A June 2014 report by the Government Accountability Office (GAO) revealed that, from 2008 to 2012, coin management costs associated with the Federal Reserve increased by 69 percent.  Additionally, the agency had failed to identify potential measures to save costs.

The Federal Reserve Banks of the United States are in charge of meeting the coin demand of our nation’s credit unions, federal savings associations, and commercial banks.  The 12 Reserve Banks manage inventory and place orders with the United States Mint when new coins are needed.  This is no small task; over 10 billion coins were produced by the United States Mint in 2013 alone.

Unfortunately, the Federal Reserve completely followed only two of the five management practices identified by GAO.  Additionally, the agency had not fully developed metrics to curtail coin management costs.  Interestingly, although costs from 2008 to 2012 increased for all Reserve Banks, there were large disparities between the banks in terms of percentage.  For example, cost increases ranged from 36 percent all the way up to 116 percent.

As a result of these increases, the GAO recommended that the Federal Reserve “develop a process to assess the factors that have influenced increasing coin-operations costs and the large differences in costs across Reserve Banks and to use this information to identify practices that could lead to costs savings.”

Actions have been taken in the past to increase performance and there may be hope of improvement going forward.  In 2009 the Federal Reserve centralized coin management as a way improve the relationship between coin supply and coin demand.  Due to centralization, the Federal Reserve’s Cash Product Office (CPO) “manages distribution of the coin inventory, orders new coins, and acts on behalf of the Reserve Banks in working with stakeholders, such as depository institutions.”

The 2009 consolidation by the Federal Reserve led to improvements, including a reduction in national coin inventories.  Cost savings by the Federal Reserve are important because once the costs of operating the Federal Reserve are subtracted from generated revenue, the remaining amount is transferred to the General Fund of the Treasury.

The GAO Report noted that the Federal Reserve generally agreed with the recommendations it received and is in the process of developing a plan to address the issues raised in the report.  Specifically, the Federal Reserve is going to define a “new metric that measures the productivity of Reserve Bank coin operations and that will enable it to monitor coin costs and identify cost variations across Reserve Banks.”

Hopefully the adoption of GAO proposals will ward off further increases in the cost of coin management.