The Real Diehl is a weekly column by former United States Mint Director Philip N. Diehl, exclusively for CoinWeek....
The U.S. Mint works closely with the Federal Reserve, so I’m occasionally asked what I think of the Fed. I should start by saying I’m not a Fed-basher. No doubt, I’m in the minority with this opinion, but I think the nation was very fortunate to have Ben Bernanke at the helm during and after the 2008 financial meltdown.
The Mint and the Fed work together to put coins in the hands of American consumers.
Here’s a simple description of the process: the Fed submits monthly orders to the Mint, which produces the coins and ships them to the Fed’s regional banks and coin terminal facilities where they’re stored. The coins are then shipped to private banks to meet demand from businesses and consumers.
Inspired by analyses that a successful dollar coin would produce big savings for the government, in January 1995, Senator Rod Grams, a Minnesota Republican, filed a bill to mint a dollar coin to replace the Susan B. Anthony (SBA) dollar.
I opposed this legislation in testimony before the Senate Banking Committee, but I wasn’t opposed to the idea, itself.
My opposition was based on the bill’s supporters being uninterested in listening to those of us who knew why the SBA had failed. As George Santayana famously wrote, “Those who cannot remember the past are condemned to repeat it”, and I didn’t want another failed dollar coin on my watch.
This bill died a quick death, after which I worked with Representative Mike Castle, a Delaware Republican, to write a dollar coin bill that stood at least a chance of achieving some modest degree of success. I’ll write about how this bill led to the Sacagawea dollar in another article. For now, I’ll tell the story of how and why we went around the Fed to get the Sacagawea dollar to the public.
After Representative Castle’s bill became law, the Mint conducted extensive market research to guide us in designing the new coin. We also met with the Fed and major banks to make certain that distribution of the new coin would go smoothly.
Citing their bad experience with the SBA, the banks--and therefore the Fed--said they wouldn’t order the coin until we demonstrated there was significant public demand for it. We explained our marketing strategy for the coin’s launch and gave them our market research showing there would, in fact, be significant demand for the coin, but that wasn’t good enough for them.
So, we faced a conundrum. How were we supposed to demonstrate that the public would accept the coin if we couldn’t get the coin to the public?
By the time we began planning the launch of the Sacagawea dollar in 1998, we had developed a strong track record of successful innovation in product design and marketing. We had reformed the Mint’s troubled commemorative coin program, built a distribution network for the 1995-1996 Atlanta Olympic Commemorative Coin Program that covered all seven continents (yes, even Antarctica), and designed and launched the nation’s first platinum coin, the Platinum American Eagle, which within five months of its debut took the lion’s share of the world market for platinum bullion coins. So, we weren’t content to take “no” for an answer.
For many decades the Mint had distributed circulating coins to the public exclusively through the Fed, but there was no legal requirement to do so. So we started looking for a way to demonstrate public acceptance of the new dollar coin and ecourage the Fed and the banks to do their jobs: supplying the coin to the public. We struck paydirt with Walmart.
As a way to boost post-holiday store traffic, Walmart agreed to help us launch the coin in January 2000 by giving it as change in all 5000 Walmart stores and Sam’s Clubs, simultaneously. They ordered 200 million coins to be distributed over three months. This represented close to 20% of the total demand for SBAs during its entire 20-year history—in only three months.
Contrary to conventional wisdom today, the Sacagawea dollar was very popular in its first year. Lines formed at many Walmart stores the day the coin was launched and many stores exhausted their first six-week supply within a week or two. Widespread local and national media attention followed. Seeing the store traffic and media coverage Walmart was receiving, other businesses wanted to get in on the act and called their banks for the coin.
True to their word, most banks hadn’t ordered the coin. When the banks’ customers complained that they had no inventory, the banks blamed the Mint for not shipping them coins, leading their customers to charge the Mint with favoring Walmart. The banks also complained of favorable treatment for Walmart, demanded immediate deliveries, and called their congressmen.
Our original plan was to send the coins to Walmart in two 100 million-coin shipments, six weeks apart. When the bank orders came rolling in, we didn’t have the capacity to immediately meet those orders and fill the second 100-million coin order for Walmart. Walmart’s attitude was “mission accomplished”; they agreed to cancel the second order.
But to fade the heat from the banks, we had to contend with the Fed bureaucracy. The banks wanted the coin yesterday. Even though we had 100 million coins coming available, the Fed would take weeks to take orders, process the coins, and deliver them to the banks.
When we originally announced the Walmart agreement, the Fed protested that it had exclusive authority to distribute circulating coins. But when we offered to ship coins directly to the banks, again bypassing the Fed, the Fed raised no objection. I was learning that the banks called the tune and the Fed danced.
So, the Mint successfully executed two unprecedented distribution arrangements circumventing the Fed, shipping coins virtually overnight, first to 5000 Walmart stores and then to thousands of banks across the country.
You might wonder about the cost of all this. I recall that we charged Walmart and the banks for shipping but I’m not certain. In any case, the Sacagawea cost us 21 cents to produce and we sold it to the Fed and the banks for a dollar, so there was a good margin to cover shipping. At the time, FedEx and UPS would not carry negotiable instruments, including coins, so we used the U.S. Postal Service. They did an outstanding job on a logistically difficult project, with negligible loss.
In the coin’s first year, the Mint shipped more Sacagawea dollars than it shipped SBAs in 20 years. Our market research and independent polling showed the new dollar coin was very popular with the public. We gave it a great start, priming the pump for widespread circulation. But in the end the coin failed. Why? I think there are three reasons.
First, a dollar coin will never find real success unless the dollar bill is gradually withdrawn at the same time. This has been demonstrated repeatedly in many other countries.
Second, a dollar coin must have strong advocates in Congress and at the top of the Mint, willing to break a few eggs to overcome opposition from key players in the system. My term as director had expired and a month after the Sacagawea was launch, I left the Mint. No advocate for the new coin stepped up, and our initial momentum faded away.
Third, for several reasons, the Fed and the banks prefer dollar bills over dollar coins and will always drag their heels unless Congress leaves them no choice by eliminating the dollar bill.
Philip N. Diehl was the 35th Director of the United States Mint and a former chief of staff of the U.S. Treasury. He has written about gold markets for The Wall Street Journal and Institutional Investor and currently serves on the boards of the Industry Council for Tangible Assets, the Coalition for Equitable Regulation and Taxation, and the Gold and Silver PAC. He was recently named president of U.S. Money Reserve. Be sure to check out Philip's blog.