Friday, February 29, 2008

The U.S. Treasury Secretary Would Like to Get Rid of Penny Coins

I have previously written about how I have been collecting U.S. nickel and pre-1982 penny coins because their the value of the metals in such coins (i.e., the "melt value") exceed the face values of those coins. [See my posts from February 2006, April 2006, and October 2006.]

Coinflationis an interesting website that I periodically visit because it gives the melt values of a number of coins currently in circulation, as well as the melt values of silver coins no longer in circulation, but which are fairly widely held by collectors. According to Coinflation, as shown in the image below (click on the image for a larger view) a pre-1982 copper penny has a melt value of about 2.55 cents (i.e., 255% of face value), a copper nickel has a face value of about 7.04% (i.e., 140.8% of face value), and a 1982-2008 zinc penny has a face value of about 0.711 cents (i.e., 71.1% of face value).

Given the rapid rise in the price of commodities such as copper and nickel metals, the U.S. Mint has been losing many millions of by making nickels and pennies. Even though zinc pennies currently have a melt value below their face value, when transportation and other miscellaneous manufacturing costs are taken into account, the Mint loses quite a bit of money making some 7-8 billion pennies each year.

Treasury Secretary Henry Paulson was recently interviewed and stated that he personally would like to get rid of the penny due to its minimal value and usefulness. However, Paulson concluded that it would not be politically doable at this time because the penny coin does have its fans.

Even if the penny coin is not eliminated anytime soon, it seems highly likely that the base metal compositions of nickel and penny coins will likely be changed to less expensive metals at some point in the near future, as I have previously speculated. The Bush administration is currently pushing to give the government the authority to change the metal content of all of the country's coins in order to save money.

If the government does pass legislation to change the metal contents of coins, I expect the Mint to quickly change the base metals of at least the U.S. nickel and penny coinage. If that happens, it is likely that collectors will eventually, over time, snap up much of the older coins currently in circulation. I personally don't want to see the penny coins go away, but I do think that changing the base metal content of U.S. coins would be a good idea so that the U.S. Mint doesn't have to lose money simply by making pennies and nickels.

2 comments: said...

We got rid of our 1c and 2c coins more than a decade ago, for similar reasons (cost of production was more than the face value of such coins). There was some discomfort with the idea intially (many people are uncomftable with change) but people soon got us to it. Prices were rounded up or down to the nearest 5c, so there was no overall cost to business of consumers (although the competition authority had to do some spot checks that small stores weren't rounding all prices up to increase their profits at consumer's expense).

I expect the US will eventually take 1c coins out of circulation, and move to $1 and $2 coins (in general circulation rather than the current president series which is a bit of a soft-launch to get the public used to the idea), and move to more secure polymer-based, coloured notes (the first baby-steps towards using colours other than green on the US notes are another attempt to get the US public used to the idea of change).

I wouldn't collect too many 1c coins though. It's illegal to deface legal tender, so you aren't allowed to melt it down or sell it for scrap. If it's ever taken out of circulation you would either have to swap it at face value or hold onto it indefinitely. The amount bought by collectors would be very small - I still have a couple of rolls of 1c and 2c copper coins and they're not worth much more than face value. Most collectors would only be interested in proof condition coins, not anything that has been in circulation.

dmorris51 said...

I was just reading about this and it was my impression that although it costs more than 5x its worth to create, that the penny was something that the US government would never completely phase out. However, the costs associated with running governments is an interesting topic. I read another article on this topic at There they discuss the overwhelming wealth and far reaching power that is inherent in government, which may support our frivolity and therefore never render the penny useless.