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House of Representatives,
Subcommittee on Domestic and International Monetary Policy,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to notice, at 1:05 p.m., in room 2128, Rayburn House Office Building, Hon. Michael N. Castle, [chairman of the subcommittee], presiding.

    Present: Chairman Castle; Representatives Lucas, Metcalf, and Kennedy.

    Chairman CASTLE. The hearing will come to order.

    We are here today to attempt to break the impasse over the one dollar coin issue. Some might ask, why bother? The Susan B. Anthony one dollar coin is used in limited transactions around the country, so why shouldn't it continue in that role? The short answer is because the Treasury, the Federal Reserve, and the United States Mint face a looming problem. There's only about a 30-month supply of Susan B. Anthony coins stored at the Mint and the various Federal Reserve banks, and U.S. Mint officials say they need about 30 months to prepare for issuing a redesigned coin.

    Everyone would agree that the current coin could be improved. Its color and edge make it too easily confused with a quarter. I have introduced H.R. 2637 to correct design flaws that are often blamed for its poor reception by the public. Giving the coin a golden color and distinctive edge will eliminate confusion between the dollar and the quarter coins. Since one of our goals is to increase public awareness and acceptance of the coin, we should take this opportunity to place a new design on the dollar coin. We can achieve this by revisiting the classical non-partisan roots of our national coinage design. Thus, my legislation would the return the figure of Liberty to U.S. coinage in the form of the Statue of Liberty. She symbolizes freedom and democracy to the United States of America and to the entire world.
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    Many people think that the paper one dollar Federal Reserve note, or one dollar bill, must be withdrawn before any dollar coin can be successful, no matter how attractive and well designed. This is only an argument for doing nothing, since several years of debate have shown that neither the public nor the Congress are ready to give up the paper note at this time—Mr. Kolbe may disagree with me on this, I might add.

    Failure to modernize our money now leaves a mix of currency and coins that is increasingly less convenient. The quarter dollar is our basic coin, and it is called upon to play roles formerly filled by pennies, nickels, and dimes, while still acting as the primary unit for parking meters, toll booths, and vending machines. Accumulated inflation has altered the function of most denominations of money. We all remember the penny gumball machine from our youth. It now takes a dime, or even a quarter, before it will dispense a gumball. If you try to park for more than an hour at any urban parking meter, you may need an entire roll of quarters to avoid risking a heavy fine.

    As hard cash becomes harder to use, it will only encourage the public to shift away from cash toward the increased flexibility of electronic money, stored-value cards, and internet transactions, issues this subcommittee has examined. There's nothing wrong in such a shift, if people want it, rather than having it forced upon them by poor planning. Our Government must also be willing to accept that declining use of coins and currency will jeopardize the $24 billion per year franchise represented by the earnings Treasury now makes from them. But Congress and the Mint must make a decision before the 30-month window closes. Mint more Susan B. Anthonys, or issue a redesigned coin that might be more widely used by the public?

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    H.R. 2637, the United States One Dollar Coin Act of 1997, simply provides for a redesigned gold colored coin with a distinctive new rim. This coin would replace the nearly depleted Anthony one dollar coin, 857 million of which were minted between 1979 and 1981. Since this coin did not widely circulate among the general public, that mountain of coins looked like it would last forever. Over the years, however, the stockpile has been steadily drawn-down as transit authorities use the coin in place of a token. The Post Office gives them in change in stamp vending machines, and vending companies use them in schools, factories, and other closed environments.

    H.R. 2637 does not give any of the various factions in coin politics everything that they desire. It may be that there is no middle ground between those who insist on the status quo because they profit from supplying the paper and ink for paper money, and the vending and metal interests who would have Congress dictate that the green-back dollar must be taken away before the American people are prepared to truly accept the dollar coin. We have an opportunity to take a positive step forward and improve the dollar coin. This bill will help to keep our money flexible, useful, and relevant.

    We will have three panels of witnesses this afternoon. The first panel will consist of two Members, Tom Davis of Virginia who's running a little bit late, and Jim Kolbe of Arizona who will now start it off.

    The next panel will consist of Nancy Killefer, Assistant Secretary of the Treasury for Management and Chief Financial Officer; Philip Diehl, the Director of the Mint; and Theodore Allison, Assistant to the Board of the Federal Reserve System.

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    Finally, in our last panel, we will hear testimony from Alfred Outlaw, Director of Revenue Operations, Southeastern Pennsylvania Transportation Authority—except to those of us in that area; James Benfield of the Coin Coalition; and David Clayton, President, Automatic Food Service, Inc., of Nashville, Tennessee.

    We welcome all of you. Most of you are here with the exception of Congressman Davis, and before we turn to Mr. Kolbe, I would just point out that we have had a mockup done of what is in my proposal—which Mr. Kolbe has in his hand and I have in mine; Mr. Lucas and Mr. Metcalf have copies of if for anybody to see—which is gold colored; which has a distinctive edge; which has a new eagle formation on the back and the Statue of Liberty on the front. We also have a design mockup here—which I think we may be putting down there—which shows the front of the coin, the Statue of Liberty with the rising sun behind it for people to examine, and I must say that the Mint—because of the different alloys and so forth—the Mint probably can't replicate this coin exactly. It's a very attractive coin, but to replicate it in the volume they have to do, would probably be not possible, but something very similar to it certainly could be done. And with that, let us turn to Mr. Kolbe.


    Mr. KOLBE. Thank you, Mr. Chairman. Yes, this is a beautiful coin, and is certainly one that I would be very proud to have in my pocket as a dollar, substitute for a piece of dollar paper.

    Mr. Chairman, I thank you for your invitation to testify. This is the second time I've had an opportunity to address your subcommittee on the subject of circulating the one dollar coin, and I really thank you for keeping this issue in front of the American public, but, as we all know, the purpose of your hearing today is more than just fact-finding.
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    As you pointed out, unless Congress acts in the very near future, we will have made the decision, by our inaction, to make more of the Susan B. Anthony one dollar coins. The legislation that you, Mr. Chairman, have introduced would avoid this embarrassment. Additionally, your legislation recognizes one of the great myths about the Anthony dollar: that size was the problem with the coin. Size was not the problem.

    H.R. 2637 maintains the Anthony's dimensions, but changes the color to the golden such as you have here in this mockup; calls for a distinctive edge, in this case, it's a smooth edge with it serrated inside. That's exactly what I've been proposing for the last decade. With these changes, the new Liberty dollar would be very much easier to distinguish from a quarter, than a quarter is even from the current nickel.

    However, H.R. 2637 has a serious flaw, in my opinion, and that is it does not remove the one dollar bill from circulation. This is a subject that you and I have had lengthy discussions about in various locations around these buildings here.

    Mr. Chairman, ever since Congressman Mo Udall and I introduced the first dollar coin legislation in 1986, I've argued that the Anthony dollar failed for two reasons: it looked and felt like a quarter, and the one dollar bill was not taken out of circulation at the same time. So, your legislation, Mr. Chairman, H.R. 2637, takes a first and a very important step in the effort to introducing a circulating one dollar coin. However, I am convinced that the new Liberty dollar will be doomed to the fate of the Anthony dollar if the one dollar note remains in circulation and no provision for its phaseout is included in the legislation.

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    I've been delivering what I know is this rather unpopular message for over a decade, but it's been my experience that the general public understands the necessity of a phaseout when you take the time to explain it to them. Mr. Chairman, I've been raked over the coals by those who oppose the phaseout of the one dollar note. My efforts have been attacked through sound bites that instill fear and tell the public that the elimination of the one dollar note is taking away their ''choice.'' Well, my answer to those that deliver this message is that when they introduce legislation to create paper pennies, paper nickels, paper dimes, paper quarters, and then they have coins for one-, two-, five-, ten-, twenty-, fifty-, even one hundred-dollar bills, then I'll be convinced that they truly believe in giving choice to the American people—when we have a choice in every single piece of currency that we have. Where is the logic as to why only the one dollar bill should be the only choice?

    Sadly, these smear campaigns have been going on for over a decade, and they leave Congress, unfortunately, in a situation where we can take only the most incremental steps to implement good currency policy. Sadly, this and prior Administrations have forwarded no comprehensive policy objectives related to modernizing our currency.

    I still hear about the stunning success of the Canadian ''loon'' dollar which was introduced in 1987. Make no mistake, Mr. Chairman, the coin was extremely unpopular in concept before its introduction, and the coin did not widely circulate until late in 1989 when the one dollar Canadian bill was removed from circulation. The retail industry was reluctant to use the one dollar coin, and it did not circulate widely for that reason until it was the only thing that was available in the one dollar denomination.

    I traveled to Ottawa several years ago to meet with officials of the Royal Canadian Mint, the Canadian banking industry, the Canadian Parliament, and Canadian retail executives. While they were very proud of their accomplishment, they acknowledged one significant error in their planning. They said that the prolonged circulation of the loon coin and the one dollar bill made the transition more difficult and unpopular than it should have been. That's my fear about this legislation, H.R. 2637.
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    Congress cannot idly sit back and expect the mere introduction of the Liberty dollar will develop some momentum of its own. No amount of marketing by the Mint will make the coin succeed. As a matter of fact, heavy simultaneous circulation of both the Liberty dollar coin and one dollar bills will become a major nuisance to retailers, mass transit systems, the visually impaired, and others who would have reason to use it.

    Maybe Congress needs to consider alternative approaches to dealing with the issue of the phaseout of the one dollar bill. I don't know, our favorite thing around here is to create some kind of a commission to take the decision out of our hands, and then if Congress fails to act, it becomes automatic. But there may be other options, and I would look forward to working with this subcommittee in this regard.

    So, having suggested the concerns I have about this, Mr. Chairman, I want to, again, commend you for taking on this issue, but I want to emphasize that I am convinced that the absence of a plan to address the necessary action of removing the one dollar bill from circulation, will doom the Liberty coin to the same fate as the Susan B. Anthony coin.

    Mr. Chairman, if I might add one thing, because you mentioned the great reliance of electronic transactions, and this doesn't go to the issue of the coin, specifically, this coin or another coin, it goes to the issue of a modern currency. I just had a little experience over the weekend which I'd like to share with you. I serve on the board of trustees of a university, Embry-Riddle Aeronautical University, which has two campuses, one of them in Florida, in Daytona. I was down there for the board of trustees meeting, and the administration at Embry-Riddle has introduced a new thing which they call ''eagle cards.'' An ''eagle card'' is an electronic transaction card which all students now can buy and go down to any number of places on campus with cash and get a card that is equal to a certain amount of money. It's like a metro card. You can go down and put $50 on it, $100, or whatever. They have now converted everything on campus to using the eagle card, so that in the dorms—the new dorms we just built—where they have convenience stores, something we didn't have when I was in school—they don't use cash; they use their eagle card. The laundromat uses the eagle card. The bookstore uses the eagle card now. You can use cash, but everybody's found that this eagle card works so much better. You don't have to have cash on hand, and each time you use it, it tells you electronically how much you have remaining on your card. I think you can see the advantage. The university now has the float from this. They're getting a substantial amount of money, because they're holding onto the money while the student holds onto a card, a plastic card.
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    That is exactly the kind of thing we face if we do not have a currency that is usable and modern, and that's precisely the problem we face today with the currency that has not been changed for more than 70 years. And I thank you, Mr. Chairman, for the opportunity to testify.

