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Fe d er al Reser N o f Y e w Ban ve / k o r k / C i r c u l a r No. 3 7 6 5 ) 'S e p t e m b e r 2 8 ,1 9 5 1 C O I N S H O R T A G E To all Banking Institutions in the Second Federal Reserve District: On from of the THE N e w Y o r k coins. shortage already T hi s scarce winter an d is h a v i n g copper and customers upon hop e that not ards only detail It serious eas y solution points out continue the a feature the c u r r e n t why no future. and o u t l i n e s sufficient is r e p r o d u c e d 1951 o n probability is at and coin to and tha t increase difficulties appropriations builds of s e r v i c e fault. display, to We for the to b r i n g to to p u b l i c to the good which normal customer hav e and shall bes t We all article shortage to the demand coin for the fall the M i n t which during has had adequate be should supplies of will loose and to be is of work. relations, to y o u r n ei the r yo ur bank n o r the to supply edit o r s , of and all into o u r Banks volume gl a d in e x p l a i n i n g of be us banks, performing uncounted true A ready however, associated coi n that but with additional for similar to do use e v e r y p o s s i b l e savings It useful that interest appeals. com e article newspaper coin accept the is g e n e r a l paper currency. arrange adds find s hortage. others int o wil l shortage is c e r t a i n l y in r e s p o n s e coin 24. in s o m e in all tha t y o u lobby present if they l o os e circular in the n e a r season, Bank for exchange windows September explains will the c o i n Reserve depositors vice coins this nickel. It the article in s e c u r i n g request ease T i m e s of shopping We Federal p a g e s of is to be e x p e c t e d and for inside means either Al l a n we can upholds banking to to e n c o u r a g e for brought acceptance the p u r p o s e s. deposit a valuable public accepting a ls o all copies to or ser their and c o u n t i n g of unwrapped the high system. sproul, P r e s id e n t. coin stand SIjjc N mfjork Si V Copyright, 1951, b y The N ew Y o rk Tim es Com pany. *8S 48J «S K S r- U. S. Becoming Penny-Poor; Mint Lacks Metal and Funds M A K IN G M O N E Y : A n employe feeding blanks to penny coinage press at the Mint in Philadelphia. B y GEORGE A . M O O N EY The United States, like so m any K orea last year, arises from the o f its individual citizens, is running later in flationary developm ents throughout the United Stat s. ou t o f money. in circulation. which N ow , when the G overnm ent is M oney spending a t the greatest rate in its amounted to $27,026,000,000 i history, w ith the daily pay-ou t June. 1950. now totals 528,140,000, a vera gin g tw o hundred m illion dol 000. Retail sales are up and prices lars, the U nited States is su fferin g are higher. Odd-penny prices, re from a sh ortage o f small coins, flectin g cost increases, sales taxes and the increased use o f parking especially the lo w ly penny. m eters and vending machines, The man on the street m a y not w hose cash boxes im m obilize coins, have noticed the shortage, but i t is all are factors in the situation. M etal shortages and the copper so a«u te th at the United States strike have intensified the prob Treasu ry’ s Bureau o f the M int is lem . L a rg ely because o f the strike, o p eratin g double shifts t o increase n ot one pound o f the M int's Sep production, w hile in N ew Y o rk the tem ber cop p er has yet been deliv Federal R eserve B ank is rationing ered. T o m eet tlris situation, the its supplies o f pennies, nickels and M int has been stretch ing its A u gu st supply b y cu ttin g produc quarters. tion o f pennies and nickels, which The shortage, firs t observed really contain 75 per cen t copper. ♦after the outbreak o f hostilities in Only a small alloy o f cop p er is re quired in the m anufacture o f dimes, quarters and bnlf-dollars, and the bulk o f the M i l l ’ s produc tion is now concent, ated in these pieces NEW Y O R K , M O N D A Y , SEPTEM BER 24, 1951. Nevertheless, even the silver coins are becom ing increasingly scarce, and last week the Federal R eserve Bank o f N ew Y ork began restiictin g the requests o f banks fo r quarters to 50 per cen t o f their 1950 requirem ents. Silver, of course, presents no supply problem and the Governm ent, w hieh buys every ou nce o f silver mined in the continental United States and Alaska, n ow has about 2,000,000,000 ounces. O f this total, about 