Tags: Coin | Costs | Obama | Budget

Coin Costs in the Crosshairs in Obama Budget

Wednesday, 15 February 2012 10:16 AM

The U.S. Mint is battling an unexpected consequence of the global commodities grab: There’s almost no way to make pennies and nickels for less than the face value of the coins.

Demand for the metals in our coins — pennies are mostly zinc covered in copper and nickels are, ironically, mostly copper covered in nickel — has pushed up their cost to $100 million a year each to produce, reports CNNMoney.

Now the Obama administration is trying to find even cheaper metals to cut production costs. A penny costs the mint 2.4 cents to create, while nickels cost taxpayers 11.2 cents each.

In the administration’s budget proposal, Obama requests giving Treasury the power to change the composition of the coins to save money. Their composition hasn’t changed since 1981.

“Making coins from more cost-effective materials could save more than $100 million a year, which isn't just pocket change," Dan Tangherlini, the Treasury Department's chief financial officer, told The Wall Street Journal.

One possible solution would be to go to aluminum. Among other moneysaving ideas, the administration wants the mint to stop making presidential $1 coins.

The irony of the “worthless” penny has been with us for years, but the problem of an underlying rise in metal prices and a broke federal government is relatively new. There’s even a web site, Coinflation.com, dedicated to tracking real value of the metals in our money.

It states that a common circulating penny minted after 1982 is worth about half (54 percent) of its face value thanks to zinc prices, while a nickel is worth more, at 113 percent of face value (being 75 percent copper). Never mind that minting cost has already wiped out that value several times over.

A pre-1983 penny, which is nearly all copper, is worth 2.5 cents, the site estimates. Copper trades at $3.79 a pound.

Complicating matters are the various metals trade groups, which lobby against changes that might harm their interests, a fight which decided presidential elections in the earlier years of the republic, when money was literally made of gold or silver and mining groups predominated in the economy. There’s also the potential backlash among Americans when presented with any change to the currency.

And, of course, metals prices could rise, or fall. Treasury has set aside $248.8 million to cover unexpected costs of minting coins if metals prices spike higher but warned it might have to borrow to keep making coins, reports Reuters.

"As metal prices are extremely volatile, the delay incurred by proposing and passing legislation could result in the new compositions being outdated by the time of their enactment," the U.S. Treasury said in its proposal.

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Wednesday, 15 February 2012 10:16 AM
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