    Chairman CASTLE. Well, thank you, Congressman Kolbe, and I might add, we may be facing that anyhow regardless of what kind of currency we have.

    Mr. KOLBE. Absolutely, we will be facing it, but it is important that we have a modern currency so that we can not lose all of that float; that's the point of telling that story.

    Chairman CASTLE. We thank you for your testimony, and you and I have had a number of discussions about this issue. You are an extremely bright, articulate, and thoughtful individual on the subject of coins and on many other things, and you come down on the side of perhaps eliminating the one dollar bill and going with the coins, but we want to make sure that we have both sides of this represented, so we've got another bright, articulate Member of Congress who comes down on, sort of, the other side of it, if you will.

    Mr. KOLBE. But he's so much younger, and has so much less experience.

    Chairman CASTLE. That's right. I'd say he doesn't have the maturity. Maybe he doesn't really understand this.
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    Mr. DAVIS. Same high school, though.

    Mr. KOLBE. That's right. We graduated from the same high school.

    Chairman CASTLE. We are pleased to have Representative Tom Davis here. He will share his views with us, and then we'll perhaps have a few questions or statements from the various Members up here if we could. Mr. Davis.


    Mr. DAVIS. Thank you, Mr. Chairman, Members of the subcommittee. I appreciate the opportunity to be here this afternoon to provide you with my comments on H.R. 2637 which is the Castle proposal to replace the Susan B. Anthony dollar coin with a new design while preserving the popular one dollar bill with George Washington's—native of Virginia—picture on it.

    Mr. Chairman, as you know, I've watched with interest your ongoing initiatives in modernizing the Nation's currency to meet the demands of the next century. I closely followed your hearings on the future of money, and have supported the commemorative circulating quarters legislation that will place new designs on the backs of the quarter in honor of all 50 States. Since my State, Virginia, was one of the first 13 colonies, we will be among the first in the Nation to proudly display our State's quarters.
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    As you know, I sponsored legislation in the 104th Congress and again in this Congress which seeks to preserve the one dollar bill, and I continue to believe that the one dollar bill is the popular choice that the American public has made. I've testified in the past before this subcommittee against dollar coin legislation when it called for the elimination of the one dollar bill. I'm very pleased that you've made it very clear in your legislation and your comments that you intend for the one dollar bill to be kept in circulation. Your bill, as I understand it, seeks to authorize the Mint to produce only the amount of dollar coins necessary to meet specific demand criteria. Most importantly, the bill recognizes that the American public continues to prefer the one dollar bill over dollar coins. As a result, your legislation, unlike previous bills, does not seek to impose the dollar coin on the public and force the removal of the green-back from circulation. Your bill wisely crafts a workable compromise and leaves the choice to the American people. In your press statement on the bill, I note where you state, and I quote, ''The general public is not ready to part with the one dollar bill.'' I agree with your statement wholeheartedly.

    Mr. Chairman, every major poll I have seen in the past four years indicates that from 75- to 79-percent of the public still prefers the one dollar bill over a dollar coin. Equally noteworthy is that every Treasury secretary since Ronald Reagan's time to the present, has opposed elimination of the one dollar bill as bad public policy. When the last dollar coin was introduced in 1979, it bore the likeness of Susan B. Anthony, who up to then had been known as an articulate champion of women's rights. Over the past 18 years, however, Ms. Anthony's reputation has taken a downward turn as an angry public has chosen to associate her with the coin's failure. It seems that Ms. Anthony has taken the rap for what was basically an unworkable idea.
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    The problem, in short, Mr. Chairman, may not have been with Susan B. Anthony, or for that matter, with former President Dwight D. Eisenhower, who was on the dollar coin back in 1969, but with the very idea that the American public wanted such a coin in the first place.

    I know that there has been a lot of talk that we'll run out of the dollar coins by the year 2000, and while this may be the case, I would remind the subcommittee that in 1979, 857 million Susan B.'s were produced by the Mint and turned loose on the American public. It has taken us 18 years to reach a point where the Mint can finally begin to contemplate using their storage space for something more practical.

    I raise these examples because I think it is very important that you and the Members of the Banking Committee do not permit any amendments to be attached to the bill which would mandate elimination of the one dollar bill or include a provision by which the paper note would be eliminated once a given number of one dollar coins were in circulation.

    I know that a few businesses find a coin preferable to a one dollar bill and have lobbied Congress for a new dollar coin. Your bill will allow them to have that in limited quantities tied to actual demand without penalizing the American people. I still think that a dollar coin, no matter what color it is, is too close in size to a quarter, and I don't like the idea of lugging more coins around in my pocket. Judging by the letters I've received over the years, I suspect many of my constituents agree.

    It's often said we're the only major industrialized country that still uses a paper dollar. Those who say this are either uninformed or unaware that the U.S. currency is a unique worldwide circulating currency system and that nearly two-thirds of American dollars are held overseas. Canada, which is often cited for its use of the ''loony'' dollar coin, has only one-tenth of our population, and its money does not circulate beyond its borders.
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    I alluded earlier to the fact that this committee held a series of hearings on the future of money. I read the transcripts with interest, particularly in regard to the use of the ''smart,'' or debit cards which seem to be gaining more popular acceptance. As a Member of the House Committee on Transportation, I naturally follow those developments very closely. One thing I've started noticing is that transit systems that have formerly relied on dollar coins are starting to switch to debit cards. This is a recent debit card issued by the Chicago Transit Authority, which I believe has supported the coin in the past. I think we'll find that more and more transit systems will be choosing cards over coins as we move to the 21st century.

    Mr. Chairman, you've had to live with this issue since taking over as Chairman of the subcommittee and at a time when there have been many more pressing issues that have come before this subcommittee. You've spent considerable time forging a workable compromise that satisfies those interests that want a coin, while leaving the one dollar bill untouched and available to the American public.

    I would urge the subcommittee not to allow this bill to become watered down with killer amendments that could dictate use of the coin to the public or create yet another study group or commission to seek ways of eliminating the one dollar bill. The American people clearly don't want to be told what kind of money they're allowed to use. It concerns me when I hear the coin's backers publicly admit that the only way a coin will work is if we eliminate the one dollar bill and force people to use the coin.

    Mr. Chairman, your bill allows the public a choice in something that has a very real effect on their daily lives. Most importantly, it does not underestimate the intelligence of the American people by trying to make that choice for them. I would hope that the Members of this subcommittee would strongly oppose any attempts to amend this bill and distort the good intentions contained in the Chairman's bill. Thank you.
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    Chairman CASTLE. Thank you, Mr. Davis. I've decided we should scrap this format and set up a debate format between the two of you. I think it would be a lot more fun, and then maybe we could choose sides in this room and go from there, because there seems to be a lot of interest in this, but I do appreciate the sincere interests of both of you, and two people whom I have a great deal of respect taking very opposite positions, and maybe we've made a semi-Solomon-like decision in terms of what we've done, although I'm not sure either of you would agree with that.

    Let me ask just a question of you, if I may. What are your positions on elimination of the penny? I mean, Mr. Davis, for example, you said you don't want to carry coins around in your pocket. Talk about a coin you don't need to carry around in your pocket, how about the penny as an issue? I'm just curious, it's a little bit off the subject, but it's not irrelevant because of the work the Mint has to do, and coinage in general as we look at what we have to do in this country.

    Mr. DAVIS. Where I go in now, they have pennies up front where you take a penny or leave a penny as you leave, and people are adding and subtracting pennies, but it's become almost irrelevant to everyday commerce.

    Mr. KOLBE. We agree. The issue is a very different issue, Mr. Chairman. I think it ought to be considered separately. It is related when you get down to the issue of the capacity of the Mint, so it does have a relationship, it's part of modernizing the currency. Mr. Davis is absolutely correct in that the only real function that the penny has any longer is sales tax calculation, and it would be very easy simply to round that either way, but that, again, is a very different issue than what we're talking about here today.
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    Chairman CASTLE. Let me try, Mr. Kolbe, the argument I've used with you privately several times, and try it publicly with you, and see how it works out. And that is, if we had a more attractive coin—and I'm not suggesting this will be the coin, but this mockup that we have done which is demonstrated right there and which is on the face of this coin with the eagle on the back, which I think everyone agrees is a heck of an attractive coin; gold colored, smooth edging, and actually Mr. Kennedy had some questions about size which we may get into later. But in any event, this is a proposal which I think is something which is more attractive. What if the coins are popular? Does that not help your cause? I've tried to argue with you that we are probably not going to be able to eliminate the one dollar bill because of sentiment of the American public and sentiment carried to their congresspeople, and, therefore, we should have a different start, but let's go with an attractive coin and see how people react. Do you truly believe that this would be condemned to the same stockpiling as the Susan B. Anthony coin, or do you believe that if it really is an attractive coin that people will, indeed, be happier to carry it and to utilize it, and, therefore, at some point, it might start putting pressure on whether or not the dollar should continue? We all know that all industrial countries have eliminated one dollar bills with the exception of America. I mean, it's a little bit unusual that we still have the one dollar bill—I'm playing devil's advocate; I'm not necessarily saying that should be our position, but it seems to me that's a fair argument, and you seem to have argued against it in your testimony, I thought.

    Mr. KOLBE. Yes, I would argue against it. It is a fair argument, and I think the greater attraction of this coin will give it, marginally, some more acceptance than the Susan B. Anthony, but I fear that over time exactly what Mr. Davis talked about what has happened to the Susan B. Anthony, the great unpopularity and how people now associate her name with that coin. I would certainly hope that wouldn't happen with word ''liberty'' as well. I don't think that would happen, but I think that it would become rather unpopular. People will still be faced with the decision of whether or not they're going to carry this coin; whether or not they're going to carry paper. Worse yet, the retail people would have one slot for paper dollars, one slot for coin dollars, and you don't give them option on quarters; you don't give them option on ten dollar bills. There's no reason to do it on this. You've just simply got to say, at some point, ''Seventy or eighty years of inflation have finally caught up with us here.'' And what we used to use, what we call ''pocket transaction,'' now requires a coin to do that.
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    Chairman CASTLE. I'm a little skeptical that people are going to get up in the morning and debate in their minds whether or not they carry dollar coins or dollar bills. They're just going to take whatever they're handed. But let me address a question to Mr. Davis as a follow-up to that. I mean, my view is that one thing that's happening is that the need for these coins is greater. As you travel turnpikes, the tolls are one dollar now, rather than a quarter as it used to be. Telephone calls are costing more; vending machines are costing more, not that I want to build inflation into all of this, but the bottom line is that there is a greater—a more compelling social and economic reason to have a dollar coin than existed heretofore, in fact, you could even argue for a two dollar coin, which some people have proposed. And my question is, are we going to stay with the one dollar bill forever because of the sanctity of the greenback and George Washington or whatever it may be, or is there going to be some point at which we say, ''Hey, we really need this dollar coin.'' Maybe we aren't there yet, and publicly I know that acceptance is not there yet, and Canada did it. The polls in Canada tell us that it was unpopular even when the loony came out, it really wasn't an accepted, popular way to go, and then they did legislate, as Mr. Kolbe's pointed out, to get rid of their one dollar bill and went with the loony, and now it's highly, highly, popular. In fact, I think they're doing a two dollar coin up there right now, or they've already issued it.

    Mr. KOLBE. They already have it.

    Chairman CASTLE. They already have it out there now.

