Vol. 146, No. 1 — January 4, 2012

Registration

SOR/2011-324 December 16, 2011

ROYAL CANADIAN MINT ACT

Order Amending Part 2 of the Schedule to the Royal Canadian Mint Act

P.C. 2011-1690 December 15, 2011

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 6.6 (see footnote a) of the Royal Canadian Mint Act (see footnote b), hereby makes the annexed Order Amending Part 2 of the Schedule to the Royal Canadian Mint Act.

ORDER AMENDING PART 2 OF THE SCHEDULE
TO THE ROYAL CANADIAN MINT ACT

AMENDMENTS

1. Part 2 of the schedule to the Royal Canadian Mint Act (see footnote 1) is amended by adding the following after item 1:

1.1 A two dollar coin of which

1. (a) the composition is
   1. (i) for the inner core, multi-ply brass-plated aluminium bronze, and
   2. (ii) for the outer ring, multi-ply nickel-plated steel;
2. (b) the standard weight is 6.92 grams; and
3. (c) the margin of tolerance with respect to weight is ±30.45 grams per kilogram of 145 pieces.

2. Part 2 of the schedule to the Act is amended by adding the following after item 2.1:

2.2 A one dollar coin of which

1. (a) the composition is multi-ply brass-plated steel;
2. (b) the standard weight is 6.27 grams; and
3. (c) the margin of tolerance with respect to weight is ±30.4 grams per kilogram of 160 pieces.

COMING INTO FORCE

3. This Order comes into force on the day on which it is registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the orders.)

Executive summary

Issue

Traditionally, coins around the world have been produced using high cost alloys that are procured at market rates and therefore subject to the volatility and availability of the commodities market. Canadian and foreign governments continue to struggle with rising production costs for coinage, which are mainly driven by the cost of raw materials. In many countries, the intrinsic metal value of the coins are greater than their face value, leading to coin hoarding activities that reduces the efficiency of the monetary system.

The current one- and two-dollar Canadian coins are manufactured from nickel alloy which in recent years has experienced increased volatility in pricing reaching record high levels. Over the last decade, the London Metal Exchange (LME) price for nickel has fluctuated over 1 000% and is currently trading at nearly four times higher than it was in 2000. According to data from TD Waterhouse and RBC Capital Markets, the nickel price is forecasted to remain at or near these current levels through the foreseeable future.

In addition, as an actively traded commodity used in numerous other applications, the high demand for nickel can reduce world inventory levels resulting in long lead times for delivery. With nickel being the only approved core raw material for the one- and two-dollar coins in Canada, the RCM is exposed to risks in reacting to demand increases for the one- and two-dollar coins which could lead to coin shortages in the marketplace should nickel not be readily available.

Objectives

The price of metal accounts for the majority of the production costs for the one-dollar and two-dollar coins. The RCM seeks to reduce the risks associated with price volatility and availability should there ever be a shortage of nickel.

Description

To help mitigate the impact associated with price fluctuations in the commodities market, the RCM introduced in 2000 coins using a patented technology that utilizes a plating process with multiple layers. The RCM’s MPPS technology utilizes the more common and less expensive steel as the core raw material, which is as durable as the nickel alloy and significantly improves the overall cost-effectiveness of coinage. With over six billion Canadian circulation pieces produced since 2000, the RCM has successfully implemented this technology for Canada’s one, five, ten, twenty-five and fifty cent pieces, saving the Government over $250 million to date.

The one- and two-dollar coins have been in circulation since 1987 and 1996 respectively. With over 1 billion one-dollar coins and over 700 million two-dollar coins produced to date, both coins are important for daily trade and commerce activities in Canada. Both denominations are essential coins for the vending and service industry because they enable operators to offer higher valued services and merchandise which, in turn, provides them with more flexibility in the type of products offered, thereby increasing the margins that are earned. Presently, the composition of multi-ply plated steel for the one- and two-dollar coins is not included in the characteristics of circulation coins that the RCM is authorized to produce.