160,000,000 ounces or n early $150,000,000 o f the m etal is so-called “ fre e ” silver and is available for coinage. N or is there a n y shortage of currency. The Bureau of E n gra v ing, w hich turns out dollar bills and oth er “ foldin g m on ey” f o r the Treasury, reports adequate inven tories on hand. R ecen t sim p lifica tions in en gravin g m ethods, it says, have elim inated any possi b ility o f its failure to sa tisfy the national requirements. T he la ck o f small change, h ow ever, is becom in g increasingly acute, as the nation’ s fall and w in ter shopping season "gets under w ay. N orm ally, during the slack sum m er m onths, there is a h eavy return flo w p f coin in to the Fed eral Reserve Banks, w hich is then fed b a ck in to circulation as the Christm as trade reaches its peak. This year there has been no such flow . The Federal Reserve Bank o f N ew Y o rk ’s a verage daily re ceip ts in pennies last yea r a t this tim e am ounted to $28,000. This yea r the average is on ly $2 ,000. Shortage Grows Worse A lthou gh the shortage w as first noticed a fter the K orean outbreak last year, and n ow is w orsening, C ongress thus fa r has done nothing about it. Despite its apparent re c ognition that “ the M int m akes m oney m akin g m on ey,” and shows a trem endous p ro fit on its opera tions, C ongress has seen fit to re duce the M int's appropriations. Thus, unless em ergen cy funds are granted soon, the M int w ill be re quired to curtail its operations— even assum ing that it can obtain the necessary copper. In the fiscal year ended June 30, 1950, the Mint, w ith an approprial o n o f $1,417,000, issued coins w ith a face value o f $31,261,000, w hile in the fiscal year ended in June, 1951, the appropriation w as $1,873,000 and the coins issued w ere w orth $32,170.000. D uring the first sixs m onths o f last year, the post-w a r return flo w o f coin was la rgely com pleted, dem and fo r new coins w as a t the low est level in a decade^ and the M int cu t back its production. In the second half, how ever, the Korean outbreak, panic buying and inflation renewed the dem and fo r coin. Mint Seeks More Funds In F ebru ary o f this year, while the Mint w as attem ptin g to m e e t ' this u nexpected developm ent, it asked C ongress f o r a deficien cy appropriation o f $330,000. It was n ot until June, w hen the fiscal year w as alm ost ended, that Congress granted $130,000, and o f this total $50,000 had to be used fo r auto m atic sa la ry increase.3. In this year's budget the M int requested $5,190,000 fo r its operations to produce 1,700,000.000 coins. In stead it received an 'appropriation o f $4,600,000, which, it is esti mated, w ill perm it production o f 1,400,000,000 coins. Again, h ow ever, the appropriation w a s de layed until A u g. 13, and the authorities at the M int w ere unable to schedule the necessary production until the financial m eans w ere a t hand. N ow the M int, stripped o f its inventories, is g oin g all out within the lim its im posed b y th e sm aller appropriation, and the shortage o f cop per and nickel. It has the plant and productive ca p a city to make all the coins needed and has pro duced as m any as 4,000,000,000 coins in a year, as it did in 1945. N orm ally it uses p a rt o f its excess ca p a city to m ake coin s fo r foreign countries. O f the nation’s three m inting o ffice s th at a ctu a lly m ake coins, one in Philadelphia has been oper a tin g on a sixty-h ou r week, but, because o f the stretch -ou t policy, this has been cu t t o f ift y hours. T he D enver M int has been running tw o shifts on a fifty -h o u r week, w hile the m int in San Fran cisco w as holding to a fo rty-h o u r week schedule because the high cost of coin shipm ents confined its pro du ction to W est Coast use. D espite the em ergency, and the special e ffo rts being made, the M int even now is operatin g a t less than 50 per cen t o f its capacity. U nder the General A ppropriations A ct o f 1951, G overnm ent agencies are required ^ o apportion their funds equally over the year, un less unequal apportionm ent will n ot involve the need fo r a deficien cy appropriation. But. obviously there is no w a y fo r the Mint to kn ow h ow lon g the present de mand fo r coins w ill continue. A nd even if it is granted em ergency funds, the m aterial shortage re mains. F or its Septem ber production, the M int asked fo r 1,000,000 pounds o f copper. The National P roduction