The cost to manufacture pennies and nickels is more than twice the face values of each coin.
That tidbit of information was shared this week by US Treasury Secretary Tim Geithner as he outlined new ways that the Treasury plans to save money during the next year. Geithner said pennies cost 2.4 cents and nickels are about 11.2 cents to make. The US Mint reports that penny and nickel costs have exceeded their face values for five years. Rising commodity prices for materials such as copper, nickel, and zinc, along with lower demand, has contributed to the higher manufacturing costs for coins. By changing the makeup of coins and improving production efficiency, the government could save more than $75 million during the next fiscal year. The Treasury also will save another $50 million after stopping the production of the presidential dollar coin. Both measures are part of a bigger effort to reduce the government’s deficit by $4 trillion over the next 10 years.
At the root of the penny and nickel problem, is what the coins are made out of. While many other countries use steel to make coins, US pennies are made mostly of zinc and coated with copper (2.5%). Nickels are about 25% nickel and 75% copper. Changing the composition of coins will take an act of Congress, as it sets the standards and has tinkered with the make up coins since pennies stopped being made from pure copper in 1837. Every few generations Congress adjusts the metals content of coins, according to the US Mint. The last major change happened in 1965 when silver was eliminated from dimes and quarter dollar coins and the silver content was reduced for half-dollars.
Another big adjustment is likely on the horizon. Congress passed the “Coin Modernization, Oversight, and Continuity Act” in 2010 and the Mint is researching and developing cost-effective replacement metals for coins. Recommendations to Congress will be made by December.
The changes to coin composition will likely have an impact on steel producers and the metals industry. The US Mint used more than 16,300 tons of copper, 2,300 tons of nickel, and 11,800 tons of zinc to produce coins last year. Any tinkering with coins’ makeup will effect demand for those metals. On the flip side, while the Mint isn’t revealing anything about its trials, it is likely that steel may be the go-to metal for coins and that could increase demand. Canada recently made the switch to steel coins. Britain also gradually began introducing steel 5-cent and 10-cent coins this year.
One industry that is rarely thrilled about coin composition changes is the vending machine sector. It can cost millions of dollars to convert machines after coin thickness or weight is adjusted.