Starting in the first quarter of 2012, the RCM would like to produce the one- and two-dollar circulation coins using a multi-ply plated alloy composition. This composition, introduced by the RCM in 2000, would be in addition to the current alloys listed for these denominations in the Royal Canadian Mint Act. The current compositions for the one-dollar coin are bronze plated nickel and brass plated nickel. The current composition for the two-dollar coin is, for the inner core, aluminum bronze (copper, aluminum and nickel), and for the outer ring, pure nickel. The proposed composition for the one-dollar coin would consist of a steel core coated with multi-ply plated brass. The proposed composition of the two-dollar coin would consist of, for the outer ring, a steel core coated with multi-ply plated nickel; the insert of the two-dollar coin would consist of an aluminium bronze core coated with multi-ply plated brass.

At present the RCM is not authorized to produce one- and two-dollar coins with this composition. This proposal would allow new composition for the one- and two-dollar coins in addition to the existing composition, and would allow the issuance of the coins using the new characteristics. Retaining the existing composition would allow flexibility should the RCM so require for production purposes.

It should also be noted that security features including a lasermark, virtual images and edge-lettering would also be added to the current compositions. Although evidence indicates that there is currently not a security problem with non-genuine one- and two-dollar Canadian circulation coins, these features will enhance the security of the new coins. The new features present a major deterrent to forgers trying to duplicate them as it would require a significant capital investment along with strong technical knowledge to effectively operate the process. Many countries are moving towards visual features on their high denomination coinage and the lasermark technology is a new technology developed in Canada.

Criteria for the one-dollar and two-dollar coins

The following would be the criteria for the proposed one-dollar coin:

• The coin would be yellow in colour and the edge would continue to be 11-sided so that it could be readily recognized by visually impaired individuals;
• The coin’s diameter and edge thickness would remain unchanged from the existing specifications;
• For the purposes of security in vending and other automated coin acceptance equipment, the coin would have an electromagnetic signature (EMS) that would help to discourage the use of slugs, foreign coinage and non-genuine coinage that have similar physical characteristics as the one-dollar coin and would make it more difficult to counterfeit; and
• A lasermark of a maple leaf within a circle would appear on the reverse of the one-dollar coin as an additional security feature.

The following would be the criteria for the proposed two-dollar coin:

• The coin would contain an outer ring which would continue to be white in colour and an insert which would be yellow in colour;
• The coin’s diameter and edge thickness would remain unchanged from the existing specifications;
• For the purposes of security in vending and other automated coin acceptance equipment, the coin would have an electromagnetic signature (EMS) that would help to discourage the use of slugs, foreign coinage and non-genuine coinage that have similar physical characteristics as the two-dollar coin and would make it more difficult to counterfeit;
• The serrations along the edge of the coin which help the visually impaired identify the denomination value would remain but the spacing would be slightly smaller to accommodate the lettering along the edge. The thinner serrations would still be prevalent to ensure the visually impaired can recognize these new coins;
• Two lasermarks of maple leaves, each within a circle, at the bottom of the coin and two virtual images of maple leaves at the top of the coin would appear on the reverse of the coin as additional security features.

Regulatory and non-regulatory options considered

Option 1 — Status quo

The status quo represents continuing with the bronze plated nickel and brass plated nickel compositions for the one-dollar coin and with the pure nickel ring and insert of aluminium bronze composition for the two-dollar coin. Due to the rising cost of nickel, producing coins with nickel alloy reduces the cost effectiveness of the one- and two-dollar coins. Also, because nickel strip is limited in supply, this increases the lead-time to receive raw materials as well as increases the risk that the shortage of this alloy could lead to coin supply issues, i.e. no nickel alloy available to produce the coins.

Option 2 — Transition to the multi-ply plated steel composition

The MPPS technology is less expensive than nickel thereby reducing the cost to produce the one- and two-dollar coins which represents cost savings to the Government. Worldwide steel availability and inventory stocks are also higher and less volatile than nickel thus better protecting the supply of coins required to meet market demand from the risk of material shortage. When comparing MPPS coins to other plated coins such as mono-ply plated, MPPS coins do not wear as quickly because they have a harder surface obtained through the RCM’s patented innovative manufacturing process. This conclusion is based on much third party research conducted by such organizations as the National Research Council of Canada, the University of Birmingham, the Center for Tribology in California and the Reserve Bank of New Zealand.

