US: Cheaper Pennies and Nickels to Come

[Bimat]

Obama wants cheaper pennies and nickels

By Chris Isidore @CNNMoney February 15, 2012: 8:08 AM ET

NEW YORK (CNNMoney) -- The U.S. Mint is facing a problem -- especially during these penny-pinching times. It turns out it costs more to make pennies and nickels than the coins are worth.

And because of that, the Obama administration this week asked Congress for permission to change the mix of metal that goes to make pennies and nickels, an expensive recipe that has remained unchanged for more than 30 years.

To be precise, it cost 2.4 cents to make one penny in 2011 and about 11.2 cents for each nickel.

Given the number of coins that the mint produces -- 4.3 billion pennies and 914 million nickels last year alone, those costs add up pretty quickly: a little more than $100 million for each coin.

But even though Treasury has been studying new metals since 2010, it has yet to come up with a workable mix that would definitely be cheaper, and it has no details yet as to what metals should be used or how much it would save to do so.

Even if a cheaper metal can be used, it might not take the cost of a penny down to less than a penny.

Just the administrative cost of minting 4.3 billion pennies costs almost a half-cent per coin by itself, leaving precious little room to make a penny for less than a cent, no matter the raw material used.

Funny money? 11 local currencies

The raw material cost of the metals used in a current penny is only about 0.6 cents per coin, according to prices quoted on the London Metal Exchange, and a breakdown of a penny's composition from the mint.

The mint paid 1.1 cents on average for the metal used in a penny in 2011, but that is the cost of ready-to-stamp blanks from the supplier, not raw material traded on commodity markets.

There have been times in recent years when a run-up in zinc and copper prices has taken the raw material value of a penny above one cent.

That's the case for a nickel today. Its more expensive metal mix means the raw materials in each are worth almost 6 cents per coin, based on current market prices.

Despite popular belief, since 1982 pennies have only been copper plated, not copper through and through. Much less expensive zinc makes up 97.5% of the mass of a penny, the rest is a copper coating.

Nickels actually have much more copper in them -- 75% copper and 25% nickel, the same mix it has always had.

The mint did make steel pennies for one year -- in 1943 -- when copper was needed for the war effort. And steel might be a cheaper alternative this time. Steel is roughly one-quarter the price of zinc on the London Metal Exchange.

Treasury had already made a cost-saving move in December when it stopped making dollar coins.

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With 1.4 billion surplus presidential dollar coins sitting in bank vaults waiting to be circulated, and American consumers showing little appetite to start using the coins, Treasury estimates the halt in production of the coins will save about $50 million a year.

Treasury spokesman Matt Anderson said Treasury has the authority to stop making the dollar coins on its own, but it can't change the mix of metals in pennies without permission.

As for the suggestion of some that the penny be abandoned altogether, Anderson said only "that is not a proposal we have put forward."

First Published: February 15, 2012: 5:16 AM ET

Source: CNN

[chrisild]

Treasury spokesman Matt Anderson said Treasury has the authority to stop making the dollar coins on its own, but it can't change the mix of metals in pennies without permission.

Ah yes, there is a huge difference between being allowed to search for new materials, and to actually use them ... The Mint's 2001 annual report said "In December 2010, President Obama signed into law the Coin Modernization, Oversite (sic, C.), and Continuity Act of 2010 (Public Law 111-302) to provide the Secretary of the Treasury research and development authority for alternative metallic materials for circulating coins." http://www.usmint.gov/downloads/about/annual_report/2011AnnualReport.pdf

Side note: When I read your post, I wondered about that "local currencies" sub-headline. Seems to be just a link ... but an interesting one.

Christian

[Bimat]

U.S. Mint testing new metals to make coins cheaper

By Joann Loviglio-Associated Press Thursday, December 20, 2012

PHILADELPHIA (AP) — When it comes to making coins, the Mint isn't getting its two cents worth. In some cases, it doesn't even get half of that. A penny costs more than two cents and a nickel costs more than 11 cents to make and distribute. The quandary is how to make coins more cheaply without sparing our change's quality and durability, or altering its size and appearance.

A 400-page report presented last week to Congress outlines nearly two years of trials conducted at the Mint in Philadelphia, where a variety of metal recipes were put through their paces in the massive facility's high-speed coin-making machinery.

Evaluations of 29 different alloys concluded that none met the ideal list of attributes. The Treasury Department concluded that additional study was needed before it could endorse any changes.

"We want to let the data take us where it takes us," Dick Peterson, the Mint's acting director, said Wednesday. More test runs with different alloys are likely in the coming year, he said.