    Are we just burying our head in the sand a little bit, and this is inevitable, and it's going to come?
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    Mr. DAVIS. Well, I don't think so. I think, ultimately, market forces ought to make that determination and not some Government mandate, but as I stated earlier, a lot of the one dollar bills were held abroad. American currency in comparing it to Canadian, I just don't think is a relevant comparison.

    Mr. KOLBE. Mr. Chairman, might I just respond to that? He's absolutely correct about the amount of American currency held abroad, but it's not one dollar bills that are held abroad, it's one hundred dollar bills.

    Mr. DAVIS. That is what we understand at least.

    Mr. KOLBE. If I might, I just would like to comment on one other thing Mr. Davis said. I don't think he intended, but he gave me absolutely the perfect argument for my side when he talked about the Chicago transit system. That's exactly the problem; they were a supporter of the coin dollar because they did not have a usable dollar, and they've gone to a debit card. Who is the loser of that? The U.S. Government, the American taxpayer, in the sense that they no longer have the float on that. The Chicago transit system now has the float on that. You go down and buy that. You now have given ten dollars, let's say, to the Chicago transit system which they now have the use of your money until you use that card and spend it. It's exactly the opposite when you go down to the bank and get ten one dollar bills or ten one dollar coins. The Government has the use of your money until you use that coin or use that piece of paper. That's the float that amounts to $28 billion a year in interest saved for the Federal Government.

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    Mr. DAVIS. Well, if I could just respond. I don't think it matters whether you have a coin or a bill. I think that the future of these cards is inevitable whether it's at turnpikes, tolls, metro systems, or the like, and I think that technology is kind of overtaking us whether it's bills or coins at this point.

    Chairman CASTLE. Well, just a closing comment and as a sidelight to all to that, I agree with both of you on that. I think that this whole business of electronic commerce is coming on a lot faster than a lot of experts in this country realize, and it's happened because of the example—and I don't think you were here, Mr. Davis—that Mr. Kolbe used. A lot of these colleges are doing it. You're virtually going to have a whole universe of colleges all doing this, so the higher educated part of our population is going to be used to it by the time they go out into the work world, and that's going to make, in my judgment, a very vast difference over anything that we have seen before. But I'm never going to change either of your minds, I don't think, but I appreciate your testimony.

    Let me turn to Mr. Kennedy to see if he has any questions.

    Mr. KENNEDY. Thank you very much, Mr. Chairman. First of all, I want to just say to the Chairman, as someone who ran this subcommittee before he did, this is one of the most controversial issues, and Congressman Kolbe was hard after me when I was running the subcommittee, and he hasn't let up at all, but I appreciate the doggedness with which he has pursued this issue, and I think that he recognizes, as his comments reflected, that unless you do, in fact, eliminate the one dollar bill, the paper bill, I think it's going to be very difficult for the one dollar coin to ever really take off. And that's the bottom line to this whole issue, and I think that you have chosen what I think is a very reasonable way to move forward. While there might be some winners and losers with the elimination of the one dollar bill, the truth of the matter is that you take an enormous risk, given all of the vagaries of international currency and the meaning of the paper one dollar bill to people throughout the world, that it takes an enormous leap of faith to think that we could go through that transition without raising enormous risks in terms of how other people in an international environment might view the United States currency, and I think that it's an unnecessary and unwarranted risk. You've chosen what I think is a very reasonable approach.
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    I think, on the other hand, there are a couple of questions that I want to raise with the Mint. I'm told that we still have 130 million of these coins sitting in the vaults, and I guess they've convinced some people here that that's going mean that they're going to be all used up by the year 2000—and I see Phil Diehl nodding his head ''yes.'' I don't know where all these coins are going, but I have yet to see one in circulation in my day-to-day commerce. I'm sure that they're floating around in some State, in some community, some place, but there are not a lot of them floating around Boston at the moment, or at least they're sitting in people's jars and on people's bedside tables, not going around as normal currency.

    There are things Mr. Chairman, that I looked into in the past to increase this new coin's marketability. There are a lot of steps that I think we could encourage in the banking institutions. You think about the kind of day-to-day commerce that takes place in every city across America, and the fact that the Mint actually provides paper dollars through the banks themselves. There can be ways that we could market coins, the one dollar coin, much more effectively, and get it to a point where there is at least some acceptability that is much greater than there is today. At the moment, I just don't think the American people are ready for it; they don't want it, and I'm not certain that we can lay this all on Susan B. Anthony's doorstep. I think the fact of the matter is that this thing just doesn't look like it's worth a buck, for better or worse. The old silver dollar when we were growing up was something that really meant something. I used to collect them. Probably, half the people in this audience remember, in the 1950's and 1960's, getting a silver dollar from your dad or your grandfather really meant something. That had a weight and a look to it that was different and more significant than any other coin that was out there. And I'm sorry, but this coin, compared to that old silver dollar, just doesn't cut it. But anyway, Mr. Chairman, those are rambling thoughts from an ex-Chairman. Thank you.
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    Chairman CASTLE. Well, my gosh, Mr. Kennedy, a piece of gold has always been worth more than a big silver coin, for goodness sakes.

    Mr. KENNEDY. This doesn't even look like gold.

    Chairman CASTLE. It looks like gold; it's not gold, but it looks like gold.

    Mr. Lucas.

    Mr. LUCAS. Thank you, Mr. Chairman, and I appreciate your calling for this hearing, and certainly I'm not brave enough to step off into the discussion going on between our two panelists down there. I would just take note of a couple of things.

    First of all, change does come to our currency system. I mean, clearly, we are not operating the way the Founding Fathers operated in the beginning. Long ago, we stopped minting half cents and stopped making large one cent pieces, and long ago, after the emergency circumstances of the Civil War, we stopped printing paper dimes and paper quarters and paper half dollars. Things do change.

    Perhaps, our focus, I suppose, should be on our responsibilities here. Under present law, if those banks order those dollar coins, whatever they may be, the Mint's obligated to produce those things. If, as a body, this group decides, Congress, that we should not have those, then maybe that's the angle to go, but I would take note, too, that if you cast that kind of an overall review, you need to look at the usefulness of all of our currency items. Are the pennies practical or functional? Does anybody really use a half dollar? What's the viability of the dollar coin? I can't help but think the basic principle behind the circulating dollar coin is valid; that we do need to keep it on the books and that we need to, perhaps, pursue this legislation that the Chairman's brought forth to make it more functional. But there are many issues at hand here. Thank you, Mr. Chairman.
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    Chairman CASTLE. Thank you, Mr. Lucas.

    Mr. Metcalf.

    Mr. METCALF. Thank you, Mr. Chairman. To Congressman Kennedy, I just wanted to mention one quick point. You talked about the silver dollar looked like it was really worth something. You were right; it's now worth about five of these paper one dollar bills, if you noticed.

    I've long been a strong supporter of the dollar coin. I like the Susan B. Anthony dollar, very frankly. Had they colored that, brass colored or whatever, it would have circulated and been totally acceptable. Color was the problem. I guess there's another reason I like the coins, because we don't pay interest on the coins, but we pay interest, the people and the businesses of America, pay interest directly or indirectly on every Federal Reserve paper dollar in circulation, and that is something that the more coins we use, the less interest we pay; that's one point.

    Well, to get to a question, I just wonder what would be—for either one of you or both—what would be the impact on the Mint? How soon—and I had to step out for awhile, maybe this was covered—how soon can they crank up to get these dollars in circulation? Do you have any information on that I might have missed?

    Mr. KOLBE. Well, Mr. Metcalf, I think you want to direct that later here when you have the Mint in front of you, but they have said consistently that it takes about 30 months to go through the design. They could, perhaps, speed that up a little bit, but it takes about 30 months to go through the design and get into production. Then you have a time when you have to build enough inventory that you would have—if you're going the route that I would suggest where you replace them—that you would have enough on hand to replace them as you take the paper dollars out of circulation. So, you could either do it in about 30 months or longer depending on the length of time it would take you to get the inventory built up.
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    Mr. METCALF. OK, I think that's all the questions.

    Chairman CASTLE. Well, thank you, Mr. Metcalf, and as we close this panel down, I might—and Congressman Davis may not like this—but I must say that I'm not particularly interested in closed rules or whatever, if we can ever get this to the floor. I mean, if there are issues to be voted on, I say vote on them, whether it be eliminating the one dollar bill or staying with Susan B. Anthony with different colorations and edging or whatever. I mean, I want to do whatever's right in terms of currency for the country, and I'm just making a proposal to get this discussion started. That's what this is really all about.

    But we really appreciate both of you being here. It pains me that two of the most distinguished Members of Congress cannot agree on this, but we enjoyed having you here. We appreciate it.

    Mr. KOLBE. This is what public policy is all about.

    Chairman CASTLE. That's correct. Well, hopefully, we'll get good public policy on this. So, we thank you very much for taking your time to be here.

    And we will take about a one minute standing break here while we form the second panel, and if Nancy Killefer and Philip Diehl and Ted Allison could come forward.

    OK, I think the panel is in place, and we will start, first, with Nancy Killefer who's title—I hope I have this correct, I always worry about long titles, like the name of this subcommittee—it's Assistant Secretary of the Treasury for Management and Chief Financial Officer. I don't think you've testified before this subcommittee before. You are sort of new to your position, but you are highly qualified, and as a fellow public servant, we welcome you to the ranks and we look forward to your testimony.
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    Ms. KILLEFER. Thank you very much, Mr. Chairman. I am pleased to be here today before you, and you're right, this is my first chance to testify, period, and before this subcommittee, indeed. And I'm pleased to be here with Phil Diehl, the Director of the Mint, to talk about your legislation proposing a redesigned one dollar coin. I look forward to working with you on this issue, as well as the many other issues on coin and currency that you are facing.

    As I think all of you well know, the production and integrity, use and security of our money is central to the Treasury's mission and responsibilities. As the Assistant Secretary for Management and Chief Financial Officer, I work with the other Treasury policy officials and offices in advising the Secretary on matters that have a direct or indirect impact on the use of our money. Treasury's strategic plan specifically has among its objectives the goal of strengthening our oversight and coordination efforts for coin and currency policy formulation, and we look forward to working with you on that.

    With respect to the cost and production of our currency and coins, my office and the Office of the Treasurer have responsibility for oversight of the BEP and Mint facilities. We promote the efficiency and effectiveness of the production of coinage and currency through our oversight of the BEP and Mint, as well as the other Treasury bureaus, in the areas of strategic planning, organizational improvement, budget, procurement, human resources, security, information systems, and financial management.
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    Treasury is currently faced with a decision regarding the future production of the one dollar coin to meet ongoing demand, as I think you're well aware. At the current draw-down rate, the stockpile of Susan B. Anthony dollar coins is expected to be depleted in approximately 30 months, and Phil will talk to you more about that. And although the public continues to prefer paper currency to coinage, use of dollar coins by vending machine operators, metropolitan transit authorities and other machine operators has increased. The Susan B. Anthony is, in fact, growing in its use by the public, and we must meet that demand in the future, either by producing more Susan B. Anthonys or the new one dollar coin, as you have proposed.

