In 2013, the cost of making pennies and nickels exceeded their face value for the eighth year in a row. The cost of minting a penny stood at 1.8 cents, nearly twice its face value. Nickels cost twice as much as dimes – 9.4 cents vs. 4.6 cents – despite being worth only half as much.
For a better cost comparison, we can look at the price of putting one dollar’s worth of each denomination into circulation. The U.S. Treasury spends nearly two dollars for every dollar of nickels and pennies it pumps into the economy. In contrast, the same amount of quarters and dimes costs the government less than 50 cents. A dollar bill is even cheaper, coming in at less than a quarter.
Historically, nickels and pennies have always been more expensive on a per-dollar basis than dimes and quarters – this makes sense, since it takes a lot more metal to make 100 pennies than it does to make four quarters. But the government only began losing money on nickels and pennies in 2006.
For some historical perspective I obtained 30 years of coin manufacturing costs from the U.S. Mint, which are plotted below on a cost-per-dollar basis. The chart shows that manufacturing costs rose gradually from 1984 until roughly 2005, at which point nickel and penny costs began to spike dramatically.
Why the spike? Minting costs are primarily driven by the costs of the metals used to produce the coins – copper and nickel for the nickel, and copper and zinc for the penny. As those costs rose in the first half of the 21st century, the U.S. Mint began losing money on pennies and nickels.
All told, the Mint (and ultimately, U.S. taxpayers) lost $105 million on the production of pennies and nickels last year. $105 million may be pocket change compared to last year’s budget deficit of $680 billion, but in an era of budgetary austerity it’s enough to make politicians take notice.
Chief among them is President Obama, who included a provision in his 2015 budget to “assess the future of currency” and ultimately develop “alternative options for the penny and nickel.” What those “alternative options” might be is deliberately left vague.
The least controversial approach would be to simply change the metal composition of the coins to make them less expensive. Canadian nickels, for example, are 95% steel, which makes them cheaper to produce than their American cousins. As of last year, Canadian nickels still cost less than their face value.
The other option would be to discontinue pennies and nickels entirely – Canada ditched its pennies when their production cost approached 1.6 cents, well below what U.S. pennies cost now.
To be fair, the penny has plenty of supporters in the general public. A 2012 survey by penny lobbying firm ‘Americans for Common Cents’ – funded, not surprisingly, by the zinc industry – found that 2/3rds of Americans favored keeping the penny. While any poll conducted by a lobbying outfit should be treated with skepticism, it’s probably safe to say that the penny and nickel hold special places in many Americans’ hearts – see, for starters, the remarkable number of penny-centric phrases and idioms in English.
Past attempts to discontinue penny production have been thwarted by the zinc industry (pennies are 97.5% zinc), and Coinstar, which operates the change-redeeming kiosks that are ubiquitous in U.S. grocery stores, as David Owen reported in The New Yorker in 2008.
But these attempts didn’t happen in the context of a global recession, anemic recovery, and subsequent appetite for belt-tightening on Capitol Hill. Pennies and nickels represent $105 million worth of low-hanging fruit on the budgetary tree.
Moreover, millions of Americans have demonstrated their willingness to pay actual money to Coinstar – 10.9 cents on the dollar – to get rid of their unwanted change. Maybe it’s time for Congress to step up and do that job for free.