Optimal use of scale economies in the Federal Reserve’s currency infrastructure

Bauer, Paul W.; Burnetas, Apostolos; CVSA, Viswanath; Reynolds, Gregory

Journal Article

Optimal use of scale economies in the Federal Reserve’s currency infrastructure

Abstract: Could the Federal Reserve lower its overall currency processing costs by reallocating its high-speed currency sorting volume? Given estimates of currency shipping costs and scale economies for high-speed sorting, the authors? model minimizes costs by optimal distribution of sorting volumes across possible processing sites, while maintaining levels of service to depository institutions. Their key findings are that most of the potential savings can be achieved without closing any existing processing sites and that locating a new site in Phoenix would help lower System processing costs.