Benefits and costs

It is beneficial to have more than one type of alloy to produce the one- and two-dollar coins to mitigate any potential risk that may come as a result of only using the current nickel alloy which is limited in supply. Based on the forecasted requirement of an average of 30 million pieces annually for each of the one- and two-dollar coins over the next 10 years, the Government would save approximately $16 million annually. The cost savings consider that the price of nickel will remain consistent with the current price used in calculating the standard production costs for the one and two-dollar coin. Although variations in the price of nickel could change the total savings, it is believed that the current standard production costs represent a realistic average of the actual costs per coin that would be experienced over the next 10 years in producing the one- and two-dollar coins with their existing compositions.

The proposed one- and two-dollar coins would have a different EMS from the existing one- and two-dollar coins. Vending operators would need to recalibrate their automated coin acceptance equipment so that they would continue to accept the existing one- and two-dollar coins as well as the new MPPS one- and two-dollar coins.

The cost to the vending industry to recalibrate machines could be approximately $100 to $300 per machine. In other words, the cost to recalibrate older vending machines could be approximately $300 while the cost to recalibrate newer machines could be approximately $100. This would be a one-time cost incurred in the first year following the introduction of the coins to update their existing machines. As the vending machine industry grows over time, these costs would not be incurred again as any new machines purchased would come equipped with the proper technology to recognize the new one- and two-dollar MPPS coins. However, as part of capital planning, the vending industry would normally update their equipment on a regular basis so this change would help to ensure vending equipment is updated with the latest coin acceptance technology. When the one, five, ten, twenty-five and fifty cent pieces were launched in 2000, the change from nickel alloy to multi-ply plated steel was transparent in that it did not negatively affect over-the-counter trade and commerce transactions. Although vending operators were required to update their equipment, no compensation was awarded by the Government.

Other organizations using weight-based equipment to sort and count coins by denomination may also be affected. Due to the lower density of steel relative to nickel, the new one- and two-dollar coins will be slightly lighter than the existing coins. With two versions of each coin in circulation, no capital outlay to modify equipment will be needed but a requirement of an additional process to pre-sort the one- and two-dollar coins prior to using weight-based equipment is possible. Although it is expected to be minimal, an exact cost cannot be quantified since it will be variable from organization to organization based on their current coin sorting volumes, equipment and existing sorting processes. The RCM has plans to recover and remove from circulation the current nickel alloy coins through its Alloy Recovery Program (ARP) to minimize these impacts as time progresses.

It is also recognized that changing the main composition of a coin from a nickel blank to a steel blank will have an impact on the respective metal industries. There will be a cost to the nickel industry as the RCM will reduce the amount of metal purchased while the steel industry will benefit from an offsetting increase. The production of the average annual requirement of 30 million one-dollar and 30 million two-dollar coins would require 539 metric tonnes of nickel. This represents less than 0.05% of the total forecasted 2011 nickel consumption of 1.54 million metric tonnes and 0.00005% of the forecasted 2011 steel consumption of 1.32 billion metric tonnes. At such small amounts, the redistribution of the metal purchases from the nickel industry to the steel industry is so small that it will not have a quantifiable impact on metal prices or inventory levels for either of the commodities.

There is no additional cost to the RCM for the lasermark application to the coins. The laser technology equipment was purchased many years ago by the RCM for use on numismatic coins.

description		Base Year: 2012 (millions)	Mid-Point: 2016 (millions)	Final Year: 2021 (millions)	Total (PV) (millions)	Average Annual(millions)
A. Quantified impacts $
Benefits	RCM/Canadians	14.0	14.9	16.0	107.5	16.02
Costs	Vending industry	40.0(see footnote 2)	0	0	40.0(see footnote 3)	5.96
Net benefits					67.5	10.06
B. Quantified impacts — non $
There are coin sorting and counting mechanisms used primarily in the retail industry that use weight to determine the denomination of coins. With the introduction of the new MPPS one- and two-dollar coins that are lighter than the existing nickel based alloy one- and two-dollar coins, these mechanisms may no longer be able to properly sort the coins in one pass. Organizations that use such technology will need to adjust their processes to add a pre-sort operation to sort the MPPS one- and two-dollar coins separately from the nickel coin prior to using the equipment to do a final sort and count on the coins. This will add extra time to the process but it is very difficult to fully quantify how much this would be since it would vary from operator to operator depending on the volume of coins they process and also the specific type of equipment that they are using.
C. Qualitative impacts
Environmental impacts The proposed multi-ply plated composition is a process that was developed in 2000 by the RCM and is unique in that it is produced using an acid plating process rather than the cyanide process currently being used by other facilities. The benefit of the acid plating process is that it is easier to neutralize by using chemicals commonly employed worldwide. As a result of the neutralization process, acid becomes environmentally safe when disposed of. MPPS coins are lighter in weight than the current nickel-based one- and two-dollar coins. All coins are produced in Winnipeg, Manitoba, and must be shipped across Canada for distribution. Using multi-ply plated steel would result in a weight savings of 2 160 lbs for a truckload of one-dollar coins and 630 lbs for a truckload of two-dollar coins improving the fuel efficiency of transportation and reducing the carbon footprint of delivering coins to the Canadian public.
Security impacts Coins produced using the multi-ply plated steel composition result in a distinctive EMS making them more difficult to counterfeit. The vending industry would also benefit in that this would reduce the ability for steel slugs or other foreign lower value currencies of the same sizes as the one- and two-dollar coins to be accepted by their coin acceptance equipment. The new lasermark, virtual images and edge lettering features will allow for a visual authentication of the new one- and two-dollar coins and the cost to produce such features would result in it being prohibitive for counterfeiters to duplicate.

