The Mint will also be able to license out its brand name and enter joint ventures with private companies or overseas government organisations, Treasury officials said yesterday.
They said they recognised the need to preserve the Mint's reputation in licensing deals, but believed there was scope for it to operate much more aggressively.
Now it may make metal souvenirs, such as models of the Tower of London or the Eiffel Tower, or bracelets with kangaroo-shaped patterns to be exported to Australia, or wrist watches.
"We don't propose to take a stuffy attitude to this business," said one source. "If they come up with ideas that make money and increase the value of the brand, that would be brilliant."
Treasury officials said the Government had an "open mind" on whether the Mint, based at Llantrisant in Wales, could be privatised. Gordon Brown, the Chancellor, shelved plans for a full-scale privatisation because the Mint's structure was "too archaic" to attract private investment.
He also faced fierce opposition from trade unions and a group of senior Labour politicians including Lord Callaghan, the former Prime Minister, and Lord Healey, the former Chancellor, who said the privatisation of the Mint would be a step too far.
Under the proposals, the Mint will stay in the public sector but its board will be "beefed up" with greater influence from of private sector non-executive directors .
The Mint's present business is split between manufacturing coins for Britain and overseas governments, collector coins and medals, although British coins account for less than 30 per cent. It made profits of pounds 13.6m in 1997, manufactures and issues coins for 100 countries and has more than 1,000 employees.
Treasury officials denied the decision to retain the Royal Mint in the public sector was made because of concerns that the task of minting euros would be too delicate to be given to a single private sector supplier. "The euro was a factor considered in the review but the Royal Mint is producing euro coins already, said a source. "This is about giving the Royal Mint the commercial freedom it needs."
Patricia Hewitt, the Economic Secretary, added: "The world coinage market is increasingly competitive by constant innovation. The Royal Mint must be ahead and stay ahead of the game if it is to thrive. We cannot stand still if we want to maintain its position at the forefront in the global marketplace."
The announcement was welcomed by John Sheldon, joint general secretary of the Public and Commercial Services union which represent most of the Mint's workers.
"This is a victory for common sense. The Mint is a public sector success story, delivering profits back to the exchequer every year," he said.
He may wish to bear in mind that minting coins can be hazardous. Anyone caught making "bad" money under the 10th-century reign of King Athelstan had a hand cut off. In 1125 King Henry 1 supposedly had the hands cut off 94 Mint workers for substandard coins.