Tuesday, November 2, 2010

the costs of cash

Last month, media outlets worldwide reported that the release of the new $100 banknote would be postponed, due to a production error that caused fresh bills to come off the presses with a blank spot. The new $100 bill was supposed to enter circulation this February, but the release date has been pushed off until this screw-up can be resolved.

That was pretty much the extent of the coverage. What's interesting is that no one seems to care about the extent or cost of this error. Figuring that there must be someone at Bureau of Engraving and Printing or Treasury who's tracking those numbers, I called them up. Unfortunately, I received an answer that was high on politeness but low on helpfulness (pasted below). Cash provides many benefits to society, and you might think federal officials would be willing to talk openly about this mistake--without sharing how-to secrets with counterfeiters--and that they could use the opportunity to remind us of the benefits of paper money. But they didn't.

I still hope to glean some real information in the weeks or months ahead. I'm skeptical of my chances, though, because some of my specific questions, such as how many faulty bills were made and destroyed, went unanswered, and no one was willing to point me to the person(s) responsible for analyzing these costs. A $4 million mistake? A $2 billion mistake? It's too early to tell; BEP is still trying to figure out what the heck happened in the first place, resolve the problem and get clean 100s rolling off the presses again. But even when it's all over, it's doubtful we'll get much more information than the boilerplate press release and an invitation to visit BEP with the rest of the tourists. Maybe it's time to get busy with a FOIA request.

Here is the BEP official's reply:

At this time we do not have a spokesperson available to interview for this issue, and I apologize for the delay in getting this information to you. I think that these responses will help you understand what is going on with the redesigned $100 note.

The creasing issue is similar to that of ironing an article of clothing where the fabric overlaps and forms a crease. The Bureau of Engraving and Printing (BEP) discovered that the $100 note paper creases during production, causing an overlap, and leaving a blank space where ink should be applied to the currency paper.

The BEP produces currency at the request of the Board of Governors of the Federal Reserve System. The Federal Reserve Board imposes strict quality controls to ensure that users of US currency around the world receive the highest quality notes. This creasing issue was not apparent during extensive pre-production testing, and was noted when the BEP began mass production of the new design. Most of the notes produced during mass production meet the quality standards. Notes that meet the quality standard can be delivered to the Federal Reserve.

To date, none of the notes have shipped. Because this issue has not been resolved, we do not know what the incremental cost will be.