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Tags: nickel | penny | cent | dollar

Mint Report Due on Alternative Coinage Metals

Mike Fuljenz By Tuesday, 01 April 2014 07:49 AM EDT Current | Bio | Archive

The future of U.S. coinage will weigh very heavily on Mint officials' minds during the coming months. Under legislation passed in 2010, the Mint must submit a report every two years updating Congress on alternative compositions that might be considered for use in the nation's coins and providing recommendations based on its research. The next such report is due in mid-December of this year.

Uncle Sam is losing big money on two of the coins he mints, the penny and nickel. And he's missing a chance to cut his costs significantly — and improve his bottom line — by abandoning dollar bills in favor of small dollar coins.

Recently, there were signs that the government might be nearing a solution to the cent and nickel problem. But both coins are still being minted despite the negative cash flow that they generate — losses of $55 million on cents and $49.5 million on nickels in the last fiscal year alone. And, perversely, $1 coins aren't being made for use by the general public in place of dollar bills, despite their potential for saving U.S. taxpayers close to $150 million every year.

Many who saw the movie "Dave" in 1993 remember how hard the stand-in U.S. president, played by Kevin Kline, fought to cut $650 million from the federal budget in order to fund a program to shelter homeless kids. If he had been faced with the same situation now confronting President Obama and current members of Congress, does anyone really doubt what Dave would have done?

The problem has plagued the Mint for the better part of a decade. From 2006 through Sept. 30, 2013, it lost a total of $573.5 million making pennies and nickels. During that period and right up to the present, the base metals used in these two coins have cost substantially more than they did in the years preceding 2006 — so much so that for the last eight years, the coins have been worth more as metal than as money.

The current penny is made of copper-plated zinc, while the nickel — despite its name — is made from an alloy with three times more copper than nickel. Zinc, copper and nickel have all become costlier during the new millennium, largely due to greatly increased demand from China and India.

The metals' prices actually dipped somewhat in 2013. But, even so, it still cost the U.S. Mint 1.83 cents for each and every one-cent piece it produced and 9.41 cents for every nickel. The Mint issued more than 7 billion Lincoln cents and more than 1.2 billion Jefferson nickels in 2013.

In January of this year, the Mint revealed that it has been conducting trial strikes of nickels made of copper-plated zinc — the same composition used in the penny since 1982. With cents, the copper plating is meant to create the illusion that the coins haven't changed. But "red nickels" would look entirely different from the ones we know today, even if their design remained the same.

The overriding factor in tests and talks involving potential new nickels is economics, not aesthetics. Five-cent pieces made of copper-plated zinc would presumably be much cheaper to produce than current nickels are — cheap enough to yield profits instead of losses.

If the tests are deemed successful, prospects will be good for saving the nickel. But the outlook for the cent is far more ominous. Deputy Mint Director Richard Peterson has reported that no alternative composition considered for the penny would bring its combined production and distribution costs below the break-even point of one cent.

Canadians have shed few tears over the loss of their one-cent piece, which the Royal Canadian Mint stopped making in May 2012. They've drawn ample solace from their government's estimate that the cent's demise is saving Canadian taxpayers $11 million a year. And there's no indication that prices of goods in Canada are consistently being rounded up, not down, to the nearest nickel. The government has furnished merchants with charts showing which way given prices should be rounded and is monitoring compliance.

A 2012 government study showed that Uncle Sam could realize savings totaling $4.4 billion during the next 30 years by weaning consumers away from dollar bills and getting them to use dollar coins. That's because the coins — while somewhat more expensive to produce — would circulate far longer and require much less frequent replacement. That estimate, by the Government Accountability Office, averages out to about $150 million each year. But two things would have to happen for that kind of windfall to be achieved: The government would have to stop printing and issuing dollar bills, and the American people would have to accept and use dollar coins.

Congress and the U.S. Treasury have shown no appetite for halting the production of $1 bills. Thus, there's no way to know whether consumers would use dollar coins if they had no other choice. But comparable coins have won wide acceptance in the United Kingdom, Australia, Canada and elsewhere following the withdrawal of equivalent paper money.

Opponents ask whether all of these changes would save enough money to justify an assault on such treasured traditions.

But trimming the federal budget by $50 million a year by eliminating cents is surely not a penny-ante matter. Converting the five-cent piece from a loss leader to a profit center can't be dismissed as nickel-and-dime economy. And an extra $150 million every year would look very nice on the nation's balance sheet if estimates prove correct on the potential savings from dollar coins — assuming that the government were to do an about face, resume full-scale production of such coins and stop printing dollar bills.

About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award-winning Michael Fuljenz Metals Market Weekly Report. Discover more by Clicking Here Now.

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Uncle Sam is losing big money on two of the coins he mints, the penny and nickel. And he's missing a chance to cut his costs significantly — and improve his bottom line — by abandoning dollar bills in favor of small dollar coins.
Tuesday, 01 April 2014 07:49 AM
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