    Treasury supports the development and production of a new, gold-colored dollar coin to replace the silver-colored Susan B. Anthony. I think we've all talked here about the unpopularity of the Susan B. Anthony, in part, because it was difficult to distinguish from the quarter. Consequently, we'd like to work with the Congress to approve a new one dollar coin design and ensure that the Mint has sufficient time to produce that new one dollar coin. As mentioned earlier, it will take about 30 months to research and test new alloys and place a new one dollar coin into circulation, so it's imperative that we move forward with this.

    In your bill, the United States One Dollar Coin Act of 1997, you provide the Treasury with the necessary authority to develop and produce a one dollar coin which is much more distinguishable from other denominations. Treasury supports the intent of this bill as introduced, and we urge the Congress to pass legislation that will enable Treasury to continue to meet the demand for one dollar coins without resuming the production of the Susan B. Anthony.

    I'd like to thank the subcommittee and you, Mr. Chairman, for this opportunity to appear before you today on this issue, and I look forward to working with you in the future. I'd be pleased to respond to any questions.
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    Chairman CASTLE. Well, thank you very much, Ms. Killefer. We appreciate your testimony, and we will go next to Philip Diehl. Philip acted as our guide and host at the Philadelphia Mint yesterday where my staff and I had a chance to go up and actually see some of the operations taking place, which is always fascinating. We appreciate that, and we'd be very interested in your comments concerning this legislation.


    Mr. DIEHL. Thank you, Mr. Chairman. It was a delight to host you and your staff at the Philadelphia Mint yesterday.

    I want to thank you for the invitation to appear here today. As you know, this is an issue that we at the United States Mint have been concerned about for several years, and as we have watched the stockpile of Susan B. Anthonys begin to dwindle down, now to 133 million, we have viewed that with a mixture of feelings. First is we're delighted that the large stockpile of approximately half-a-billion coins that we had a few years ago is finally going out the door, but also we recognize that, at current demand of about 50 million coins a year, in just over two-and-a-half years, we're going to be facing a situation in which we must either produce more Susan B. Anthonys or we must produce a new one dollar coin.

    I think all of us recognize the unfortunate situation with the Susan B. Anthony: the confusion with the quarter in terms of size and color; the same reeded edge that has led to that kind of confusion. We certainly know what needs to be done to fix the one dollar coin, and your legislation would do that. It would change the color to gold. It would require a distinctive edge, and, yet, it's a good compromise with the current Susan B. Anthony by maintaining, basically, the same size of the coin, and width of the coin, so that it will not impose an undue burden on the vending industry. So I think this is exactly the right approach.
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    We are now coming very close, within a matter of weeks, to that 30-month threshold where we must get started on testing the new alloys; testing the new designs; checking for coinability and for wear, and be ready to produce a new one dollar coin. So we would encourage you to move with all deliberate speed to move legislation as quickly as possible.

    With that, Mr. Chairman, I conclude my remarks, and I'd just submit for the record my written testimony.

    Chairman CASTLE. Thank you, Mr. Diehl.

    And, finally, Mr. Theodore Allison will testify. I also had a chance, by the way, Mr. Allison, to go to the Philadelphia Federal Reserve yesterday as part of this tour, and we toured the BEP today, so we've seen it all. I have some sense of the amount of actual currency and coinage, and so forth, that you deal with, so I'm sure this subject's of great interest to the Federal Reserve, and we look forward to your testimony.


    Mr. ALLISON. Thank you. Thank you, Mr. Chairman and Members for the opportunity to comment on H.R. 2637, the United States One Dollar Coin Act of 1997. Under H.R. 2637, the dollar coin would be made gold in color; would be given a distinctive rim, and would retain the dimensions of the Susan B. Anthony dollar coin; and the dollar note would remain in circulation. The Federal Reserve believes that H.R. 2637 achieves a good balance among the issues involved in the dollar-coin-versus-dollar-note debate and supports its passage.
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    For most of this decade, there has been a public discussion of the merits of replacing the dollar note with the dollar coin, with no consensus having developed in favor of doing so. Out of this discussion, however, a few conclusions can be drawn: the design of the Susan B. Anthony coin is widely disliked on grounds that it is easily confused with the quarter; the public appears to prefer to use dollar notes for most transactions, because dollar coins can be confused with the quarter, and also because they are thought to be too heavy; and, finally, many firms prefer dollar coins for certain kinds of transactions, because coins are easier to handle in large quantities, which appeals to transit systems; they reduce transaction time at the cash register, which appeals to retailers, or they work more efficiently in vending machines.

    In the meantime, there has been an ongoing demand for Susan B. Anthony coins, and, as we've established, the stock of those coins is likely to be depleted, exhausted early in the year 2000.

    Public reaction to the design of the Susan B. Anthony dollar has been negative from the beginning. In 1978, even before the coin was issued, research conducted for the Federal Reserve by the University of Michigan Business School, using focus group interviews with both consumers and retailers, revealed considerable reservations in both groups about the Anthony design. The main concern was the perceived similarity to the quarter, and, as a consequence, the risk of making a mistake in handling change. Throughout the years since, it is that concern that has dominated the public's perception of the dollar coin.

    Consequently, it would not seem considerate, either of the public who dislike the Anthony dollar or of the merchants who need a viable dollar coin, if the impending depletion of Anthony dollars were addressed by manufacturing more of those coins. Nor would it seem appropriate to introduce a new dollar coin with dimensions markedly different from those of the Anthony dollar since that would require that nearly all vending machines be mechanically refitted at considerable cost to the vending machine industry and its customers. And, finally, a decision to withdraw the dollar note in connection with issuance of a redesigned dollar coin would be contrary to the preference of most Americans, who apparently do not wish at this time to give up the note.
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    Enactment of H.R. 2637 would address all of these issues in a way that should be consistent with the needs of most of the affected public. The gold color and distinctive rim of the newly designed coin should make the public more approving of it than it is now of the Susan B. Anthony dollar. That, in turn, should benefit vending machine operators and other merchants who wish to see greater use of a dollar coin. Maintaining the Anthony dollar's dimensions in the new coin should minimize the introduction costs to vending machine operators, and, finally, retention of the dollar note would be consistent with the apparent wishes of most individuals at this time.

    Finally, I should observe that the Treasury of the United States, that is our financial—the Nation's financial position—the Government's financial position, and, therefore, taxpayers, would benefit financially if, and to the extent that, the availability of a more acceptable dollar coin either caused dollar coins to substitute for dollar notes more than would be the case without it or caused the total circulation of dollar notes and dollar coins to increase further than would have been the case otherwise. This effect may not be large, but it should be positive.

    Chairman CASTLE. Thank you, Mr. Allison. Let me start at the end, and I know this is complex, but can you, as simply as possible, explain your last statement which is you observed that the Treasury of the United States and taxpayers would benefit financially if, and to the extent that, the availability of a more acceptable dollar coin either caused dollar coins to substitute for dollar notes in circulation more than would be the case without it, or caused the total circulation of dollar notes and coins to increase further. Why? I mean, I know this is not an easy subject, but if you could, sort of, lay that out for us, I think it's a very important issue to hit.
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    Mr. ALLISON. I'll try to lay it out in understandable terms. First, let's assume that a dollar coin costs eight cents—that's a number that's been used in the past—and lasts 30 years. Let's assume that a dollar note costs four cents and lasts a year-and-a-half, I've kind of gone to round numbers on these, but these are ballpark—these are all in the ballpark. To keep a dollar note in circulation, then, for 30 years—that's the amount we use, because that's the assumed life of a coin—to keep a dollar note in circulation for 30 years requires the Government to lay out four cents initially to make the note and then another four cents every year-and-a-half, or 20 more times over that 30-year period; that's a total of 84 cents over the 30-year period. Now, for a dollar coin, it costs eight cents once to make it, and another eight cents at year 30 after it, on average, becomes unfit. At that point; a total of 16 cents. That's quite a difference; that's 68 cents over that 30-year life in favor of the dollar coin. Now, you multiply that—that doesn't seem very much—but you multiply that by, say, a billion coins or so that might convert from notes to coins, and then that gets to be several hundred million dollars.

    Suppose the total amount of coins went up. That would provide a means of financing expenditures for the Treasury that didn't exist before; that is, the Treasury can in effect spend. Let's say there were another one billion coins, the Treasury could, in effect, spend—on goods, services, salaries, anything it wants to buy—a billion dollars without having to borrow the money to do it. And, therefore, it would save the interest cost on a billion dollars of debt that is avoided, in the case of a billion more coins. I'm not predicting that there would be a billion more coins, but just to put this in the perspective of some possible number.

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    Chairman CASTLE. I think it's very important that we try to make sure we have the essence of that information—and I know this has been testified to a number of times before; not this subcommittee or this year, but in other years. We should make sure that the substance of that is well understood and distributed among those of us who have to vote on this before it's all said and done, and, at some point, we should go over that.

    Let me turn—because of limited time—to Mr. Diehl. Let's talk about the 30 months. Now, are you trying to tell me you haven't started experimenting with alloys at all, and that you really need 30 months? I mean, let's try to really develop how long you—I know you'd love to have 30 months, but, you know, this is a legislative process, and I can't guarantee you we're going to give you 30 months. Maybe we're going to give you 24 months or whatever—we got this coin designed in a week, by the way.


     So my question to you is—I'm not trying to pin you down too much, but is there is a little bit of play, a little bit of flexibility in that 30 months?

    Mr. DIEHL. There may be a little bit, and I've gone back to my staff to ask them that same question, and they've really wanted to stick with that 30 months, but they've also recognized that there may be some opportunities to save some time in that process.

    We have done some work on testing alloys but not—I mean, we haven't gone nearly far enough down that path, and it would be inappropriate for us to go very far down that path without having some kind of legislative authority that—or at least some kind of legislative action that indicates an intent by Congress to create a new coin with a new alloy. But we've done a little bit of work with our coin strip manufacturers, and that has been helpful, but we just can't go much further until there's been some kind of affirmative action by the Congress that indicates an intent to pass legislation like this. So, I may be able to save you a month here or a month there in that 30-month period, but we're sticking with the 30-month estimate at this time.
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    Chairman CASTLE. A month here, a month there adds up to real time after a little bit, so we'll keep talking about that.

    We're going to hear in the next panel from some of those representing the vending machine interests, and I think that's an important and a significant economic interest that we do have to pay attention to in this. But one thing I've learned—I didn't know before we started this process—is that a substantial percentage of vending machines today can take dollar coins. I personally never see Susan B. Anthony coins, and I have never thought to use them in a vending machine. I forget the percentage, but I think it's upward of 70- to 80-percent can take these coins now. And I understand that's the important reason not to change the size of this coin, but, at the same time, we try to draw legislation that would make this coin distinguishable from other coins, and that's why we use the different edging, and we use a different color which would help most people. But we did not make it a larger coin as Mr. Kennedy said, the large silver coin that he seems to favor, or whatever. As I understand that, that's because of the vending machine interest in this, but these machines also have sensors in them which they would have to change; there would be some cost involved in that. Is part of your alloy business to retain the gold color, in part, to deal with the cost of changing these machines? Can you give us a little discourse on that whole business of the vending machines from your point of view?

