Making Pennies, Losing $Millions

In 2010 the US Mint produced 3.49 billion pennies at a cost of 62.3 million dollars. If you spotted something wrong here, you are correct. That calculates to 1.79¢ per penny. The nickel is no better, 359 million nickels produced at a cost of 9.2¢ per nickel. That’s a loss of over $40 million and rapidly escalating.

“The unit cost for both penny and nickel denominations remained above face value for the fifth consecutive fiscal year. Higher unit cost and demand for the five-cent coin increased the overall loss the United States Mint incurred from producing these denominations in FY 2010. Penny and nickel coins were produced at a loss of $42.6 million, nearly double the FY 2009 loss of $22.0 million.”[1]

The increasing disjoint in the value of the metals in coins versus their face value forced the US Mint to implement regulations to prevent anyone from melting down coins to sell the metal at a profit.

“WASHINGTON — The United States Mint has implemented regulations to limit the exportation, melting, or treatment of one-cent (penny) and 5-cent (nickel) United States coins, to safeguard against a potential shortage of these coins in circulation. The United States Mint is soliciting public comment on the interim rule, which is being published in the Federal Register.”[2]

The final rule went into effect on April 17, 2006.

In 2002 Representative Jim Kolbe (R-Arizona) introduced legislation, the Legal Tender Modernization Act, to halt production of the penny. Sadly, that effort went nowhere and died when the 107th Congress adjourned. He tried again in 2006 with the Currency Overhaul for an Industrious Nation (COIN) Act. That too went nowhere.

Why would anyone be opposed to saving over $40 million per year?

The argument is that consumers would lose when transactions are rounded up. Some would indeed be rounded up, but others would be rounded down. Professor Robert M. Whaples of Wake Forest University analyzed over 200,000 transactions and found, predictably, that it evens out.

“If the penny were eliminated, rounding prices to the nearest nickel would not cost consumers extra money, according to a new study by Robert M. Whaples, professor of economics at Wake Forest University.”[3]

Years ago this rounding issue was even larger. The US half penny was last minted in 1857. Ever since then the penny has been the smallest coin in circulation. In case you didn’t know there has been some inflation since 1857. The Consumer Price Index only goes back to 1913. The buying power of the penny back then requires 22¢ today.[4] For decades all transactions were rounded to what today would be the nearest quarter. Rounding is not an issue.

The real reason the penny survives today is to protect the profits of a private company. Jarden Zinc Products, the sole supplier of the zinc blanks used to make pennies, lobbies hard to protect their profits at our expense.[5]

The time has come to stop making pennies and losing $millions.