Pursuant to section 104 of the Presidential $1 Coin Act of 2005 (Public Law 109-145), the Board of Governors of the Federal Reserve System is required to assess and submit a report to the Congress on the remaining obstacles to the efficient and timely circulation of $1 coins; to assess the extent to which the goals of consultations with industry representatives, the vending industry, and other coin-accepting organizations are being met; and to provide such recommendations for legislative action as the Board may determine to be appropriate.
Since our 2008 annual report, the Federal Reserve Banks (the Reserve Banks) distributed more than 355 million Andrew Jackson, Martin Van Buren, William Henry Harrison, and John Tyler Presidential $1 Coins, satisfying depository institution demand.1 To facilitate this successful distribution, the Federal Reserve continued working with the United States Mint to refine the Presidential $1 Coin Program based on stakeholder input and experiences with previous Presidential $1 Coin releases. The Federal Reserve and the United States Mint agreed to meet with our respective coin user groups through our normal channels each year.2 The Federal Reserve held meetings with the depository institutions with the largest cash volumes and with community bankers, as well as with armored carrier representatives, to gather feedback about demand and potential obstacles to the circulation of $1 coins.
At these meetings, industry representatives indicated that the Presidential $1 Coin Program has successfully met their needs, but that transactional demand for $1 coins has not increased since the start of the program. Depository institutions indicated that demand comes primarily from collectors, transit entities, and car wash operators. Most meeting participants did not believe that demand would increase significantly for future coin releases, with the possible exception of the coins commemorating the most popular former Presidents. Some depository institutions suggested that we lengthen the current pre-release staging period (during which banks can order and receive the coins but cannot release them to the public) from two weeks to three, to allow more remotely located branches to have the coins on hand by the public release date. These depository institutions also indicated that shortening the post-release introductory period from four weeks to three would provide sufficient time to meet their customer demand. See figure 1 below for diagrams of the current and proposed special ordering periods.
We are currently evaluating this proposal for implementation in 2010; 2009 release dates, schedules, posters, and other materials have already been developed and distributed. Not only would this proposal improve the ability of remotely located depository institution branches to order and receive the coins by the release date, but it might also result in a process that better accommodates ordering patterns observed during previous Presidential $1 Coin releases. As reflected in table 1 below, depository institutions have generally placed more than three-fourths of the total orders for each new release during the first three weeks of the special six-week ordering period. The proposed change to the ordering period would accommodate these orders before the official release date.3
|Presidential $1 Coin||Depository Institution Orders ($ Millions)||Depository Institution Orders within First Three Weeks of Order Period ($ Millions)||% of Total|
|John Q. Adams||96||83||86|
|Martin Van Buren||93||80||86|
|William H. Harrison||87||77||88|
As we have noted in previous annual reports, the Federal Reserve’s experience with other circulating commemorative coins has shown that initial excess inventories can be reduced as long as there is significant, regular public transactional demand for them. For previous $1 coin programs, however, the Reserve Banks encountered large excess inventories for much longer periods because transactional demand was very low. The Presidential $1 Coin Program experience is consistent with those other $1 coin programs. There is no evidence to date that the current program has increased transactional demand.
The Reserve Banks have studied detailed payment and inventory data for previous Presidential $1 Coin releases at the Reserve Bank offices and off-site coin terminals, supplemented these data with feedback from depository institutions about expected demand, and developed better forecasts for each successive release. The Reserve Banks have then actively managed inventories throughout the special ordering period for each coin, relocating coins as necessary to meet demand. As figure 2 indicates, however, depository institution demand has continued to decrease.
As communicated to Congress before the start of the program, Federal Reserve Bank $1 coin inventories have increased significantly over time, even though improved forecasting and ordering practices have reduced the number of residual coins at the end of each new release period. The Reserve Banks hold the residual coins as inventory at their offices and off-site coin terminals. Additionally and more significantly, depository institutions have re-deposited a significant number of excess $1 coins with the Reserve Banks.
As shown in figure 3 and table 2, previous $1 coin supplies, plus the excess $1 coins returned by depository institutions, elevated total Reserve Bank inventories of all $1 coins to $691 million as of May 31, 2009, or about $625 million more than the Reserve Banks held before the start of the program. Current supplies represent enough $1 coins for the Reserve Banks to meet transactional demand for $1 coins for about ten years. Because of vault storage constraints and insurance limitations at coin terminals, the Reserve Banks are exploring options for long-term storage of these excess coins.
RECEIPTS FROM CIRCULATION
PAYMENTS TO CIRCULATION
ENDING INVENTORY [1+2+3-4]
Given Reserve Banks’ inventory concerns, we note that current legislation requires the United States Mint to issue 15 new commemorative circulating coin designs in 2009, including four Lincoln Bicentennial One-cent designs, six District of Columbia and U.S. Territories Quarter designs, four new Presidential $1 Coin designs, and one new Native American $1 Coin design. As a way to gain a broader perspective on the management of commemorative circulating coin programs, we explored the experiences of other countries. We found that other G-10 countries have implemented very different processes from the United States’ for commemorative circulating coins. For example, the Eurosystem countries have regulations specifying that all commemorative circulating coins should be concentrated on the 2-euro coins. Eurosystem countries have also limited the quantities of these coins that countries may issue.4 Other countries, such as Canada, limit the issuance periods and continue to issue the traditional design simultaneously with the commemorative circulating coins. Some central banks are not involved in the distribution of commemorative circulating coins or do not accept the return of coins from depository institutions. These types of restrictions serve to minimize the number of excess coins produced by the mint or held by the central bank.
Our first annual report to the Congress on the Presidential $1 Coin Program included a recommendation for legislative action regarding the “Sacagawea design” $1 coin provision in the Act. The Congress later reduced the Sacagawea production requirement in the Presidential $1 Coin Act with the enactment of the Native American $1 Coin Act (Public Law 110-82). The revised Presidential $1 Coin Act, however, retains a quantitative requirement for the volume of Native American $1 Coins that the Secretary of the Treasury shall mint and issue. Given the lack of evidence to date that the Presidential $1 Coin Program will stimulate demand for $1 coins as a broad-based transactional medium, the Board remains concerned about any requirement that a specified minimum number of coins be minted and issued without regard to actual public demand.
1. The 2008 Annual Report to the Congress on the Presidential $1 Coin Program can be found at http://www.federalreserve.gov/boarddocs/RptCongress/dollarcoin/2008/dollarcoin08.htm. Return to text
2. The Federal Reserve and the United States Mint organized and sent invitations for a July 2008 coin users group forum to discuss $1 coin issues and challenges with representatives from depository institutions with the nation’s largest cash volumes and from depository institutions and armored carriers from the Washington, D.C., metropolitan area. Because potential participants showed little interest, the forum was cancelled. Return to text
3. Some depository institutions suggested further reducing the post-release date ordering period to two weeks, which would still accommodate the vast majority of all current orders, and we are evaluating that option as well. Return to text
4. The Eurosystem countries’ regulations specify that quantities are limited to the higher of the following: 0.1 percent of the total 2-euro coins in circulation, or 5 percent of the total of 2-euro coins from the issuing country. Return to text