What follows is an interesting letter written over 60 years ago that I found in the National Archives. It's a letter in which the Assistant Director of the U.S. Mint wrote to a Bank of Korea representative. The Koreans had visited the Philadelphia Mint and were inquiring about how to set up their own coin-minting plant and new coinage. In 1958, the last time Koreans had made their own coins was November 1904. Some of the information he relates, many of you already know about. But he makes some very interesting comments about U.S. coin-metal compositions and the recommended alloys that he thinks the Koreans should choose. I find it rather interesting that the very first consideration for the Koreans would be to build a power plant that could reliably produce enough electricity for a factory, and without blackouts, which were common in Korea back then. The American here just tells the Koreans that he assumes that they have that capacity... ------------------------------------------------------------------------------------------------ February 21, 1958 TO: Mr. Chan Sup Lee, Asst. Representative, Bank of Korea, New York FROM: Mr. Leland Howard, Asst. Director of the Mint Coinage Mint for Korea There are many problems in connection with setting up and operating a mint and the establishment of a new coinage system these problems can be divided into the following categories: 1. The type of metal to be worked will to a great extent determine the type of equipment to be used. 2. The volume of production will determine the type of equipment needed and the cost per unit of production. 3. The monetary unit of a country will determine to a great extent whether or not the coins are produced at a profit or loss to the government. 4. The monetary unit the coins produced and the metals used will to a great extent determine whether or not coins will remain in circulation or will be withdrawn for their intrinsic value of course the price of metals will to a great extent affect the withdrawal. The type of metal to be worked will to a great extent determine the type of equipment to be used. In most mints of the world, a metal is chosen that is malleable and workable under conditions of cold rolling. For example, in the United States we are able to manufacture our bronze coins through the entire operation on a cold process with the exception that we do anneal the blanks. I will explain annealing to you- as metal is rolled it work hardens and becomes brittle. The annealing process brings the metal to a desired heat in a furnace which softens it so that work can be continued on the metal the reason that bronze blanks are annealed in blank form is to make them soft enough to take the impression of the die in the stamping operation. If we did not anneal the blanks, they would be hard and brittle and the metal would not flow properly into the die, the impression would be bad, and the coin could have a bad appearance. Die life would be very limited. On our five-cent coin and all of our silver coins, we do not only anneal the blanks but we also anneal it at least two times during the minting operation. The size of an ingot, particularly thickness, determines the number of times the metal must be annealed in the operation. I think at this stage I should tell you that our one-cent coin is composed of an alloy of 95% copper and 5% tin and zinc. We use very little tin in the alloy -merely a trace. The five-cent coin is composed of an alloy of 75% copper and 25% nickel. All of our silver coins are of an alloy of 900 Parts silver and 100 Parts copper. We happen to use these alloys because we adopted them many years ago and because in the United States the use of vending devices with slug rejectors on them are not conducive to change. Most of the slug rejectors in vending devices work on an electrical resistance principle and therefore to substitute another alloy we would have to adopt one that would have the same electrical resistivity. Otherwise, we would upset the many millions of machines that are now in operation. Also, the size and thickness of our coins are important factors in operating our many coin operated devices, and we are more or less tied to the present size. There are many good alloys other than the ones that we use in the United States that are adaptable to cold rolling. You will recall that you were shown many sample pieces of various alloys. Of course, in starting any coinage system, the cheaper the alloy the better. If the coins are to perform as a circulating medium and not as a store of value; that is, if the coins are to exchange the goods of the country, the cheaper the alloy, the better, as the government makes more profit and the desire to withdraw the coins from circulation because of their metal content is lessened. Coins performing their function of circulating medium can be compared to the transportation of goods from one place or person to another. For example, if you wanted to transport vegetables from the farm to the market, you would use the cheapest means possible. In the United States we would use a truck; not a Cadillac. Coins as a medium of exchange should move goods from one person to another as cheaply as possible the same as any other service performed in getting goods from one person to another. Because coins are sometimes used as a store of value or a means of deferred payment, sight is lost of its other and main function and that is to facilitate the transfer of goods and services. There are many metals and alloys that