    Mr. DIEHL. Yes, there's really two issues here. One is physical size, and the other is electromagnetic signature of the coin, of the alloy of the coin. We apparently cannot produce a coin that is gold in color that has the same electromagnetic signature as the Susan B. Anthony, so you're absolutely right, there will be some conversion costs for the vending industry to reprogram the computers in their vending machines to recognize the new alloy. However, by retaining the Susan B. Anthony size, you avoid imposing a cost on the industry of changing the coin acceptor size. For example, if you were to replicate the British pound note, a thick coin, that would be a significant problem. If you were to develop a coin that a distinctive edge, that was scalloped, for example, it would roll through the mechanism in a different way than the current round coins do, and might well pose a problem as well. So, we can solve, and you do solve one of the two dilemmas that the industry faces, by retaining the size of the Susan B. Anthony. But the electromagnetic signal of this coin will be different, and they'll need to reprogram those machines. But I understand that for most of the machines that are in the marketplace today, it's really a pretty straightforward process of reprogramming them to accept the new coin.
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    Chairman CASTLE. Thank you, Mr. Diehl. I have a few more questions of this panel, but I want to give everybody an equal opportunity, so let me turn to Mr. Lucas now.

    Mr. LUCAS. Thank you, Mr. Chairman, and I'd like to quiz the Director for a moment about capacity. Now, remind me, Director, your big production year was fiscal year 1996?

    Mr. DIEHL. 1994 through 1996, we were consistently producing around 20 billion coins a year.

    Mr. LUCAS. And what was our production number for the fiscal year that just closed?

    Mr. DIEHL. About 14 billion, and I need to make a distinction here between pennies and the other denominations. In the years when we were producing close to 20 billion coins, we were producing somewhere in the neighborhood of 13- to 14-billion pennies, and that's a very different production process. The production process we will use to produce the new dollar coin will be much like the process that we use to produce clad coinage today.

    Mr. LUCAS. So, I guess my next inevitable question is, assuming with great hope and enthusiasm that circulating a commemorative quarter piece becomes law and that production factor added in, what kind of capacity figures will you have if the future trend of the next few years is anything similar toward fiscal year 1997 or this coming year?
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    Mr. DIEHL. To answer that question, really, the big contingency is how much demand we will see assuming that there is congressional passage of the circulating quarters program. The big question is what is the demand going to be for that program? That's where we have done some intensive analysis of the clad coinage production capacity we'll need in order to meet those various demand scenarios. The demand that we would expect as a result of this bill is really very small. We are currently issuing around 50 million Susan B. Anthonys a year. Even if this program were to double or triple the demand for dollar coins to 100- or 150-million coins, that's easily doable. The production of this coin is not a problem. The greater challenge is the timeframe for finding a suitable coin alloy to use. The production capacity is not a problem for this.

    Mr. LUCAS. So, assuming then we overcome the technical aspects, the physical capacity should be there to do both. You mention the 50 million coins per year draw-down at the present time on the Anthonys. How many half dollars a year are you producing, the 50 cent pieces?

    Mr. DIEHL. I think that's also around 50 million. Yes, it's right around 50 million.

    Mr. LUCAS. OK. And one last question to, I guess, the Assistant Secretary. If you could, for just a moment, repeat that line about the Treasury position on the intent of this bill.

    Ms. KILLEFER. Treasury is in support of this bill, and would encourage Congress to pass it. We would prefer not to produce more Susan B. Anthonys, and we think it's in the interest of the American public to have a new one dollar coin that is distinguishable from the quarter.
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    Mr. LUCAS. Thank you. Thank you, Mr. Chairman.

    Chairman CASTLE. Thank you, Mr. Lucas.

    Mr. Metcalf.

    Mr. METCALF. Thank you, Mr. Chairman. Very interesting, Mr. Allison. I thank you for that explanation. You said some very interesting things. The dollar coin costs about eight cents, and then it is issued into circulation at face value by the Treasury. That's correct?

    Mr. ALLISON. Yes.

    Mr. METCALF. And so the seigniorage, it costs you eight cents, but the Treasury gets, essentially, a full dollar, so it's 92 cents per coin seigniorage; it goes right into the Treasury in effect.

    Mr. ALLISON. It's a bookkeeping entry. Seigniorage is a bookkeeping entry, but, yes, the Treasury gets to net 92 cents right away, because it deposits those dollar coins with the Federal Reserve.

    Mr. METCALF. Right. It seems to me that we should issue all the coins that are needed out there.

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    Now let's talk about the dollar note. It costs four cents to print, you said.

    Mr. ALLISON. Yes. These are rough——

    Mr. METCALF. You rounded out, I understand.

    Mr. ALLISON. Yes, I said those were ballpark numbers.

    Mr. METCALF. But then the Federal Reserve, essentially, issues it into circulation.

    Mr. ALLISON. Yes.

    Mr. METCALF. And what do they do with that? They get 96 cents for every one dollar bill that goes into circulation, if it costs four cents. What do they do with that 96 cents? What do they buy with it?

    Mr. ALLISON. Yes, actually, the Federal Reserve buys a Treasury bill or Government security of some type worth one dollar.

    Mr. METCALF. And, thus, we pay interest directly or indirectly on every Federal Reserve note in circulation; over $400 billion.

    Mr. ALLISON. Let me make clear that the Federal Reserve buys those notes from the public; that is, those were Government securities that the Treasury had issued in the past; they're already put into circulation. They're a consequence of past budgetary deficits by the Federal Government. So, instead of the Treasury paying interest to the public or some other holder, it's paying to a different holder. This holder, however, the Federal Reserve System, returns all of the interest—unlike all other holders—returns all of the interest to the Treasury.
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    Mr. METCALF. Not all of the interest.

    Mr. ALLISON. At the margin, all of the interest. The Federal Reserve, as you know, keeps an amount necessary to cover our own budget, and that's about the first $2 billion, roughly, of earnings; keeps enough to add a small increment to an account called ''surplus,'' which is retained earnings. That's a few hundred million, and pays a dividend to member banks, another few hundred million, and then 100 percent of the balance over that goes back to the Treasury.

    Mr. METCALF. Right. You take out your expenses, and give the rest to the Treasury which is fine. I just wanted to make that clear. It seems like a strange system where we could issue the money directly as we do our coins, and gain the seigniorage, and, instead, we allow the Fed to issue it, and then we pay interest on it out of the Treasury, and then part of that interest comes back to us. It seems like an arcane system that could have been invented only by somebody who was mentally deranged.


    I think we're mentally deranged to continue it.

    Chairman CASTLE. Mr. Allison did not invent this system. I just want to make sure everybody understands that here.

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    Mr. METCALF. I'm not holding him personally—he's given us the best explanation that I've gotten for a long time on this, and I really appreciate it. I'm just harassing him a little bit on principle.

    Mr. ALLISON. Most governments have set up a central bank. As long as you can confine the authority to issue currency to your bank, to the public's bank, then it is, in effect, the same as if the government, itself, were doing it.

    Mr. METCALF. One question I have on the coin. I'm an advocate of Susan B. Anthony dollars, so I usually have one in my pocket. I don't have any today, and I'm embarrassed. But anyway, this looks like it's a little wider—a tiny bit wider along the rim—than a Susan B. Anthony dollar. I just want to make it—when you start building them, be sure they're exactly the same size so they fit in coin machines and so forth. It just looks a little different. Thank you, Mr. Chairman.

    Mr. DIEHL. I want to hasten to add that the mockup is not a product of the United States Mint.


    Chairman CASTLE. I forgot that; that's right, it's not. Thank you, Mr. Metcalf. I just want to ask a few more questions.

    One question that we talked about yesterday, which is interesting, I think the name of the company is Coinstar that has the different—you know, I'm feeling a little guilty; I'd better admit to all the things I've done this week—and I think it's totally coincidental, but I took all the coins I've been harboring for maybe about 10 years, and I took them into my bank. I could barely carry the doggone things into my bank yesterday in order to have them converted to money, and I intended to become quite wealthy from this, except I remembered it was mostly pennies and nickels. But in any event, having done that, it reminded me of what the Coinstar company, maybe others, are doing, in fact, which my wife has suggested we could have done, instead of going to the bank—and that is putting machines in the stores which take the coins and give you a credit that you can go to the cashier with. Is that having an impact on the recirculation of coinage, therefore, reducing the need for the Mint to produce more coins? I mean, a noticeable percentage impact, or is it too early to tell, and has anyone really looked at that yet?
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    Mr. DIEHL. We've taken a look at it, and we believe it is having an impact. How big of an impact it's having on coin demand, we're not certain at this point. Part of the reason it's hard to pin down is because Coinstar itself is growing so fast, and it really makes for a moving target to try to estimate what their impact is. They started out in 1995 as a regional operation in the Pacific Northwest, but they have now expanded to both coasts and are expanding into the Midwest; about 2,800 machines mostly in grocery stores now.

    But we believe we are seeing some impact on total coin demand on a regional basis over the last year, but how big of an impact, we don't know at this point. Coinstar just went public with an initial stock offering this summer, and in those offerings they have, of course, disclosed a lot of information about the company, and we are in the process of analyzing that information. They'll have another quarterly report that comes out the first of November, and we'll take a look at that as well, and that will give us a better idea of exactly what their impact on the market is.

    But your experience is, I think, very representative. I think it is mostly pennies and nickels that they are processing. There's a few dimes and quarters, but most people would be like me, and I suspect like you, where you pick out the quarters.

    Chairman CASTLE. Precisely, that's exactly what I do.

    Mr. DIEHL. You pick out the quarters before you dump them in the machine, and I think that's what the Coinstar experience is, and where we think we're seeing the impact on demand is, basically, on pennies.
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    Chairman CASTLE. OK. Assistant Secretary Killefer, I'm a little worried about your testimony. I like Mr. Allison's testimony, and I'll quote to you, he says, ''The Federal Reserve believes that H.R. 2637 achieves a good balance among the issues involving the dollar-coin-versus-dollar-note debate and supports its passage.'' In your testimony, it is something to the effect of ''The Treasury supports the intent of the bill as introduced.'' That always worries me. That could mean a variety of things, and you actually have more in here about that in two paragraphs at the bottom of your testimony, but, I mean, is Treasury just unwilling, at this point, to come out and support a particular bill? Does the Treasury support the concept of parts of the bill at least? I mean, I've talked to Secretary Rubin, in all fairness, about these things in the past, and he's always been a little reluctant to get into the design issues, for example my 50-State quarter bill, I think, is accepted by a broad universe of people, but he's a little hesitant about that because of what is expected. I'd be curious as to his really developing Treasury's position. We'd love to have your support for as much of this as we can get.

    Ms. KILLEFER. We do support the bill as drafted, and, just to be clear, we do believe that a redesign of the Susan B. Anthony to make it more distinguishable is an important step toward the acceptance of the dollar coin. I think as we look at the legislation, as crafted, the notion of it being gold-colored and a distinctive edging is something that we are fully prepared to support. I don't think, as you can imagine, that we would take a position on the design itself, and so that's probably what you're hearing, but we do support the legislation as drafted.

    Chairman CASTLE. Well, one of those amendments may hand that responsibility over to the Secretary to make that decision—I've heard that rumored out there too, so hold on to your hat as far as that's concerned, but I appreciate your clarification.
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    Mr. Allison, sort of change—actually, maybe a little bit of a follow up to Mr. Metcalf's questions—and I've asked you this before, but I haven't, actually, asked you this lately. Has Treasury, in recent months, seriously studied the potential for producing legal tender, electronic forms of money? I mean, I really do think this is starting to take hold a little more than we might have thought a year ago, and I'd be curious as to whether you all contemplate—the Federal Government should contemplate—being a player in this or just stand by and watch it happen? I don't know what—I'm not sure what we should do. I'll be just curious as to your thinking on it.

