Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100 - 113)



  100. Would you expect to receive an order to produce the coins before a referendum had been held?
  (Mr Holmes) No, we would not.

  101. BACTA put to us a couple of points about the euro that I want to raise with you. They fear that euro coins will be of a lower quality than the existing national currency. Is that a fear that you share?
  (Mr Holmes) It depends what you mean by "quality". The vending industry obviously has a concern about the euro because it wants to ensure that the coins from all the first wave euro countries read the same in all the vending machines all over Europe, which is quite a tall order. A lot of work has gone into the quality of euro coins. That has been monitored by the European Central Bank. The specifications and tolerances of the euro coins have been set tighter than is the case with most national coinage in order to meet that need. We shall have to wait and see what happened when the coins are out in the marketplace, but a lot of effort has been put in to try to ensure that the euro coins are truly euro coinage and that they have the same specification everywhere.

  102. Putting aside those specific interests of whether slot machines will take them, and so on, from our point of view, the quality of the euro coins is just the same as any other national currency that you produce at the present time.
  (Mr Holmes) The proof of the pudding will be in the eating, particularly having regard to the vending industry. That will not be apparent until the coins have been launched. We know from supplying blanks to the first wave euro mints that their quality requirements are pretty demanding.

  103. The other point is that studying the National Outline Changeover Plan BACTA says that on current calculations if the UK joined the euro "there will be 36.5% less euro coins in circulation than the current sterling coin population, representing a reduction in value of 33.9% at the current exchange rate". They seem to be suggesting that there would not be enough coins to go around.
  (Mr Holmes) The numbers sound about right in the sense that we have nominally about 22 billion coins in circulation in the UK right now. If we were asked to do so, we would plan to supply about 14 billion for launch date. There are some important factors in this. An awful lot of coins, particularly of the lower denominations, are hoarded; they are not in active circulation. I do not believe that people consciously save them, but they keep them in drawers and jamjars. In order to launch a new coinage, all those coins do not need to be replaced on day one. The hoards will build up over time. It means that you can start with a lower level. The other factor is the time of year at which a new coinage is launched. The National Changeover Plan says that the preferable time of year for a launch would be around February when demand is at its lowest. If that were the case, you can then build up the quantities after the February date in the run up to Christmas which is when the peak demand for coins normally occurs because of the retail activity.

  104. Is the lower volume that is referred to in the plan your advice to Government of how many coins are needed?
  (Mr Holmes) That 14 million is our advice, but it is based on discussions with banks and other interested bodies.


  105. How much money are you spending on preparing for the euro?
  (Mr Holmes) It is trivial amounts. At the moment it is management time and occasional travel to meetings in Brussels and that sort of thing.

  106. Do you charge that out to anybody?
  (Mr Holmes) At the moment it is absorbed because it is insignificant. There is no point in having a special charge for it.

  107. On the £2 coin, do you need to make regulatory impact assessments at all for producing new coins?
  (Mr Holmes) Yes. There was an assessment carried out when we produced the £2 coin and changed the 50p piece to a smaller piece which we did at the same time. I do not have those details with me.

  108. Is there a requirement on you to do that?
  (Mr Holmes) Yes.

  109. On the matter of forecasting demand for coins, which has been an intractable problem, do you find it difficult to forecast accurately? What is the problem?
  (Mr Holmes) If we knew exactly what the problem was we would be able to deal with it. It is the volatility of retail demand and the unpredictability of it. Banks have referred to the retailers constantly changing their pricing policies. Sometimes they focus on so many pounds and 99p and at other times they round up to the nearest pound. Sometimes they round up to 5ps and some times they do not. That is in addition to the variations in economic activity on the high street. Around the world people try to build models of coin demand and we share these thoughts and studies with the clearing banks and in particular with APACS. There still is not a forecasting model with which anyone is really happy. Demand in the past few years has not been quite as volatile as perhaps it was in the past, but about 10 years ago we had one year when demand was as low as 700 million pieces in the UK and currently we are running at about 2 billion pieces.

  110. Does it matter if you get it wrong? What is the effect of getting it wrong?
  (Mr Holmes) If we get it wrong and under-forecast there is a danger that we shall not produce enough coins and there may be coin shortages particularly in the run-up to Christmas. In recent times we have generally avoided that problem. Alternatively, if we over-forecast, we have stocks of coins sitting there. That is not necessarily a huge problem because they will be used the following year, but if we use capacity on the UK that we could have used for overseas, and we find that the UK volume is not needed, that will adversely affect our business.

  111. Is that typically what happens, that you over-estimate so that you are left with stocks?
  (Mr Holmes) To be honest, it has varied considerably over the past few years. We have had years when we feared that there may be a shortage in the run-up to Christmas but that has never materialised. There have been years when we have finished up with higher stocks than we expected. In recent years the variations around that have not been too enormous. If we are 10 to 15 per cent out, that is not a huge problem. I do not believe that we have been out by more than that in the past few years.

  112. Do the orders come entirely through the banks? Do they ring you up?
  (Mr Holmes) Basically, there is a meeting with all the clearing banks and the Post Office once a week on a Tuesday. At that meeting we collect the orders that we have to fulfil for the following week. That is why our target is set in terms of delivery within 11 working days. That has been the time-honoured system. We try to back that up with the banks by forecasting demand so that we are not literally trying to produce the orders when we receive them. We anticipate and hold stocks. We are not guaranteed any orders other than what we receive on the Tuesday for the following week. That is subject to further discussion with the banks. We are hoping to move towards a structure where the banks guarantee at least a certain proportion of their forecast for annual demand. That will certainly not be 100 per cent of their annual demand because they are not confident enough of their own demand.

  113. Unless my colleagues have any further questions, I thank you very much indeed. We shall produce a report fairly soon. We shall see the Minister first, but after that we shall produce our report as soon as possible. Thank you very much.
  (Mr Holmes) Thank you.

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