cannot be handled in a cold rolling process. They must be rolled hot and the type of equipment for hot handling is entirely different from that for cold rolling, and as a rule is more expensive. Pure nickel is an example of a metal that must be hot rolled. It is not ductile enough to be rolled cold. Aluminum is another one. Perhaps in determining your alloy you would not want to get equipment to handle the first stages of manufacture. You may desire to purchase blanks and merely stamp them. The purchase of blanks is suggested because if round coins are manufactured, there is approximately 30% waste in the stamping of round blanks from a strip. If the scrap metal could not be used in your country, you would have the expense of not only paying for its shipment to your country but also the expense of shipping scrap metal to a point where it could be used. Costly equipment appears in the early stages of coining, that is, in melting, rolling, and blanking. Therefore a large capital expenditure would be eliminated if the coinage process started with the finished blank. 2. The volume of production will determine the type of equipment needed and the cost per unit of production. I have touched on this subject under number one but I want to stress very much the fact that a country should not start a coinage mint unless it has the volume to support it the overhead and minting both equipment and labor is so great that unless you have volume you cannot produce the coins as cheaply as you can buy them in many minutes throughout the world attached is a list of the manufacturing charges for several coins that have been produced in the United States mints during the past several years these costs are in dollars per thousand pieces and do not include metal costs. If a country with a small volume were given a mint, that is, if they did not have to purchase equipment or build the structure to house it, the cost of production would exceed the purchase of the coins elsewhere. Of course, you do not know the number of coins that your country needs initially or annually thereafter. I venture to say that based upon the knowledge that I have of your country, it would be very uneconomical for it to establish a mint. If a mint is to turn out a rather large volume, the amount of equipment and the type of equipment should be different. As was pointed out to you, we closed our coining operations in our San Francisco Mint in 1955 because we did not have enough volume to economically produce coins at that plant. Our production capacity and requirements were in the neighborhood of 175,000,000 pieces annually. We can make coins in our larger mint at Denver, pay the shipping costs to San Francisco, and place them in the San Francisco Mint much cheaper than we can produce them there. There is attached a list of coining equipment and the estimated cost for a small mint to produce 100,000 coins per day on an 8-hour shift. Of course, we have no details concerning weight, composition, or size, and are assuming that the metal or alloy chosen can be cold rolled. You will note that provision is made for a manufacturing working dies but no outlay is included for the manufacturer of master dies. There is no provision for power plant. We assume that electricity is available for all operations. No provision is made for buildings, storage vaults, security systems, office equipment, and all other items necessary to house and accommodate the operating equipment. The list is brief and only includes principal items of special equipment peculiar to minting- in other words, this is a minimum requirement. 3. The monetary unit of a country will determine to a great extent whether or not coins are produced at a profit or loss to the government. The smaller the value of the monetary unit the greater is the difficulty of manufacturing coins at a profit. For example, in the United States the one-cent piece is our smallest coin. We make 145 one cent pieces from one pound of alloy- in other words, the face value of the coins from a pound of alloy is $1.45. At present, the price of copper, namely 25 cents per pound, and of Zinc at 12 cents per pound, the alloy costs us slightly less than 25 cents. The cost of manufacturing 145 one-cent pieces is 12 cents. Therefore, we make $1.08 above the cost of the metal in the manufacture of each pound of one-cent alloy. We make 90 five-cent pieces, our next smallest coin, from a pound of alloy that cost us approximately 39 cents, and it cost us 15 cents to manufacture the 90 five-cent pieces. The difference between the face value and the cost of the metal and manufacturing is $3.96 per pound of cupro-nickel alloy (copper -25 cents per pound, nickel -79 cents per pound). I do not know what denominations your country desires; neither do I know the size coinage desired or, more important, the weight of each coin and the cost of metal, but with your monetary unit starting with a much smaller value in relation to the dollar, I believe that many of your coins must of necessity be produced at a loss to the government. This may not be too bad if the coins replace paper money which is costly to maintain because it wears out much more quickly. However, precautions should be taken not produce coins that would be withdrawn from circulation later on because their metallic content exceeds their face value. In other words, a margin must be left to take care of an increase in the price of the metal used. Only two years ago, we were paying 50 cents per pound for copper. If you