coalition that advocated broader use of the dollar coin. Our
members have backed up their rhetoric with action.
Most transit systems around the country accept the dollar
coin. In that regard, a September 2002 GAO report on the new
dollar coin includes an appendix showing that 19 of the top 20
transit systems in the country accept the dollar coin.
Our transit system members do so for practical reasons. The
dollar coin is very cost effective in transit operations.
Transit systems, especially those in major metropolitan areas,
are some of the largest processors of $1 bills in the country.
On an annual basis, they can collect and process millions of
pieces of currency.
One transit system has quantified the cost of processing
dollar bills. They determined that the cost to process $1,000
worth of $1 bills is approximately $10.11. The cost to process
the same amount in dollar coins is $1.22.
The difference is that handling paper currency is much more
labor intensive. Coin processing is more efficient due to the
use of technology and the availability of counting machines.
In addition, the processing of coins by fare boxes and
vending machines is faster than bill processing. Since the
Federal Reserve requires that paper currency be face up when
stacked, transit agencies must stack and face all bills by
hand.
In addition, more agencies are procuring fare boxes which
can validate currency and coins. This validation may increase
boarding time on buses due to bill condition, bill rejections
and bill jams, which could require scheduling more buses and
increase operating costs.
The expense of theft-deterrent equipment and associated
resources also result in increased costs.
If transit agencies were able to realize the cost savings
associated with the use of dollar coins, they would be able to
use those resources to keep fares stable and promote the
increased use of public transportation.
Mr. Chairman, we are thus very supportive of efforts to
increase the use of the dollar coin. But there clearly are
barriers to widespread use of the dollar coin, and the GAO
report I cited earlier identifies a key one.
The report States as follows: ``The most substantial
barrier is the current widespread use of the dollar bill in
everyday transactions and public resistance to begin using the
dollar coin.''
The report goes on to say that: ``Until individuals can see
that the government intends to replace the dollar bill with the
dollar coin, they will be unlikely to use the coins in everyday
transactions.''
Therefore, Mr. Chairman, while we support this and other
efforts to increase the usage of the dollar coin, APTA would
also support efforts to phase out the use of $1 bills as part
of the effort to implement the exclusive use of $1 coins in the
country.
Having said that, we are supportive of efforts such as the
Presidential $1 Dollar Coin Act of 2004, which we trust would
increase the public's acceptance of dollar coins in general and
thus increase the use of the dollar coins to pay for transit
fares.
In addition to the savings realized by public transit
agencies and other businesses that deal in small denominations,
there would be significant cost savings to the Nation if the $1
bill were replaced with the $1 coin.
Both the Federal Reserve and the GAO have projected savings
of $456 million annually on average over 30 years, in addition
to the savings for public transportation systems, if the dollar
bill were replaced with the dollar coin.
Mr. Chairman, we appreciate and thank you for your efforts
to increase the use of $1 coins and to promote the public's
acceptance of dollar coins in everyday use.
Clearly, the counting and handling of paper currency is
much greater than the cost of counting and handling coins. Just
as clearly, increased use of dollar coins in public
transportation systems would reduce operating costs at those
systems and permit more of the limited resources available to
public transit to go to improving transit service.
We believe this legislation, which is modeled on the
minting and introduction of the successful 50 States Quarter
Program, has a good chance of increasing the use of dollar
coins.
We agree that minting coins that identify Presidents and
their terms of service would increase awareness of our
Presidential history and increase the popularity of the new
coins.
We appreciate the thoughtfulness with which you have
developed this legislation and its objectives.
We look forward to working with you and the members of this
committee in advancing this legislation that could be very cost
effective for the Nation's transit systems.
Thank you.
[The prepared statement of Chung Chung Tam can be found on
page 77 in the appendix.]
Mr. Castle. Thank you, Mr. Tam.
Let me do a couple of things.
One, Mr. Greenwood, a member of Congress, has written a
letter to the Federal Reserve and a letter to Chairman King
asking that his letter be submitted for the record. I will just
summarize it briefly.
It just basically expresses concerns that they have had
with the Federal Reserve about the lack of cooperation with
respect to obtaining of Sacagawea coins and Susan B. Anthony
coins-a concern, by the way, I have heard otherwise.
Without objection, it is part of the record.
[The following information can be found on page 88 in the
appendix.]
We welcome Mr. Bell from Texas to the subcommittee hearing.
We are going to go pretty fast and maybe almost waive our
questions, unfortunately, because of several things. We are
going to be voting shortly. We want to do the markup. Secretary
Rumsfeld and others are coming over here at 4:30.
So I apologize for that. I just want to say a couple of
things. We thank you. Your testimony is of vital importance.
I do want to ask, though, Mr. Johnson and Mr. Noe, if I
can, to comment on something you may have heard me comment on
to Ms. Fore, and that is, in a addition to the .9999 bullion,
there is some discussion now of doing the spouses in a lower-
cost type of coinage that could be used for collectors items,
part of the educational aspect of it, in addition perhaps to
doing a limited number of bullion coins.
Are there concerns with that? Do you embrace it? I know you
may be hearing it for the first time today, but I would be
interested in your almost offhand comments because you have not
had a chance to really study it.
