Making Money at the U.S. Mint
The U.S. Mint just released another new quarter and announced plans for a
new dollar coin in early 2000. Both ventures are anticipated to be highly
profitable for the Mint. Why all the new coins? And how does the U.S. Mint make
money?
In 1997, Congress passed the Commemorative Coin Program Act, which mandated
that each of the 50 states be honored with a new quarter over 10 years
(1999-2008). New quarters, with George Washington on the front and a state
design on the back, are being released every 10 weeks in the order that the
states ratified the Constitution (click here for the
release dates). The new $1 coin will honor Lewis and Clark's Native American
guide, Sacagawea (click here for the Washington Post article on how the U.S. Mint
plans to make the Sacagawea dollar more successful than its predecessor, the
Susan B. Anthony coin).
In passing the law, Congress cited the coins' educational value, saying the
new quarters would "promote the diffusion of knowledge among the youth of the
United States about the individual states." Collectors also lobbied for the
change, since U.S. coin design had changed little in 50 years. But the major
advantage was the potential profit.
The U.S. Mint is in a good business: It can cut and stamp a piece of metal
and sell it for the face value of the coin. A quarter, for example, costs the
Mint five cents to make, but sells for 25 cents--an 80 percent profit margin.
These profits, called "seigniorage," go into the government's general fund and
are budgeted by Congress just like tax revenue. (Old coins can also be
exchanged for new ones, but this accounts for only a small portion of the coins
manufactured each year.)
Although Economics 101 teaches us that the Federal Reserve Bank uses "money
supply" as a tool to stimulate the economy and control inflation, this does not
mean that the Fed regulates the supply of bills and coins. New coins and bills
are an insignificant percentage of the total money supply, which--depending on
the definition--also includes checking and savings accounts, money market
holdings, mutual funds, and other financial instruments. (Instead, the Fed buys
and sells securities, changes interest rates, and adjusts the required reserve
ratio--the amount of hard money banks are required to have on hand--to carry
out monetary policies.) So, coins (and bills) are simply supplied as demanded
in the marketplace.
In a typical year, the Mint makes 1-1.5 billion quarters. But it estimates
that upwards of 150 million Americans are collecting the 50 commemorative
quarters, which is creating an unprecedented demand. The new quarters are now
being produced at a rate of 5.5 billion per year, and the Mint estimates that
the quarters series will generate at least $6 billion in profit.
Next question?
Explainer thanks the U.S. Mint and the Federal Reserve
Bank.