Rationale

Despite the cost to their industry for recalibrating their coin acceptance equipment, the vending industry represents less than 1% of total retail trade according to data obtained from Statistics Canada Annual Retail Trade Surveys. The cost savings to the remainder of the Canadian public as well as the added qualitative environmental and security benefits outweigh the calibration costs to the vending industry, which should already be part of their routine capital planning process.

However, recognizing the impact to this stakeholder group in particular, ongoing discussions about this proposal have been held between the vending industry and the RCM. As a result of these discussions, the vending industry and the RCM agreed that the following criteria will be met to ensure a smooth transition to the proposed steel alloy:

• Joint communication efforts with the Canadian Automatic Merchandising Association (CAMA) members and the RCM;
• Work closely with the vending industry coin acceptance manufacturers;
• Sample token coins to be provided by the RCM to the vending machine manufacturers to conduct trials on automated coin acceptance equipment;
• A minimum of six months prior to launching the new coins to the public, the RCM to provide CAMA and other impacted industry members with actual coins to allow for calibration; and
• Ongoing support and communications from the RCM.

The Worldwide Vending Association (WVA), which represents the vending industry in Canada, the United States and Europe, opposes the decision to use any plated steel coins for high value coinage as they feel it would be easier to produce counterfeit coins with the new composition due to the availability of steel metal discs. The RCM has been working closely, over the last few years, with the WVA and the Canadian Automatic Merchandising Association (CAMA) to ensure these new coins are reliable and secure in the Canadian market place. Notwithstanding the opposition from the WVA, the RCM maintains that multi-ply plated steel coins are more secure than traditional alloy coins. Although steel metal discs are readily available, the unique EMS obtained from the multi-ply plated steel technology would result in it being far more difficult to produce counterfeit coins than it would for coins using regular alloy metal discs which do not have multi-layer plating technology.

Evidence of the ability to counterfeit regular alloy discs has been found with the United Kingdom’s Royal Mint £1 coin produced using a nickel-brass alloy composition. Figures from 2010 indicate that there are currently 41 million, or one in every 36 pieces, counterfeit £1 coins circulating in England. Due to the wide EMS range required to accept traditional alloy coins, it is estimated that close to half of the non-genuine coins are being accepted by automated coin acceptance equipment even though they are supposed to correct for metal composition.

To ensure efficient trade and commerce activity, it is of paramount importance that the public have confidence that the country’s monetary supply is genuine and secure. Although there is not a counterfeiting problem in Canada, in addition to changing the composition of the coins, the addition of visual security design features represents a proactive measure that enhances the security of the new coins.

Consultation

The RCM continues to work closely with members of the WVA by providing them with trial coin samples for testing purposes. Based on initial feedback, the RCM produced new coin samples and sent the modified trials to a wider group of institutions for testing (i.e. transit, parking and telephone). The physical specifications for the new coins were then finalized based on the collaborative feedback received from the participating coin acceptance equipment manufacturers.

The RCM also scheduled an information briefing at the CAMA Expo 2010 that was held in Calgary in late September 2010. The session served as an educational opportunity to the entire vending industry about the Canadian Coinage System while continuing the joint efforts with these key stakeholders to ensure a smooth transition to market of any new products that could impact their operations. The event also gave the RCM the opportunity to address any questions or concerns that the vending industry had about the proposed change. Based on the success and positive feedback from the seminar, CAMA extended the invitation and the RCM will deliver another session at the CAMA 2011 Expo in Montréal this coming September to further update their members ahead of the coins being released into general circulation.