were to base a coinage system that was on the margin at 25 cents a pound, it would go out of existence when copper reached 50 cents a pound. These are problems that must be well thought out by your government and perhaps, because of the nature of the situation, Korea may even desire to take a calculated risk. By calculated risk, I mean that if these coins stay in circulation for a certain period of time, your government may still make money over the present system of paper money. Without complete details, I am at a loss as to what to advise you in this connection but it is not difficult to arrive at a solution once the facts are well known. Of course, I believe silver coins as a medium of exchange should not be considered. I cannot conceive of the use of silver except in very high denominations and only for a purpose other than a medium of exchange. The higher denominations of money in the United States, as you know, are in paper, silver dollars being the largest silver coin that is made. Silver in the United States silver dollar has a monetary value of $1.29 per ounce. In other words, It would not pay to melt a silver dollar for its bullion value unless silver were above $1.29 per ounce. the monetary value of silver in the United States half dollar quarter dollar and dime is $1.38 per fine ounce. In other words, there is proportionately less silver in these coins, and the price of silver would have to go above the price of $1.38 per ounce in order for it to be profitable to melt these coins for their metal content. 4. The monetary unit, the coins produced, and the metals used will to a great extent determine whether or not coins will remain in circulation or will be withdrawn further intrinsic. of course, the price of metals will to a great extent affect the withdrawal. I have touched on this point in great detail above. I again repeat that there is not too much that I can offer in this direction without knowing more of the facts. However, the small unit now of paper money that you mentioned to me will be difficult to keep in circulation if replaced by a coin unless the conditions in Korea are different from any that I can conceive. I know of no place where the populace would not withdraw coins if the metal content was worth more than the monetary value of the coin. Maybe some prohibition could be imposed, or maybe a metal could be chosen that was not workable within the country and its export could be controlled at the borders of the country- that is, the smuggling out of the metal could be controlled, but if such conditions could be controlled in Korea, it would be different from any place that I know of in the world. Many countries on many occasions have lost their coinage through this process. Silver is a prime example, particularly in some of the South American countries. At the present time, difficulty is being encountered Keeping the silver ryials in circulation in Saudi Arabia. I know of many countries that have lost coins made of copper and other metals due to a decrease in the value of the monetary unit and or an increase in the value of the metal. If, after your visit to the Philadelphia Mint, you have any additional questions that you wish to raise, we shall be glad to help you in any way possible. If you can secure additional information from your country relative to their coinage, maybe we can help at that point.
It's interesting that production costs of nickels was only considered to be about double the production cost of cents in those days. Now days they've shifted all the production costs away from the worthless pennies so they look like a bargain as we lose 3c apiece on them.
Production costs for coins may have surged more than almost anything else. Of course the thinking that underlies the concept of the production of a coin that is less than worthless is a much greater change and the cause of such dramatically higher prices. With everything tied together one must suspect that many of the costs of operating the mint are not being included. I find those first Korean coins in 1959 very interesting. I see lots of nice high grade examples but relatively few in solid Unc.
Yes, I suspect their "overhead" fees they charged foreign countries (or even US Govt) probably didn't cover every cost, either. The hwan coins in higher grades above 63 are difficult, for sure. The first of them dated 4292 (1959) seeme to have heavily circulated as they were desperately needed in the economy. That may explain why those are harder to find in better MS grades. Many of the 4294 (1961) dated examples can be found in higher grades on average, and the highest 4294 MS grades are one or two higher in the NGC census than the 4292 strikes it seems. They used them even after the Currency Reform of 1962, and they just called them "5 Won" and "One Won." They needed the 50-Hwan ("5 Won") because it was the only coin that could operate their re-tuned Japanese payphones until around 1967-68. They pulled both coins in 1967 and 1968 after the new won coins were struck and started entering the system of money in the late 60s.
I'm guessing very few got down to VF or lower but most of the circulated coins were melted. I'm surprised by how many AU's I see. Maybe people were collecting them even back in the '60's.
It must be the case that people were collecting these as soon as they came out. I've seen U.S. coin magazine ads from that time with these coins in them. Also, these were the first Korean coins in almost 60 years, so it got people's attention.