    Mr. ALLISON. The Treasury and the Federal Reserve have, in the past, taken the view that there ought to be less Government intrusion rather than more in this process, especially at the beginning, so that innovation can take place, and that remains the Federal Reserve position, I believe.

    Chairman CASTLE. This is going a little beyond my knowledge, perhaps, but aren't we dealing with an impact on seigniorage eventually. I mean, my understanding is that in many European countries, they've gone to electronic forms of currency to a huge extent, much greater than America, and we could do that here, at which point, you're going to have, sort of, private exchanges and not Federally-issued currency, which would eventually, I would think, impact some of the seigniorage numbers that we've already talked about here today. I mean, maybe you may need to refine my statement a little bit, but is that not correct, and do we not have to sort of keep an eye on that?

    Mr. ALLISON. I would agree with you in this sense. I would agree with you period, and let me elaborate a bit. The Government, neither the Treasury in the case of coins, nor the Federal Reserve in the case of currency, has a monopoly on all of the means of payment in this country. If we think about M2, which is the measure of money that's useful for policy purposes. Total currency, bank notes and coins together comprise only about 10 percent of that, and the rest is bank account money. So, the banks, in effect, are permitted to supply the public with 90 percent of its money as defined by M2.
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    If the public finds electronic alternatives to either currency or bank account money more efficient, I would say—and provided the other public policy concerns like safety and security and privacy and so forth are taken care of—then I would say that that's an appropriate development. That's a development that is in the public interest.

    Now, we should not let there be diminution in the usefulness of currency and coins, and, therefore, a diminution in the seigniorage earnings for the Government as a result of our failure to make the currency and coin system useful for the public, and so, in that sense, I think we do have an obligation to keep both bank notes and coins up with the times.

    Chairman CASTLE. Thank you.

    Mr. METCALF. Mr. Chairman, could I follow up with just one quick question?

    Chairman CASTLE. Mr. Metcalf.

    Mr. METCALF. Interesting point that I just thought of as you people were talking there. Interest is paid on all of the bank of Fed-created money. Is that not correct? Interest is paid directly or indirectly in the system on all of the money—you mentioned that it was about one-fifth. So, we got one-fifth, or we got part of it as coins, and then we're paying interest on the notes, but all the other four-fifths draws interest, directly or indirectly.

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    Mr. ALLISON. Let me clarify what I mean. One reason the Federal Reserve earns as much as it does, is that it pays no interest to the holders of its liabilities. Its liabilities are mainly currency notes, and the holders of currency notes don't earn any interest on those. By the same token, the holders of some bank account money don't receive interest; strictly checking account deposits, for example. Other holders of bank account money do receive interest. In every case, though, there is a corresponding asset that the financial institution which issues that money holds, which earns a return that, it's hoped, would be greater than the cost of those funds; that is, the earnings on those funds would exceed their cost. So, yes, the Federal Reserve earns interest on assets that fully cover the outstanding currency supply in the case of Federal Reserve notes.

    Mr. METCALF. On the outstanding currency supply?

    Mr. ALLISON. The outstanding supply of Federal Reserve notes, sure.

    Mr. METCALF. Well, thank you, that's very helpful. But the other four-fifths that is essentially bank money, interest is charged directly, is paid by the people in the businesses of America on all of that, indirectly or directly. It's all backed by debt, right? Interest-bearing debt?

    Mr. ALLISON. No, it's all backed by assets, loans and investments of commercial banks, and other financial institutions.

    Mr. METCALF. But they're assets of the banks.
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    Mr. ALLISON. So, they're assets of the banks that match the money liabilities, the deposit liabilities of the financial institution.

    Mr. METCALF. Sure, but interest is being paid on it by somebody somewhere.

    Mr. ALLISON. Well, the banks earn interest on their loans and investments, and they pay interest on many of their deposits so that the holders of that kind of money frequently do earn interest from the bank that issues the money.

    Mr. METCALF. Well, if you could sometime send me a memo and give me an example of money that is issued by the banks or the Fed that doesn't draw interest—now, I'm not talking about cash. We'll set cash aside, because we've sort of settled that. I believe that every other bank-created dollar in the Nation, interest is being paid somewhere, by somebody in the system, and if that isn't true, I'd really appreciate any examples you could give me. Thank you.

    Mr. ALLISON. I'll send you a note.

    Mr. METCALF. Thank you very much. I'd appreciate that. Thank you.

    Chairman CASTLE. Thank you, Mr. Metcalf.

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    Mr. Lucas, do you have anything further you want?

    Well, let me thank, very much, this panel, then, for your fine testimony and response to our questions. We appreciate it. We may have some follow-up questions, but we may not. I don't think there's a lot left outstanding, but we thank you, and we'll go to the next panel, and there are three members of that: Mr. Outlaw, Mr. Benfield, and Mr. Clayton, I believe.

    I don't think there's anything special to the order here, but we might as well call the order in which I've been naming, and so we will start with Alfred Outlaw, who is the Director of the Revenue Operations of the Southeastern Pennsylvania Transportation Authority, and those of us in the valley already know it is as SEPTA. Mr. Outlaw.


    Mr. OUTLAW. Good afternoon, Chairman Castle and Members of the Subcommittee on Domestic and International Monetary Policy. Again, my name is Alfred Outlaw, and I am the Director of Revenue Operations for the Southeastern Pennsylvania Transportation Authority, better known as SEPTA. I am here to speak in favor of H.R. 2637 which allows the United States Government to issue a fully identifiable one dollar coin. We also offer a friendly amendment and ask that the final bill include the withdrawal and elimination of the one dollar bill.

    SEPTA is one of the largest processors of one dollar bills in the Nation. On an annual basis, we collect and process approximately 41 million pieces of currency. Our ability to collect and process one dollar bills has improved over the years, however, the issuance of a one dollar coin will eliminate the labor-intensive problems associated with processing one dollar bills.
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    At SEPTA, the annual savings and direct cost is estimated at $540,000. Let me explain the potential for savings in the area of processing one dollar bills. The cost to process one thousand dollars worth of one dollar bills at SEPTA is approximately $10.11. The cost to process the same amount in coins is $1.22. The reason for the large difference is that handling paper currency is more labor-intensive. Coin processing is more efficient due to the higher degree of technology and availability of counting machines. I don't know of any technology that will fully process paper currency and meet the Federal Reserve's acceptance requirements that all paper currency is ''faced'' when stacked. This simply means all one dollar bills must be stacked with the portrait of George Washington facing the same direction. Therefore, our note processors must stack and face all bills by hand. Let me just show you a photo of what has to happen. Although this is not a picture of SEPTA, it is exactly what happens at SEPTA. As you can see, there are people just stacking, unfolding, taping one dollar bills.

    What I'm saying here is, as an administrator, I must consider all cost-cutting avenues to assist with our deficit reduction. I must also look at new ways to get the most out of our limited resources. The issuance of a dollar coin will not only provide processing cost savings, it will help transit authorities to hold the line on fare increases.

    The additional problems with paper currencies are it jams our fareboxes, and it is easy to steal. As a result, there is additional cost for theft deterrent equipment and an increase in maintenance costs associated with the use of one dollar bills. I speak without hesitation that transportation authorities across this Nation would love to substitute dollar coins for dollar bills. Passage of H.R. 2637 is supported by the American Public Transit Association and by many private transit companies across this Nation. When Congress takes the next step of eliminating the one dollar bill, this action will have a positive impact on the financial status of the transit industry. It will take some of us from the red into the marvelous black.
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    Finally, if the passage of this bill becomes reality, we fully understand there will be some costs associated with the change, but I assure you, the savings in processing coins would more than make up for the initial changeover expense. Again, we at SEPTA support the minting of an identifiable coin and recommend the next step of withdrawing the one dollar bill.

    Mr. Chairman, this bill is smart; it is efficient, and it must happen now. I'm available to answer any of your questions.

    Chairman CASTLE. Thank you, Mr. Outlaw, and we'll go through the panel, and we will probably have questions at that point, if I had to guess.

    And we next welcome James Benfield of the Coin Coalition for his testimony.


    Mr. BENFIELD. Thank you, Mr. Chairman. My name is Jim Benfield, and I'm speaking on behalf of the Coin Coalition, a group of 29 trade associations and companies.

    Ten years ago, Frank Annunzio was Chairman of the Consumer Affairs and Coinage Committee. When asked to support a new one dollar coin, he told the Coin Coalition, ''Come back when the Government's supply of Susan B. Anthony coins is depleted.'' And that's part of the reason why I think we're all here today; the fear of making more Susan B. Anthony dollars.
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    Mr. Chairman, we thank you and your subcommittee for addressing the need for a one dollar coin. We view your legislation as an important first step in modernizing America's legal tender system of money. We've all come to accept the extraordinary burden the Susan B. Anthony failure has placed on the Government. The American public simply is not willing to accept the notion of removing the paper one dollar bill without first seeing what its replacement will look like. H.R. 2637 will give them that opportunity.

    But we must be careful not to delude ourselves, because no matter how beautiful the coin is, we believe it will not circulate in large numbers. There is a technical explanation, and I think it's important to put it on the record. I've created a chart over here, and you can see most people get their cash from an ATM machine or a bank teller, usually in ten- and twenty-dollar bills. These bills are then spent at a grocery store, chain restaurant, convenience and drug stores. During these transactions, coins and bills enter the consumers pockets, and later on the coins and dollar bills find their way to vending machines and transit fareboxes, parking meters, pay phones, and library copy machines.

    In a way, the term ''circulate'' is a very appropriate term. Sometimes we have the idea that money jiggles back and forth in the economy; it doesn't. It goes in very tight circles. The large bills start at the bank; move to the consumer; then, they go to the cash register. From there, the coins are removed by the vending and mass transit industries. There was a notion in the Senate that ''Oh, if we give the vending industry and mass transit their coins, they'll be happy, and that's a great compromise.'' Well, the truth is that transit and vending remove coins from circulation; they don't put them into circulation.

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    So, then, the focal point becomes the cash register drawer. You can ask the question, ''Why should the retailer load his or her cash register with both one dollar coins and one dollar bills?'' Two forms of the same denomination are confusing, and handling both one dollar bills and coins is slower than just handling bills or just handling coins. A kid coming into a McDonald's says, ''Here, I've got some dollar bills. Hold on, I think I've got some dollar coins in my pocket.'' This actually slows things down.

    By analogy, it's like asking Blockbuster's to stock a thousand videos on VHS and then stocking the same thousand movies on Beta, and I suggest that maybe that's why Blockbuster said, ''Wait a second. We're just going to stock one standard,'' and they threw Beta out the window and stuck with VHS. And, in effect, that's what happened to the Susan B. Anthony; the cash retailers rejected it, and the public never received it.

    But not only does the one dollar bill effectively block the use of a dollar coin, it also blocks the entry of the two dollar bill, because there's no space for it in the cash register. The General Accounting Office, former Mint Director Donna Pope, and I believe the current Mint Director and other experts, all have stated publicly that a one dollar coin will not circulate widely if the one dollar bill remains in circulation.

