5

If one were to look at silver/gold proof coins that are minted by/for/on behalf of the government, one could see that some coins would bear a face value, such as the 1/2 oz $25 American Eagle gold coins.

How do the mint set the value? Surely it cannot be a value plucked from the sky. Furthermore, what does the value imply to the bearer? Is it redeemable for $25 at any time?

5

How do the mint set the value? Surely it cannot be a value plucked from the sky.

Actually, that's exactly how it is set - plucked from the sky. Not by the mint, though, by Congress (in the case of the US, similarly in other countries). The US mint merely executes orders given by the US Congress and signed into law by the US President. For example, the wildly popular Silver Eagle bullion coin is authorized by the Statue of Liberty - Ellis Island Commemorative Coin Act. The act specifies the denomination ($1 in this case), the metal composition (99.9% pure silver, in this case) and the visual appearance. See description here.

ALL the US coins that are minted - are minted exactly as described and prescribed in the relevant legislation, and that includes the denomination.

Precious metal coins are not intended for circulation, but rather for collectors. Thus, the denomination doesn't correspond to the coins' real (intrinsic) value - the actual value of the metal is significantly higher than the denomination of the coin (with the notable exception of the Canadian $20 for $20 series).

Furthermore, what does the value imply to the bearer? Is it redeemable for $25 at any time?

Yes, they're legal tender. Obviously it would be ridiculous to do that since the metal content worth much more than the denominated value. It has also been set as a legal precedent that payment with these coins cannot be taken at face value, but rather at their real (metal content) value, for the purposes of income tax assessment.

  • My answer is about the US mint since the OP mentioned the "American Eagle" series, but the same is true for the other countries issuing bullion coins (and there are plenty, its a very lucrative business for treasuries). – littleadv Oct 21 '13 at 6:44
  • True for US, it would be lucrative business for treasuries. In few countries, Mint is Separate Legal Entities and may not be part of treasury. There are various practices adopted to make profits. There are some large Private Mints in US & UK that mint coins for various other countries and at times strike a deal with the smaller countries to mint some popular theme [See Presidents of US series by Republic of Liberia] with profit sharing :) – Dheer Oct 21 '13 at 10:46
  • Other countries don't have to make legislation to create coins. – DJClayworth Oct 21 '13 at 13:18
  • @DJClayworth says who? May be not as specific, but no official legal tender coin is struck without a law approving it. – littleadv Oct 21 '13 at 17:10
  • @Dheer many private mints mint coins for foreign governments, but its with these governments' approval and authorization. The money goes to the government, mint is being paid as a vendor. That's how these small/poor countries make money. Many of those countries employ foreign/private mints to mint coins for general circulation just as well. – littleadv Oct 21 '13 at 17:12
2

The coins are produced as bullion, not intended for circulation. The fact that 1 ounce is stamped with a 'face value' means the coin is counted as issued money as would other coinage, but with its value over $1100, the $50 is meaningless, in my opinion.

I'd imagine those in favor of a gold standard would encourage the mint to use a higher value, say, $1000/oz, which would put a minimum price on that coin, and in effect, start a shift toward their goal.

  • 1
    Its not entirely meaningless. It sets a minimum price for the coin. For example, the Canadian $20 for $20 series coins have only $5-7 worth of silver in them (1/4 ozt), yet they're denominated as $20, thus that's the minimum price they'll sell. This allows the mint to get quite a profit, yet the buyer (who buys from the mint), gets his $20 coin in return to the $20 bill. So from the balance sheet perspective nothing changes, but the government now knows that there's $20 less in circulation and 1 coin more hoarded and never to be used. Quite a nice way to deflate the currency. – littleadv Oct 21 '13 at 6:46
  • The silver ones are a different story, I agree. But gold are running 30X value to face value. Coins don't have the impact you suggest as they aren't counted the same as paper money, as far as I know. – JoeTaxpayer Oct 21 '13 at 10:15
  • counted for currency outstanding - yes. But the $20 for $20 has the least deflating effect, all the rest are significantly more efficient: you sell a coin with $50 denomination for $1500 - you took $1450 out of circulation. – littleadv Oct 21 '13 at 17:14
  • "you sell a coin with $50 denomination for $1500 - you took $1450 out of circulation" - Trying to wrap my head around that. The mint bought the gold, sold the gold, that looks like profit to me, and no change in money supply. – JoeTaxpayer Oct 21 '13 at 20:25
  • mint didn't buy the gold, the US government already has the gold. They might buy or not buy, but don't have to buy. Fort Knox is quite full now. Also, the mint sells at prices way higher than the cost of material and production (and you can see that by the fact that they sell to dealers at significantly lower prices than direct sales). – littleadv Oct 21 '13 at 20:33
1

In the early 1900's [or even earlier in some countries] Proofs were intended to be struck as concept and served multiple purposes, they helped mints finalize the issues with design; put a new process, etc. These were initially presented to Dignitaries [Kings & Ministers] in those days. To that extent they were carefully prepared, the dies were polished and coins individually struck often more than one time to give the nice look.

Over a period of time, Proofs have become a coin collector’s delight. The value put on them is just a value, so that it's still a coin and not a medal. These are typically called NCLT [Non-Circulating legal Tender].
The mints make a good amount of premium from minting these coins and selling these directly to the collectors. As there is very little profit in striking coins on behalf of Govt for circulation , the mints make a good amount of profits via such collectibles.

Most of the times the value is either traditional or just plucked out of the air or to match the commemorative theme under which it’s released ... say 100 years of something would have a value of 100 on the coin. However the intrinsic value of such coins is much higher.

protected by Chris W. Rea Nov 28 '15 at 13:47

Thank you for your interest in this question. Because it has attracted low-quality or spam answers that had to be removed, posting an answer now requires 10 reputation on this site (the association bonus does not count).

Would you like to answer one of these unanswered questions instead?

Not the answer you're looking for? Browse other questions tagged or ask your own question.