In addition to the vending industry, the following industries were also advised about the change in coin compositions: casino gaming, parking, pay telephones, retail, transit and other large coin users. The RCM organized two stakeholder information sessions that took place on August 4 and 5, 2010, in Toronto and Vancouver. Forty-four companies/organizations from the various industries were invited including national and provincial associations and other large private or public companies with a presence in one of the industries. In addition, invitations were sent to the ten largest municipalities across Canada based on population and recognizing the role that cities play in terms of parking and transit. Not only did the large cross-section of invitees cover all of the affected industries, the reach extended to each principal geographic region in Canada (Atlantic Canada, Quebec, Ontario, the Prairies and Western Canada).

The overall response to the information sessions was positive. Attendees were pleased to be notified of the changes well in advance of the proposed launch dates for the new one- and two-dollar coins. They were encouraged by the fact that the RCM had already held detailed discussions with equipment manufacturers and assured stakeholders that a significant amount of preparatory work had already been conducted.

The RCM has consulted with the Canadian National Institute for the Blind (CNIB) to ensure the new one- and two-dollar coins do not negatively impact people with impaired vision. The CNIB has confirmed that because the new multi-ply plated steel coins are similar in look and feel as the original nickel alloy $1 and $2 coins, people with impaired vision would continue to be able to recognize the difference between the $1 and $2 coins regardless of the alloy so this would not be an issue when the new coins are introduced.

In April 2011, the RCM sent out samples of the new one- and two-dollar coins to a variety of automated coin acceptance equipment manufacturers and suppliers to begin calibrating their equipment. With the launch of the new coins into circulation planned for early 2012, the providing of the samples at this time allowed for more than the six months of calibration requested from the consultations between the RCM and the vending industry. Also of note, the proposed visual security features were present on the distributed sample coins. To date, no issues have been reported back to the RCM with calibration issues relating to the presence of the security features as their presence does not affect the electromagnetic signature (EMS) of the coins. The RCM will continue to accept and respond to requests from other companies requesting samples for equipment calibration until the coins are issued and made available in general circulation.

The final design elements for the visual security features for these coins (e.g. location on the coin) were determined by an internal RCM executive steering committee post pre-publication in the Canada Gazette. The original order has been amended to include these specifics. The committee members determined the ideal image that incorporated the new lasermark and virtual image features. The maple leaf was selected as the symbol for the security feature as based on market research, the symbol of the maple leaf tested very well with the public in terms of its representation of an iconic symbol of Canada and Canadian heritage. The maple leaf image has also been used in the past for circulation coin designs with very positive public reaction.

The RCM and the RCMP consult on a regular basis to address any issues affecting the security of coinage in Canada as they may arise. Decisions relating to the inclusion of design features to enhance the security of coinage are left to the RCM’s discretion due to its role as the producer of the coins and its expertise in advanced minting techniques and technologies.

This Order was pre-published in the Canada Gazette,Part Ⅰ, on February 19, 2011, and no comments were received.

Implementation, enforcement and service standards

The new one- and two-dollar coins would be produced along with other circulation coins at the RCM’s Winnipeg plating facility. Since 2005, Jarden Zinc Products Incorporated, a company based in the United States, has supplied one-dollar bronze-plated blanks to the RCM. They would continue to be retained as a secondary source of supply for the multi-ply plated one-dollar blanks.

Contact

Marguerite F. Nadeau, Q.C.
Vice-President, General Counsel and Corporate Secretary
Corporate and Legal Affairs
Royal Canadian Mint
320 Sussex Drive
Ottawa, Ontario
K1A 0G8
Telephone: 613-993-1732
Fax: 613-990-4665
Email: nadeau@mint.ca

Footnote a
S.C. 1999, c. 4, s. 3

Footnote b
R.S., c. R-9

Footnote 1
R.S., c. R-9

Footnote 2
Cost estimate based on 200 000 vending machines costing an average of $200 per machine to update and all costs would occur in the first year of the change.

Footnote 3
Cost estimate based on 200 000 vending machines costing an average of $200 per machine to update and all costs would occur in the first year of the change.