    Under the provisions of H.R. 2637, cash retailers eventually may face the prospect of handling four different forms of the one dollar denomination. I might have some fun here, I'm going to unveil this new one dollar bill. We modeled this on the one hundred and the fifty dollar bills. The new fifty dollar bill is going to come out next Monday, as you well know. We could face a Susan B. Anthony with the Statue of Liberty dollar coin, the traditional one dollar Federal Reserve note, and, perhaps, a redesigned one dollar bill that is consistent with the Treasury's program for redesigning all currency. This subcommittee could help reduce confusion by amending H.R. 2637 to prohibit the Treasury Department from redesigning the current one dollar bill, and, believe me, the Coin Coalition doesn't want to see that bill at all. That's the bill we don't want to see.
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    [Pointing to enlarged new one dollar bill.]

    On the subject of public opinion, the mantra of our opponents has been ''The public strongly opposes replacing the one dollar bill with the one dollar coin.'' However, those polls have never asked the follow-up question: ''If the Government saves money, would you support the change?'' Last May, the Coin Coalition sponsored such a poll, the results of which I have included in my testimony. Here is what we learned: When told that the Federal Reserve and the GAO project savings of $456 million annually, on average over 30 years, in addition to large savings for mass transit, a majority supported the idea; 58 percent to 36 percent.

    Further, when your subcommittee held a hearing on the Kolbe legislation in May of 1995, dozens of editorials were written. Over 80 percent of those editorials not only supported the dollar coin, but also called for the removal of the one dollar bill. I have 107 such editorials, and many of these resulted from contacts made by our opponents. I got a call one day from the Philadelphia Inquirer, and they said, ''We just got a packet from Save the Greenback. What's the contrary argument?'' And I talked to them; shipped them some information; they studied Save the Greenback; they studied our packet. Read the editorial, it's a no-brainer. They didn't give one bit of margin to Save the Greenback's argument. They totally endorsed our position. We think that is true when the American public has the facts.

    I do not suggest that newspaper editorials equate to public opinion. I merely make the point that when reasonable people have the facts, they'll support replacing the bill with the coin.

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    As Congress delays a final decision on replacing the one dollar bill, the private sector will continue to build around the inconvenience of one dollar bills, and that's what we saw with the Chicago Transit Authority. They are building around the inconvenience. They're forced into doing this. If the subway cards, gambling tokens, telephone cards, parking meter cards, and so on, continue to carve away the $24 billion the Government avoids in interest each year, the taxpayers are going to be affected. While electronic cash is sometimes hailed as the third wave of technology in the history of money, electronic cash is nothing more than a return to the mid-nineteenth century, when the private sector controlled and issued most money. For most purchases under the cost of two dollars, coins can complete the transaction at a lower cost than any other payment system: credit card, check, stored-value card. One dollar bills cannot compete.

    It is in the interest of the Government and the taxpayer and the consumer to keep legal tender efficient and competitive. Unless Congress takes the next step eventually and eliminates the one dollar bill, H.R. 2637 by itself will do little to improve the efficiency of legal tender money.

    Again, I thank you for the opportunity to present our viewpoints.

    Chairman CASTLE. Thank you very much, Mr. Benfield. We appreciate your testimony, and last we'll hear from David Clayton who's president of Automated Food Service, Inc. of Nashville, Tennessee, a medium-sized vending machine operation, I've learned. Mr. Clayton.

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    Mr. CLAYTON. Thank you, Mr. Chairman, Members of the subcommittee. I want to thank you for the opportunity to testify this afternoon.

    My name is David Clayton. I'm the owner of Automatic Food Service in Nashville, Tennessee. I've been in the food and refreshment vending industry for over 30 years, and I'm past chairman of the National Automatic Merchandising Association.

    This afternoon, I am speaking for the thousands of companies like mine, some larger and some smaller, that employ over 250,000 people across this Nation, serving food and refreshment items through vending machines to tens of million of Americans daily.

    We appreciate the interest you have shown in the Nation's circulating coins, as evidenced by your quarter redesign legislation, which we support, and your dollar coin redesign legislation, which calls for the minting of a coin that is much like the design we have pushed for since 1987 in our efforts to obtain a widely circulated one dollar coin. I think the key word here is ''circulated.''

    H.R. 2637 states that it, and I quote, ''Provides for the minting and circulation,'' of a one dollar coin. While it does provide for the minting of an unspecified number of one dollar coins, we believe that it does not ensure their wide circulation. Practically speaking, we question how the coin will ever get into the hands of the consumer. A new coin is of marginal value to anyone if it, like the Anthony, is not available. What the public needs, and has needed for many years, is a coin that circulates widely like the quarter, the dime, and the nickel.
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    The U.S. is almost the only country in the world that has not introduced a higher value coin. To ensure wide circulation, the paper currency of the equivalent value was removed. Government agencies, including the GAO and the U.S. Mint, have previously acknowledged the same will be necessary in the United States to make the coin circulate.

    Specifically, the GAO in its March, 1993 report on the one dollar coin concluded that, and I quote, ''A successful conversion to a dollar coin depends on withdrawing the one dollar note; designating a champion within the Government to handle public relations; and having a well-designed and distinctive coin. Congress and the Executive branch would have to lead rather than follow public opinion for the conversion to succeed, but with good planning and determination, we believe a successful conversion is not only possible, but also beneficial.''

    Until the coin circulates widely, our industry will continue to be burdened by the capital investment, high operating costs and customer frustration and inconvenience in using the one dollar bill.

    Currently, 3.5 million vending machines contain coin mechanisms that accept the Susan B. Anthony coin. To adjust these coin mechanisms to accept a new coin will cost the industry an average of fifty dollars per machine. Please understand that I am not suggesting that the vending industry is opposed to incurring the cost necessary to change to a new dollar coin. For over 10 years, we have been prepared to do so. But we also anticipated a phase-out of the one dollar bill, and the substantial cost reduction from its elimination.

    Mr. Chairman, I would like to thank you for inviting me to share my thoughts on behalf of the vending industry regarding the proposed new coin. In the early 1960's, one coin, a quarter, could buy a candy bar and a soft drink. Today, the average selling price of a single product is more than sixty cents, necessitating a minimum of three coins to make a single purchase. As a consequence, we have been forced to add bill acceptors costing nearly $400 to virtually every machine.
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    Since the proposed legislation will once again substantially impact our industry, we would urge that no new coin be minted unless the Congress and the Administration agree on a plan to ensure the coin's success. Obviously, this issue is terribly important to the vending industry. In fact, it is the most important issue we have ever faced. If there was any logic to believe that the coin would circulate widely within a few years after its release, we would enthusiastically support this legislation. Thank you.

    Chairman CASTLE. Thank you, Mr. Clayton, and thank you all very much for your testimony.

    Mr. Outlaw, I must ask you a question that's completely off the subject that we're discussing here today, and that is the AMTRAK strike. Do you have any updates on the AMTRAK strike, and can SEPTA continue to function if a strike does occur?


    Mr. OUTLAW. Well, SEPTA does use AMTRAK rails, and if they do go on strike, I'm here to say that it will hamper service that is extended to the far ends of Delaware and New Jersey of which provide service on AMTRACK's rails. Yes, it would affect us.

    Chairman CASTLE. Well, we're meeting this afternoon, some Members of Congress, to try prevent this, and we hope that all of you are working hard on it as well, because it's a problem for all of us.

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    Mr. OUTLAW. Yes, we have strike plans in place to try to accommodate those that will drive to our light-rail system, which is subways and the surface vehicles that we have to accommodate the influx of those that will be hampered by the strike.

    Chairman CASTLE. Well, maybe it does relate more to this hearing than I thought, because if it does take place, obviously, there's going to be less currency circulation and less counting and less of things that you've testified to here today.

    Let me—Mr. Benfield, you indicated—and you're extremely knowledgeable about this—but you indicated the four forms of money. In reality, do you think that the Susan B. Anthony coin is really going to circulate much once it is completely out?

    Mr. BENFIELD. No, I think it will be gone very quickly. I think because the people who actually use them, when they go to the bank and there aren't any Anthonys, they'll come up with a new coin that will be much more popular with the consumer. The people who have stores of them will return them to the bank; they'll trade them in, and I would think that anybody who uses the Anthony regularly would make the changeover extremely quickly.

    This is the dangerous fellow over here.

    [Pointing to enlarged new one dollar bill.]

    Because I know that for the hundred dollar bill, the Fed actively pulls them out of circulation whenever they get a hundred dollar bill. They retire it. But it would not be their intention to pull the low-end currency and retire it. So, you could be facing a minimum of an 18-month overlap, perhaps, going on for two years. So, of the overlap, that is the most dangerous one and the most critical one. We'd like some reassurance that that's not going to happen. We would welcome that reassurance.
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    Chairman CASTLE. Well, let me ask you a question about what's going to happen or not going to happen. I think all of you are in favor of eliminating the one dollar bill on this particular panel, but how do you propose selling this idea to the public? The idea of withdrawing the George Washington paper dollar, I mean, it's fine to have all these editorial writers who are stating this, but the bottom line is that Members of Congress aren't hearing that from their constituents. I've gone to rotary meetings, two or three of them in Delaware, when this issue first came up; talked about pennies which had some receptivity; talked about eliminating the dollar which had, frankly, much less receptivity. I know in Canada it had low receptivity also, and then they did it, and it worked out positively. Are you suggesting that Congress should just step up to the plate and do it? Or is Congress—particularly the House, by the very nature we run every two years, is very cautious about doing things in which 80 percent of the people in a poll might say they're not in favor. I mean, this is a very political issue. It's not so easy to get done. It might be a good currency idea; in ''Currency 101'' it's the thing to do, but the bottom line is that we've got political votes here and, quite frankly, and Mr. Kolbe is sick of hearing this too, but I've given up any real hope of getting this done. That's why I've come up with this plan as an alternative, and maybe someday that could happen. I don't even necessarily favor it myself, at this point, based on what I've heard, but, I mean, can you give me any help with respect to that? Or is it just a question of, ''Well, Congress, it's probably the right thing to do, so you should do it; forget where it is from a public reception point of view?''

    Mr. BENFIELD. Well, I'm quite sincere in saying that H.R. 2637 is the first step. The first thing I would do in a PR campaign is show people what they're going to get. Already, we heard Mr. Kennedy today say, ''Well, it's the wrong size.'' But let's put on the record that the coin pair that is very nasty, that's very close in size, is the nickel/quarter. The nickel is 5.0 grams; the quarter is 5.6. The Anthony's 8 grams. It's 40 percent bigger than a quarter. Yet the public—one of the gripes is that the Anthony and the quarter are the same size, so your bill is the first step. ''Oh, that's a nice looking coin. Oh, yes, I think I could live with that.'' That's the first step.
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    In 1987 I was in weekly communication with the Royal Canadian Mint, and they had just rolled out the coin when we got going, and Murray Church, the Royal Canadian Mint Director of PR, used to say, ''Jim, you know the three rules of real estate: 'location, location, location.' Forget all your arguments about the dollar coin and remember one: 'saves the Government money.' If you can get that message across to the American public, you can win it.'' And I think we've demonstrated here that you're going to get beat up in your local hometown newspapers. As a matter of fact, you might get praised, and that's the message that has to get across.

    And then I've always referred to something as the ''squeal period.'' You're going to have a period when the public says, ''Oh my God, they're really going to do away with the one dollar bill.'' And once you get on the other side of the ''squeal period,'' people say, ''Hey, this is actually kind of convenient. I'm not pumping eight coins into that darn parking meter; I'm pumping two. Well, this is actually kind of nice.''