A u th ority cu t this re quest 30 per cent, and agreed to a total o f 700,000 pounds. A n d as yet, not a pound o f this has been delivered. Meanwhile, the M int an ticipates that its future alloca tions, n ot on ly o f cop per but o f nickel, w ill ba below average needs. U. S. Becoming Penny-Poor; Mint Lacks Metal and Funds V. S. Is Rapidly Becoming Penny-Poor; Demand for Small Change Tops Supply The nation's h istory has been m arked b y period* w hen lack o f su fficien t coins has caused serious difficulties. P rio r ’ to 1853, when the silver content o f coins w as re duced w henever the bullion value becam e equal to fa ce value, the public would m elt the coins foi their m etal content, and trade su f fered. In the Civil W a r th ere w as * tim e when coins w ere n o t in circu lation and to m eet the need socalled paper "sh inplasters” wert issued and circulated in amounts as low as 3, 5, 10 and 15 cents. Use o f postage stam ps to make ch ange was also authorized by C ongress in ord er to ease the situation. D uring the last war, when fo r a tim e m etals w ere un available, several cities th at w ere short o f coins issued certificates and tokens as substitutes f o r coins. U nder th e coin -rationing p r o gram now in e ffe c t here, th e F ed eral Reserve B ank o f N ew Y ork has been lim itin g supplies o f pen nies since O ct. 16, 1950. A t that tim e, the bank im posed a 70 per cen t quota on dem ands f o r coin, and the rate has since been ad ju sted in a ccordance w ith the ch angin g supply picture. A t pres ent banks are being lim ited to 25 per cent o f their penny require m ents o f a yea r ago, w hile nickels and quarters are being rationed at a ^0 p er cent rate. In oth er areas, the regional Federal Reserve Banks have sim ilar rationing poli cies. Appeals Ignored Everyw here, the authorities con cerned have asked loca l banks ana m erchants to lim it their ow n needs to an absolute minim um and to urge th eir patrons to em p ty their cookie ja rs, p ig g y banks and oth er household savings repositories so that the situation w ill be eased. In stead, it appears that as in other ca*?es o f shortage, these appeals h p v - » som e tim es tended to increase '.'Or rdin?, thereby in ten sifyin g the problem. A ccord in g to som e inform ed ob servers, the situation verges on the absurd. The need is great and the requirem ents are small. Plant ca p a city exists to supply the fulh de m and for coin. The M int's consum p tion o f cop per and nickel is insig nificant b y com parison w ith other industries and it is the m a jor cus tom er fo r the silver, w hich the Governm ent, undei the law, m ust bu y from dom estic producers. F i nally, it is one o f the m ost p r o f itable o f G overnm ent agencies. T he follow in g table show s the M int’ s recent consum ption o f metal for coins: Fiscal Fiscal Fiscal 1949 1950 1951 tons tons tons S ilv e r .............. 967 370 1,061 Copper .......... 2,269 1,484 3,100 N ickel ............ 215 98 56 *Zinc and tin. 85 63 148 •Small quantites are used in man ufacture o f pennies and nickets. A ppropriation s gran ted f o r the M int cover on ly m anufacturing co s ts and do n ot include paym ents fo r m etal. This ch a rge is covered b y a revolvin g T reasu ry fund, and expenditures fo r m etal purchases are not show n in th e M int’ s budget. The 1,061 tons o f silver used in the last fis ca l year equaled 30,954,984 fin e ounces, w orth about $45,000,000 in coins. G overnm ent purchases of. newly mined dom estic silver in the same period totaled 40,559,730 ounces, fo r w h ich th e T reasu ry paid the sta tu tory price o f 90.5 cents an ounce. U n til recently, w hen the M exi can G overnm ent undertook a new sales policy, the m a rk et price of silver w a s about 80 cents an ounce. N ow th e price is 90.4 cents, ju st under the 91 cents level, at which the U n ited States T reasu ry’s non m onetized silver cou ld b e sold to the public. In recen t years, virtu ally none o f this silver supply has been sold. Thus, th e M int has been the only m a jor cu stom er fo r the silver, w hich the Governm ent has had to b u y and hold in accordance w ith the law. B u t the p ro fit w h ich accrues to the G overnm ent through th e m int in g process arises fr o m the pro duction o f all types o f coins. A c cord in g to data presented in A pril o f this year, in hearings b efore the subcom m ittee o f th e Senate C om m ittee on A ppropriations, the m an ufactu rin g cost o f 1,000 pen nies, w orth $10, am ounts to $1.32, w hile th e co st o f m etal w as $1.34. The follow in g table, subm itted at th at tim e, snow s the breakdow n for all types o f sm all coin s: D enom ination 1 5 10 25 50 FIRST OPERATION IN I COIN PRODUCTION! Digitized for Silver strips coming from a r o l l i n g machine being placed on FRASER http://fraser.stlouisfed.org/ conveyor by a worker at mint in Washington. Federal Reserve Bank of St. Louis la ce value o f 1.000 pieces c e n t .......... $10.00 c e n t s ........ 