Examination of Witnesses (Questions 100
TUESDAY 13 FEBRUARY 2001
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
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.