It may be time for the United States to rethink how the smallest parts of its monetary system -- the penny, nickel and dime – are made.
According to a report this week from watchdogs at the Government Accountability Office, since 2006 the prices of metals used in coins have risen so much that the total production unit costs of the penny and nickel exceed their face value resulting in financial losses to the U.S. Mint. In fact such a change could potentially save between $8 million and $39 million per year by changing the metal composition of the nickel, dime, and quarter.
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“The estimated savings of $8 million would come from slightly changing the current metal in coins, which would decrease metal costs and retain the characteristics of existing coins. The savings of $39 million would come from changing the nickel and dime to a plated steel coin, which would change the coin's weight and other characteristics,” the GAO stated.
The GAO noted that the U.S. Mint previously estimated potential savings of $83 million per year by changing the nickel, dime, and quarter to a plated steel-based coin, but also determined that it was not viable to change the quarter because less-valuable foreign coins would have similar characteristics to a steel quarter and could be used as counterfeit quarters.
There are other issues in making such coin changes. The GAO said that associations representing selected industries that use coin acceptance machines estimated a cost impact ranging from $2.4 billion to $10 billion to modify an estimated 22-million coin machines, such as vending machines, to accommodate steel-based coins. According to these associations, these costs would be incurred because coin machines would require modifications to accept new coins while continuing to accept current coins.
The GAO also noted these estimates may be overstated for several reasons. For example, the vending industry assumed 7-million vending machines would require modification, but a 2015 industry study estimated that there are 4.5-million vending machines in the United States. Second, the cost estimates assumed steel changes to all coins, but the U.S. Mint has determined it is not viable to change the quarter. Therefore, machines that only accept quarters (such as coin laundry machines) would not require modification. However, any change in coin composition that requires changes to coin acceptance machines will result in some industry costs.
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In the end there are no current plans to change the composition of coins but there certainly is evidence that the mint and congress should be thinking about it.
Some other interesting items from the GAO report:
- The U.S. Mint, a bureau of the Department of the Treasury, is responsible for making coins and produces about 13 billion circulating coins in 2014.
- The Constitution gives Congress the power to coin money, and under this authority, Congress has specified that the current metal composition of coins be as follows: the penny (1-cent) is made of copper-plated zinc and consists of 97.5% zinc and 2.5% copper; the nickel (5-cent) is made with an alloy of 75% copper and 25% nickel (a combination known as “cupronickel”); the dime (10-cent) and the quarter(25-cent) consist of three layers of metal. The inner layer is copper and the two identical outer layers are a silver-colored alloy of 75% copper and 25% nickel. (A multi-layer coin is called a “clad coin.”)
- Coins serve as a medium of exchange in everyday commerce. In 2012, Concurrent Technologies Corporation, a contractor to the U.S. Mint, estimated that there were from 355 billion to 370 billion coins in circulation—about two-thirds of them pennies.
- When the cost to produce and distribute a coin is less than its face value, the federal government experiences a financial gain, creating a value known as “seigniorage”. In fiscal year 2014, the U.S. Mint realized about $315 million in seigniorage from circulating coins. The quarter and dime resulted in seigniorage of $406 million, whereas the nickel and penny resulted in a loss of seigniorage in the amount of $91 million. Seigniorage is returned to the Treasury General Fund and reduces government’s borrowing and interest cost, resulting in a financial benefit to the government, whereas loss of seigniorage is absorbed as part of the U.S. Mint’s operating costs.
- According to U.S. Mint officials, they are currently only exploring changing the cupronickel composition of the quarter, which would not require any modification to a machine that accepts only quarters.
- The parking industry is shifting from coin-operated to coinless parking meters. According to a parking industry representative, the number of parking meters is decreasing due to a trend from single-space, coin-operated, parking meters to multi-space, smart meters that allow payment by credit card or phone. Because of the many benefits associated with smart meters, the representative believes that within 15 years, nearly all parking meters will no longer accept coins.
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