50.00 c e n t s ........ 100.00 c e n t s ........ 250.00 c e n t s ........ 500.00 Total ....$910.00 Cost o f m etal in 1.000 piece* $1.34 2.81 33.75 84.39 168.79 $291.08 S eign iorage is the difference b e tween the circu la tin g value o f a coin and the co st o f bullion and the m inting (b ra s s a g e ). B rassage is the ch arge levied to cover the cost o f coinage. M in t's Plans fo r 1951 a A t the beginning o f the fiscal yea r 1951, the M int had 416.000,000 coins on hand, and planned to produce 650,000,000 in the tw elve m onth period, M rs. N ellie Tayloe Ross, the M int’ s director, told the H ouse Su bcom m ittee on A pp ropri ations in February. “ W e have a lready in the first six m onths produced 655.000,000,'’ she continued. “ This production and the reserves we had on hand have gone in to circulation totaling 1,050,000,000 coins. A s you w ill see this w as a very unexpected de velopment. “ Th at being true, and in view of the conditions o f the m om ent, the large progra m o f defense on which the G overnm ent has em barked, it is p erfectly clear th at w e cannot exp ect in the n ext year, 1952, that w e are g o in g to be able to get by w ith a production o f 675,000,000 coins, w hich is ju s t about w h at we have a lready sent ou t in the first six m onths o f this year.” It w as on th at occasion that she asked fo r a supplem ental appro priation o f $330,000. She got $130,000. 8 A t the Senate hearings in April, w hich considered the 1952 appro priation, M rs. Ross pointed out that last year, prior to the Korean outbreak, dem and fo r coin w a s a t a low point, and the M int had been enabled to cu t its s ta ff 25 p er cent, and return $ 1 ,000,000 o f its appro priation. “ Ordinarily, there is a sharp de cline in coin dem and a fte r Christ m as; p ra ctica lly none are requi sitioned b y the banks f o r a period o f tw o m onths o r m ore,” M rs. R oss explained in asking fo r an appro priation o f $5,190,000. "T h is year, however, an a ctive dem and has continued in the three months since Christm as. W e have, in fa ct sent ou t in January, F ebru ary and M arch, fou rteen times as much coin as w e did in the sam e period last year. "U nless the full am ount o f ap propriation w e request is granted — th at is to say, unless you restore the cu t th at w as m ade b y the House— it is ou r opinion th at we shall be unable to m eet the call o f the cou n try fo r coin .” Mrs. Ross’ Plea Futile Senator Carl Hayden, D em ocrat o f A rizona, com m ented th at he could n ot “ understand w h y an operation th at w ill pa y a t a hand som e p ro fit should be cu t dow n.” N evertheless, Mrs. R oss g o t only $4,600,000. Seisniorage per 1.000 pieces M anufacturing cost P rofit to th« paid from appropri- Treasury ated funds per per 1.000 1,000 pieces pieces $8.66 47.19 66.25 165.61 331.21 $1.32 3.37 2.33 5.40 8.70 $7.34 43.82 63.92 160.21 322.51 $618.92 $21.12 $597.80 A n d the dem and f o r coin s con tinues unabated. A s banks and m erchants began to realize that a shortage w as developing, m any started ord erin g extra stock s “ just in case.” Meanwhile, as the postK orean inflation continued, odd penny prices have becom e more com m on, and sales taxes requiring paym ent o f additional sm all change are p la cin g an additional strain on available supplies o f coins. P a rkin g m eters, now slated fo r operation here, and especially auto m atic vending machines, which som etim es tie up coins fo r long periods, are another g ro w in g prob lem in the situation. A lso, cash payrolls, w ith the various deduc tions for social security, w orkm en ’s com pensation, etc.. these days rare ly perm it even-dollar paym ents. N ow Christm as and the holiday season, w hich brin g a peak demand fo r coin, are approaching, w ith no relief o f the shortage in sight. Clearly, the nation, despite its in com e o f alm ost $ 1 , 000,000,000 a day, has becom e penny-poor.