    Chairman CASTLE. Well, you better convince Members of Congress they can get by that ''squeal period'' without losing an election in the interim; that's the basic problem we have there.


    Mr. BENFIELD. You better time the ''squeal period'' so that it comes right after an election in the odd-numbered years.

    Chairman CASTLE. Maybe the Senators can do that or something.
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    Mr. OUTLAW. Mr. Chairman, I do not see that the decision that will be derived from withdrawing of the one dollar bill equates into losing votes.

    Chairman CASTLE. Well, I'm being a little facetious, but there are Members of Congress who just basically don't want to do something they don't need to do, which they hear on the street is something people don't want. It's not really a question of votes. I was being a little tongue-in-cheek. But you know, basically, they've seen the polls, and people tell them, ''Don't get rid of the dollar.'' There's a certain—I'm not arguing this; I'm playing devil's advocate—but there's a certain sanctity to the dollar, to the green-back. It's the American dollar. There's an essence to it that doesn't exist with a lot of other currency in the world, or even with other currency in America, and that's what we're dealing with. I mean, that's the political persuasion that we're up against in this circumstance.

    Mr. BENFIELD. That could force it also. When people see the alternative, and if that does happen, we want to be prepared to say, ''Oh, my gosh, if Susan B. Anthony isn't the alternative, thank goodness that Mr. Castle had the foresight to do this back in 1997.''

    Chairman CASTLE. Mr. Castle, the guinea pig, you mean.


    I think one argument you make, Mr. Benfield is correct, and that is saving the Government dollars. For instance, the 50-State quarter bill to some people sounds a little, perhaps, unnecessary, and some people think it's fun. And then they hear that with the seigniorage issues and people saving this coin, we save, at a minimum five billion dollars over 10 years, and all of sudden they say, ''Well, maybe that's not all that bad.'' So, getting those economic figures down is very significant, and I don't disagree with that, and I think that's, actually, a very valid point.
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    I want to go to Mr. Clayton, quickly, so we can go to the others as rapidly as possible, and I learned this more from the pennies than I did, frankly, from the dollars, but I'm going to apply it to the dollars. When I talked about the pennies, I've had many people look me right in the face and say, ''Boy, if you get rid of the penny,'' and they are still charging people odd numbers out there, ''they're going to round it up.'' 7-Eleven, or whoever it's going to be, is going to work it out, so we're always going to pay up to the nickel rather than down to the zero cents; that is, if you round one and two cents to zero, and three and four cents to a nickel, and people are convinced that it is a built-in inflationary factor with higher prices going to dominate. I think there is some concern about that with vending machines. If all of sudden you have one dollar coins, and you eliminate the one dollar bill, I think a lot of people are concerned that sodas are going to cost a dollar; candy bars are going to cost a dollar; that there's going to be a natural effect to round up prices to a higher number. I'd be curious as to your comments on that.

    Mr. CLAYTON. Mr. Chairman, if we had that intent, we would have done that back in 1982 when we came out with dollar bill acceptors for each machine that cost the industry an additional $300 to $400 apiece. What we're doing today, or what we're talking about today, could be inflationary and could drive costs up in vending. Because it will cost us, even though the coin is the same thickness in diameter as the Anthony coin, as Mr. Diehl testified, the change in metallic content we will have to make an adjustment to each coin mech. About 85 percent of the coin mechs that we have on location today will accept the Anthony-size coin, the new metallic content will cause a service call that will cost us approximately $50 per machine to correct that and make that coin mech read the new metallic content. We don't mind that, as I said in my testimony. I feel like that is a good tradeoff and could save us an awful lot of money, but not without eliminating the one dollar bill. This is only an added expense with nothing coming back to us in any form of benefit.
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    Chairman CASTLE. Well, I'm going to argue with you for a moment, and then I'm going to leave it alone, and let it go on to somebody else. I would argue that if you had a coin with some acceptance to it, even without eliminating the one dollar bill, there would be a greater increased usage than most people read right now, and that would benefit you, because I would also argue that—you and I discussed this once—but the dollar receptors are just not perfect. I mean they're very—they should be—and they're very sensitive machines in terms of whether they really work or not. We've all had the experience of putting the dollar bill in several times, plus, in addition, you have sort of a competitive—not at midnight, in one of these buildings, you don't—but in a lot of situations, you have a competitive circumstance in which people can use machines or some alternative. They go downstairs to another store or whatever it may be in a building, so that you have to keep your pricing within the range of what other people are charging.

    So, there's some dampening effect in your ability to transfer your cost basis, and I don't know anything about the economics of these machines, but I would imagine in some of this, $50 is not, over a period of time, an overwhelming number. It's not a pleasant number if you're in the business—don't get me wrong—but not an overwhelming number. So, there's some economic reasons for it in my judgment. In other words, I think you could argue a little bit on both sides of that issue. Go ahead and respond if you wish.

    Mr. CLAYTON. Well, my feeling right today, though, we are putting out the Anthony. The industry is using the Anthony coin extensively in a lot of locations. They're put into bill changers, and if we eliminate the dollar bill acceptors on the machines, so if you go into a location with a five dollar bill; you put your five dollars in a bill changer, you get five Anthonys back and each machine within that closed environment will take those dollar coins and dispense change. So, right now, we have a coin that we're perfectly satisfied with, and if it's not going to circulate any more than the Anthony circulates, we, as an industry, prefer not to see the coin changed, because it is a beautiful coin, but in my opinion it's a real shame that nobody's ever really going to see it, because it will not circulate.
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    Chairman CASTLE. It will circulate. I guarantee you it will circulate.

    Mr. CLAYTON. We have different opinions.

    Chairman CASTLE. Obviously.
    Mr. Lucas.

    Mr. LUCAS. Thank you, Mr. Chairman. Just sitting here scribbling on a piece of paper and thinking about Mr. Outlaw's comments that it appeared—if I understood his testimony—that the difference in cost between hand processing—or processing, I should say, a thousand paper bills coming in as opposed to a thousand in change was almost nine dollars per thousand?

    Mr. CLAYTON. That's correct.

    Mr. LUCAS. And in thinking also about Mr. Clayton's testimony of $50 per machine to make the adjustments, the service call, and the things you'd have to do. Now, granted I don't know what the volume of business is on average in those vending machines across the country, but it would appear by rough math to require almost $6,000 in transactions if you saved a $1,000 per transaction. With that in mind, for curiosity's sake—and you said, Mr. Clayton, that 85 percent of the machines—if I understood you correctly—were already geared up to take the Anthonys, now, in this country. With that in mind, for curiosity's sake, if there are industry numbers, broad industry numbers—and I realize comparing apples and orange is not always that difficult or all that simple. What does a typical machine that a member of your big association—how many dollars do they take in in a year, if there is such a thing as a public number?
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    Mr. CLAYTON. An average—

    Mr. LUCAS. Across the board, and I know it varies—soda pop machine in the country to somebody's vending machine in front of WalMart.

    Mr. CLAYTON. I know what we feel like a good average is, and what we strive for, and I think the industry would agree with us is approximately $100 per machine per week.

    Mr. LUCAS. So, $5,200 a year, approximately?

    Mr. CLAYTON. Yes.

    Mr. LUCAS. OK. That $400, right now, that you're having to pay to install the mechanism to accept the one dollar bills or the five dollar bills, whatever. From an industry standard, mechanically on average, how many bills will they take before you can expect to have to service them, to have a malfunction, if there are such numbers ground out?

    Mr. CLAYTON. That's really not available, but in an environment like we're in today here in this building, it would go a long time in a foundry or a steel mill or a——

    Mr. LUCAS. A gas station?

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    Mr. CLAYTON.——Furniture production, it wouldn't last very long. They have made great strides and improved the bill acceptors over the years, but, at the same time, the bulk of, I would say, about 40 percent of my service calls and maintenance and upkeep, those calls are still on bill acceptors. So, they're costing us not only to install, to accept the dollar bill in the beginning, but also to maintain and keep them working so that our customers aren't unhappy.

    And we also share the same problems that Mr. Outlaw has in processing currency versus coins. I can count approximately a thousand in coins in a minute, and I'm sure my record's not as good as his on processing one dollar bills. So, it is a deterrent, also, in that area.

    Mr. LUCAS. I appreciate your comments, and I appreciate your point, and, clearly, the Chairman, as usual, deserves a pat on the back for being willing to consider issues that sometimes have a little intensity to them. Thank you, Mr. Chairman.

    Mr. CLAYTON. He should get a pat on the back for inviting me, because I think he knew what I was going to say.

    Mr. LUCAS. We have to have the perspective of all parties.

    Chairman CASTLE. We knew precisely what you were going to say, Mr. Clayton.

    Mr. Metcalf.
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    Mr. METCALF. No questions, Mr. Chairman.

    Chairman CASTLE. OK, we have nothing further, and I don't believe I have any further questions, but I thought I'd summarize for a couple of things that I thought I heard today.

    One is, I heard from practically everybody for various reasons, there's a couple who are a little reluctant to speak up that this coin is preferable to the existing Susan B. Anthony coin in the abstract, setting aside the issue of the elimination of the one dollar bill or not. Virtually, everybody supports the coloring and the edging. Some people are maybe a little—for political reasons—hesitant on the Susan B. Anthony versus the Statue of Liberty. I think if anyone has a chance to examine, though, they would find that this quarter and this Statue of Liberty depict two great symbols of America which are very well crafted on this particular coin.

    I have heard certain quarters—''quarters'' is probably not the right expression—certain people have testified here today that getting rid of the one dollar bill is desirable. Others feel, obviously, it is not, but I think there is agreement that it's difficult to do, and I'm not suggesting that we should do it or not. My position is not one of advocacy here; it's getting this done, but I think it is important to understand why we should do it, and where it has worked otherwise, such as in Canada, the issue of the cost of the Government. These are issues which we should explore.

    I also understand from the testimony today that the Mint probably could reduce its estimates of 30 months by—according to Mr. Diehl's testimony—a month or two, and maybe there's a little more than that in there, but not too much more. You can't get this down to the point you've given them two months and expect them to be able to turn around and be able to issue this coin. So, we're in a situation in which we are going to have to, in my view, start to move forward one way or another, and maybe some people don't want to make the hard decisions on this, but my judgment is it's better to make them and get it right than it is to wring our hands and find we've gotten too close to the period and go back to reissuing the Susan B. Anthony coins which is the alternative, after all, in all of this.
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    We appreciate your testimony. I, quite frankly, welcome the written statements of anyone who wishes to speak to us about this subject, because maybe there are ideas or thoughts out there we haven't heard yet, people who we did not know about or we could not get to this hearing. My idea is to hear from everybody we possibly can, and as I've indicated within the realm of reasonableness, I don't think any suggestions or amendments to the bill, or whatever, should be discouraged, because we do want to make whatever is in the right decision. The one thing I'm sure of is we're not going to please everybody. That much I've learned, but I think we should continue to move forward.

    I also appreciate the time of witnesses. You come here—you're very fortunate you're not here on a day in which we're voting, which could be very frustrating—but you come here; you spend a great deal of time with us, and I think we all appreciate that. So, we thank all of you. We'll continue to look at this, and we stand adjourned.

    [Whereupon, at 3:10 p.m., the hearing was adjourned subject to the call of the Chair.]