PhotoChanging times lead to changing language. For example: do you remember Ben Franklin's old saying “A penny saved is a penny earned?” He first said that long before the introduction of income tax, and related concepts like “pre-tax income” and “take-home pay.”

With those factored in, the proverb becomes, “A penny saved is anywhere from 1.2 to 1.6 pre-tax pennies earned, depending on your local and state tax rates, number of dependents, possible business or investment losses and whether or not you file as head of household.”

And sooner or later Franklin's proverb is destined for total meaninglessness, when pennies vanish from American currency. It's still too early to offer any firm prediction when the U.S. Mint will stop minting one-cent pieces, but the Mint has wanted to for years.

Expensive money

Here's the problem: thanks to inflation, an actual U.S. dollar is worth a little bit less every year. That's why most things (with the exception of computers, smartphones and other high-tech electronics) tend to cost more money in actual U.S. dollars and cents every year — including dollars and cents. In other words, every years it costs the U.S. Mint more and more money to mint pennies, nickels and other currency coins, even as those coins' actual spending value decreases a little more each year.

This week, the Mint released its biennial report to Congress (available in .pdf form here). The Mint is legally obligated to produce such reports because, as noted in the report's background section:

The Coin Modernization, Oversight, and Continuity Act of 2010, Public Law 111-302 (Act) (Appendix 1) authorizes the Secretary of the Treasury (Secretary) to conduct research and development (R&D) on alternative metallic materials for all circulating coins with the goal of reducing production costs. The Act also requires the Secretary to provide a biennial report to Congress on the status of coin production costs and analysis of alternative content.

And here's the short version of the report's results: minting pennies and nickels costs the Mint more money than those coins are actually worth, as has been true for years now. It cost 1.7 cents for the Mint to make a one-cent piece, and 8 cents to make a nickel five-cent piece.

Of course, given the coins' intended use as currency, that “loss” doesn't really matter so long as the coin remains in circulation – you spend a nickel at the store, the store owner spends the nickel at a restaurant, the restaurant's next customer receives the nickel as part of her change – but even so, the Mint would like to reduce the cost of producing coins if it could.

Copper coating

The last major change the Mint made to the content of American coinage was in 1982, when the Mint stopped making one-cent pieces from copper and chose instead to make them out of zinc with a thin copper-colored coating. The Mint did this because zinc is much cheaper than copper: at today's metal prices, a pre-1982 copper penny is worth more than 2 cents for the copper alone, whereas a zinc penny contains less than half a cent's worth of zinc.

Zinc is one of the cheapest metals out there – if the Mint is to keep minting one-cent pieces, it really can't save money by switching to a cheaper material. But five-cent pieces, also known as nickels, are another matter: it costs eight cents to make a five-cent piece, yet almost five cents of that cost comes from the actual metal used in the coin.

The Mint would not be able to change the composition of coins without Congressional approval. Realistically, that's unlikely to happen anytime soon, regardless of how much it costs to mint pennies and nickels, because if the Mint changed the metal composition of coins, then American vending machine manufacturers would also have to make major changes to their machines, in order to accept the coins. As the Mint's report says:

Equipment manufacturers emphasized that any change that alters size, design, or content of a coin without comprehensive consultation and coordination with the industry could harm the economy. Specifically, if coin design or material content changes are orchestrated hurriedly without regard to the equipment and other stakeholders, the currently reliable United States coin circulation infrastructure could be adversely affected or fail altogether. In addition, co-circulating same denomination coins with different weights would be ruinous for coin weighing technology, as co-circulating coins would have to be separated for counting.

So expect the Mint to keep losing a mint minting low-value one- and five-cent pieces, at least for the foreseeable future.

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