The government has been looking for ways to shave the millions it spends every year to make bills and coins. Congressional auditors recently suggested doing away with dollar bills entirely and replacing them with dollar coins, which they concluded could save taxpayers some $4.4 billion over three decades. Canada is dropping its penny as part of an austerity budget.

To test possible new metal combinations, the U.S. Mint struck penny-, nickel- and quarter-sized coins with "nonsense dies" — images that don't exist on legal tender (a bonneted Martha Washington is a favorite subject) but are similar in depth and design to real currency.

Test stampings were examined for color, finish, resistance to wear and corrosion, hardness and magnetic properties. That last item might be the trickiest, as coin-operated equipment such as vending machines and parking meters detect counterfeits not just by size and weight but by each coin's specific magnetic signature.

Except for pennies, all current U.S. circulating coins have the electromagnetic properties of copper, the report said.

A slight reduction in the nickel content of our quarters, dimes and nickels would bring some cost savings while keeping the magnetic characteristics the same. Making more substantial changes, like switching to steel or other alloys with different magnetic properties, could mean big savings to the government but at a big cost to coin-op businesses, Peterson said.

The vending industry estimates it would cost between $700 million and $3.5 billion to recalibrate machines to recognize coins with an additional magnetic signature. The Mint's researchers reached a lower but still pricey estimate of $380 million to $630 million.

Another challenge for the Mint is the rising cost of copper (used in all U.S. coins) and nickel (used in all except pennies).

Only four of the 80 metals on the periodic table — aluminum, iron (used to make steel), zinc and lead — cost less than copper and nickel, the report stated. Lead isn't an option because of its potential health hazards.

"Pricing of steel, aluminum and zinc are pretty close to each other ... there are promising alternatives for the nickel, dime and quarter," Peterson said. "There wouldn't be any advantage to shift the composition of the penny, so we offset that cost with (savings from) other denominations."

Pennies may not be cost-efficient, but they won't be getting pinched as long as they're in demand.

"We produce 6 billion pennies a year," Peterson said. "Our customers want them."

Concurrent Technologies Corp., a Pennsylvania-based scientific research and development company, is working with the Mint on the alternative materials study under a $1.5 million contract awarded in 2011.

The Philadelphia mint, established in 1792, is the country's oldest and largest. Circulating coins are made there and in Denver.

Source: Washington Times

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While the president alone cannot do much when it comes to phasing the penny out, he does at least not seem to be keen on keeping it. "Asked why the government hasn't done away with the penny, Obama said he didn't know, but suspected there was an emotional attachment to the coin. He said the penny was a metaphor for how the government sometimes clings to things that do not work." (Source). There is hope ...

Christian

[Buffalosoldat]

On its face, the fact that the US continues to produce dollar notes is ludicrous. Similar to the emotional attaachment to the penny, I think people in the US have a psycho-emotional attachment to the dollar, aka the Greenback. And what message does it send to the world about the US economy if the headlines start screaming "The End of The US Dollar?" On the other hand, it does not say much for the US mindset that they will cling to a losing proposition when push comes to shove by insisting on using paper dollars when so much time, money and energy has gone into making a newer, improved dollar coin.

But what has sense got to do with it?

Oh, and it's hard to get dollar coins to stay in a stripper's g-string, so until they solve that little conundrum......

[Figleaf]

Oh, and it's hard to get dollar coins to stay in a stripper's g-string

After a small adjustment, the lower lip will be a perfect replacement.

Peter

[chrisild]

But what has sense got to do with it?

Same here in Germany when it comes to the low denomination coins. Guess that any proposal to do away with them - which basically works fine in FI and NL - would result in complaints about supposedly increasing prices. We've had a 1 Pfennig coin (roughly half a cent) until the very end of the DM cash. Guess that, as in the US, this is something irrational, but what has sense etc. see your question.

Oh, and it's hard to get dollar coins to stay in a stripper's g-string, so until they solve that little conundrum......

Figleaf suggested one option. Another one would be to not be so cheap any more when it comes to "tips" of that kind.

Christian

[Buffalosoldat]

After a small adjustment, the lower lip will be a perfect replacement.

Peter

Hey, how'd you get a picture of Mpumé? She's my number one gal!!

[Buffalosoldat]

Figleaf suggested one option. Another one would be to not be so cheap any more when it comes to "tips" of that kind.

Christian

Hey, baby, a "service" economy is not known for paying well. Mind you, you get what you pay for and you pay for what you get.