Financial Institutions in Turmoil (Banking and Banking Developments) by Carl D. Aspelin

Chapter 1
U.S. COINS: THE FEDERAL RESERVE BANKS 
ARE FULFILLING COIN DEMAND, BUT 
OPTIMAL INVENTORY RANGES 
ARE UNDEFINED
U. S. Government Accountability Office
WHY GAO DID THIS STUDY
Federal Reserve Banks fulfill the coin demand of the nation’s depository 
institutions—which include commercial banks, savings and loan associations, 
and credit unions—by ordering new coins from the U.S. Mint and managing 
coins held in inventory at the Reserve Banks and in coin terminals. Reliably 
estimating the demand for coins and efficiently managing the inventory of
circulated coins is important to ensure that depository institutions have enough 
coins to meet the public’s demand and to avoid unnecessary coin production
costs. Since late 2006, rising metal prices have driven the costs of producing 
pennies and nickels above the face values of the coins. This chapter addresses 
the Reserve Banks’ process for ordering and distributing coins to the

nation’s depository institutions and the extent to which this process meets 
depository institutions’ demand for coins.
GAO interviewed officials responsible for coin distribution at each of the 
12 Reserve Banks and met with representatives of 4 large operators of Federal 
Reserve coin terminals, 2 banking associations, the U.S. Mint, and the nation’s 
largest coin recycling company. GAO also analyzed Reserve Bank data for 
fiscal years 1993 through 2007.
Federal Reserve and U.S. Mint officials generally agreed with GAO’s 
findings in the report and provided technical comments, which were 
incorporated as appropriate.
To view the full product, including the scope and methodology, click on 
GAO-08-401. For more information, contact Susan Fleming at (202) 512-2834 
or flemings@gao.gov.
WHAT GAO FOUND
The Reserve Banks’ process for ordering and distributing coins uses new 
coins ordered from the U.S. Mint, circulated coins in inventory, and transfers 
of circulated coins to meet depository institutions’ demand for coins. New coin 
orders begin each month with a recommendation generated by a forecasting
tool. Each Reserve Bank office then refines this recommendation in light of its 
current inventory holdings and its knowledge of local factors that may affect 
demand, such as changes in a transit authority’s use of coins. Each office next 
submits a request for coins to the Reserve Banks’ national Cash Product Office 
(CPO). CPO seeks to fill the request with transfers of circulated coins from 
other offices before it consolidates the requests and submits a monthly order 
for new coins to the U.S. Mint. In fiscal years 2006 and 2007, CPO used 
transfers to reduce its new coin orders by approximately 10 percent.
The Reserve Banks’ process for ordering and distributing coins has met 
depository institutions’ demand since fiscal year 2000, but the process does 
not define optimal coin inventory ranges. Currently, each Reserve Bank office 
sets and manages its own inventory levels, resulting in varying levels of 
inventory held relative to demand. Overall, inventory levels for most 
denominations have generally been decreasing since fiscal year 2001, yet 
inventory levels are more likely to be high than low relative to demand, 
because, for the Reserve Banks, the risk of not meeting depository institutions’
demand for coins far exceeds the risk of holding too many coins in inventory. 
However, holding coins in inventory that could be used to fulfill demand

Financial Institutions in Turmoil (Banking and Banking Developments) by Carl D. Aspelin