Mr. Noe. Mr. Chairman, Representative Maloney, I think
there is always concern with the low cost as far as the
collectibility goes. I think it might be good for
schoolchildren to be able to use these for an educational tool.
But we found, if you go back to even 1976 when they did
bicentennials bronze metals, that type of thing, they do not
sell for any premium. They are probably worth considerably less
than what they came out in 1976 for.
So, as far as collectibility and value added down the road,
I would say there is not a lot. Educationally, there may be
some merit to it.
Mr. Castle. What if you did the bullion coins, too, which
would be the collectible part of it?
Mr. Noe. I think the bullion coins would be important to go
along with it. I will tell you that the bullion coins will get
collected whereas the other issues probably will not be
collected as readily, I would not think.
Mr. Castle. Mr. Johnson?
Mr. Johnson. I agree that the metals, they have the metal
program now for the Presidents, and it is not as popular as I
think it should be. It is a great program.
But I think all the alternatives that you can provide in
terms of collectibility are great for the numismatic business.
It is something that you give a variety of choice to people. If
you made this a coin, it would be even more popular.
It is difficult at a half-ounce of gold to have kids have a
collection of First Ladies. That is going to be difficult for
children. But, you know, I do not know that that bullion
program is aimed at children.
As I say, I think it will increase revenues and it will
increase interest in all aspects of the U.S. gold coin program.
Mr. Castle. If that bullion program is aimed at children,
they have a heck of an allowance, is all I can say.
In the interest of time, I am not going to pursue
questions, except I want to say to Mr. Tam, that we may want to
get back to you on some issues of where you get your coins and
circulation. Staff may get in touch with you on follow-up
written questions on that particular subject.
Mr. McMahon, as you might imagine--again, you may want to
do this in writing as well-but we are very interested in your
whole business's involvement in furthering the use of coins.
You and I had that conversation before. I want to make sure
that we are on the same wavelength if we do this, that you are
going to be able to be helpful in that area in terms of
advertising and the use of it. I just was not as comfortable
with that last time as I would like to be, so we would like to
get into that.
But I am going to skip that for now, if we may, because it
would take us several minutes to go through it.
And let me just make sure that Ms. Maloney or Mr. Bell does
not have anything they wish to ask before we go to the markup.
Mrs. Maloney. I just want to thank particularly the
Chairman and all of the panelists.
And I would like to be associated with the Chairman's
comments on the quarter program and the possibility that a
lower-cost one would be very effective with children.
Who would have believed that every school child in America
is now collecting the quarters? And the most asked question I
get from my daughters' friends, ``Can you get me this quarter?
Can you get me that quarter? Can you get me the quarter book?"
If this type of thing took off with schoolchildren with the
First Ladies or with the Presidents at a lower-cost coin, it is
true, in the past it has not worked, but it has not been
targeted for schoolchildren. So, possibly, it would work.
In any event, it is a very exciting field. And it is a bill
that actually raises money for the Treasury, which is important
in these days.
Thank you. I yield back the balance of my time.
Mr. Castle. Mr. Bell? Do you have any comments, sir?
Mr. Bell. Thank you, Mr. Chairman.
I would join with Congresswoman Maloney. My kids are
constantly asking me can I get them a quarter. But since they
are only 6 and 8, they are just taking the quarter and putting
it in the gum machine and they are not collecting them as her
kids are.
The only question I have is to the design of the dollar
coin and its impact on use. The bill, as its stated, a national
survey and study by the General Accounting Office has indicated
that many Americans who do not seek or who reject the new
dollar coin for use in commerce would actively seek the coin if
an attractive educational rotating design were to be struck on
the coin.
And that's really the only question I have for the
panelists and perhaps in the earlier testimony addressed it,
but I missed it.
Has it really been a design problem? Or has it also been
somewhat of a marketing problem in regard?
Mr. McMahon. A marketing problem insofar as our industry is
concerned.
Mr. Castle. We have a problem.
Mr. Bell. I am sorry, is there a problem with the sound
reproduction or the----
Mr. McMahon. Can you hear me now?
Mr. Castle. No, something died.
Mrs. Maloney. Just talk loud.
Mr. Castle. Yes.
Mrs. Maloney. Just talk loud at this point.
Mr. Bell. Yes, we have got to keep moving. Can you answer
it briefly and loudly?
Mr. McMahon. Yes.
Mr. Castle. I am sorry, Mr. McMahon, we are going to have
to suspend.
Mr. McMahon. Okay.
Mr. Castle. We do need to get this straightened out. Is it
back?
Do you want to reiterate that or briefly summarize?
Mr. McMahon. Yes, yes.
If you want the coin to work, if you ever have another
hearing on this, have someone from the retail community here
testifying and see if you can figure out from them if they are
going to back this program or not. If they do, the coin will
succeed; if they don't, the coin will fail.
Mr. Castle. I think based on that, if you have any further
questions, it will have to be yes or no at this point.
If not, we appreciate very much all of you testifying. It
is of vital importance in terms of building where we are going
on this.
And with that we will adjourn the panel. And the
subcommittee will turn to its markup at this point, after we
get everybody in place.
We will take a moment or two.
[Whereupon, at 3:58 p.m., the subcommittee was adjourned.]
A P P E N D I X
April 28, 2004
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