Chairman Campbell, Ranking Member Clay, and members of the Subcommittee, thank you for inviting me to submit a statement for the record on behalf of the
Roles in Currency and Coin Distribution
First, it may be helpful to describe briefly the Federal Reserve's role in currency and coin distribution. Each year, the
The Federal Reserve's role in coin operations is more limited than its role in currency operations. The
Maintaining the integrity of and confidence in U.S. currency is a shared responsibility among the Treasury, the BEP, the Federal Reserve, and the
The U.S. government redesigns its currency primarily for security reasons. Finding the right set of security features to address specific counterfeiting threats requires years of development work. New features must be innovative and easy for the public to use, but difficult for counterfeiters to simulate. New designs must also include characteristics and features that can be effectively used by banknote equipment manufacturers to denominate and authenticate currency, and must meet specific requirements of the Federal Reserve to guarantee authenticity.
Beginning in 1996,
The ACD is in the early stages of identifying and developing new security features and processes to address a wide range of ongoing counterfeiting threats from around the world. Developing new security features and integrating them into a banknote design effectively is a complex and time-consuming process. The design of U.S. currency must be resilient to counterfeiting threats, as well as address the needs of a global user base. In addition, our nation's currency must perform reliably in sophisticated authentication and fitness-sorting machines around the world. Finally, there are a growing number of automated transactions, using equipment ranging from bill acceptors at self-checkouts to high-speed sorting equipment at financial institutions and the Federal Reserve. These machines have differing levels of technological sophistication and make use of numerous characteristics in the notes to determine authenticity and fitness.
U.S. currency needs to be not only highly secure but also accessible for blind and visually impaired persons.6 There are a variety of methods and evolving technologies on the market that could assist with providing meaningful access. The current design family of notes includes large, high-contrast numerals on the reverse side of the notes, and the BEP has developed an application for smartphones that denominates notes quickly and accurately. The Board also supports the BEP's currency reader program, which will provide currency readers to visually impaired individuals free of charge. Additionally, we are working with the BEP to evaluate various tactile features based on usability, durability, cost, and risk. Cost and risk to society are significant with this project, as machine manufacturers may need to adjust transport and sensor systems, and banks and armored carriers may need to increase vault and truck capacity to accommodate thicker notes. Durability is also a challenge because Federal Reserve notes facilitate commerce throughout the world and are subjected to many different climates and uses. The Federal Reserve will continue to work with the BEP and other stakeholders to evaluate and recommend solutions that effectively meet the needs of the blind and visually impaired community.
Currency Production Quality
The Board and the BEP are engaged collaboratively in establishing a quality assurance program at the BEP. The foundation of this initiative is to produce notes more efficiently, integrate security features more effectively, and align note designs more intently with production constraints and circulation needs. Through these and other improvements, we expect to achieve significant cost savings in future years by reducing spoilage and increasing production efficiency. The improvement of the BEP's quality system will more effectively and efficiently produce future currency designs that better meet the needs of the public.
Management of Coin Distribution
The Federal Reserve implemented a program to manage coin distribution from a national perspective beginning in 2008, which has improved the efficiency of the Reserve Banks' coin activities. Before the Federal Reserve moved to centralized management of coin distribution, each
As a result of improved inventory management, the Reserve Banks have been able to use inventories of previously circulated pennies, nickels, and dimes more efficiently to fill orders from depository institutions, rather than new coins.7
In a recent report, the
Metal Content of Coins
As the issuing authority for banknotes, the Federal Reserve appreciates the importance of identifying and incorporating cost-effective materials into the production of our nation's money. Changing the metal content of pennies and nickels, which could change the weight and electronic signature of the coins, would not have a material adverse effect on the operations of the Reserve Banks. In fact, the Reserve Banks stopped routinely weighing penny and nickel deposits a decade ago, after concluding that the small dollar value of the differences found were more than offset by the cost of weighing the coin bags. Instead, the Reserve Banks credit depository institutions' accounts for deposits of coin on a "said to contain" basis. Changing the metal content of dimes, quarters, half-dollars, and
A change in a coin's weight or electronic signature could also affect businesses that use coin-accepting machines or sorting equipment that relies on these characteristics to identify coins by denomination, such as the vending industry, armored carriers, and some commercial banks. Those businesses are in a better position to comment on the extent to which they would be required to modify equipment to recognize coins of the same denomination that have different weights and electronic signatures.
The Federal Reserve will continue to work to meet demand for currency and coin efficiently and effectively and collaborate with our partners at Treasury, the BEP, and the USSS to develop designs and security features that protect the public from counterfeiting.
2. These armored carrier companies do not charge the Reserve Banks a fee for these services. In the 1990s, the Federal Reserve and the armored carrier companies reached a mutually beneficial agreement that the armored carriers would provide coin services to depository institution customers on behalf of the Federal Reserve at no cost in exchange for access at the armored carrier terminals to
4. The Board had previously announced that the redesigned
5. See www.federalreserve.gov/paymentsystems/coin_about.htm. Return to text
6. The BEP has been working to meet the requirements of a 2008 court order requiring the Secretary of the Treasury to provide meaningful access for individuals who are blind or visually impaired to denominate U.S. currency. The court has accepted the Treasury's recommendation to continue using the large, high-contrast numeral on all redesigned notes, to develop and implement a tactile feature in the next redesign of notes, and to develop a currency reader program. Return to text
7. The 50 State Quarters and Presidential
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