Monday, May 29, 2006

A zinc-copper penny for your thoughts

Last week, driving home from the office, I heard a short news clip that perhaps was inevitable considering what has been happening to the rest of the financial structures of the country. The rising price of the main raw materials for nickels and pennies had driven the cost of making these two coins more than the coins were worth. The Mint conceded that for every penny it made, it was spending 1.7 cents and for every nickel it was spending 5.7 cents.

Now everyone knows that the U.S. Mint is part of the Department of the Treasury. And everyone also knows that the U. S. is running a huge current account deficit and an even larger trade deficit. These also are matters that are the responsibility of the U. S. Treasury

I have been aware of another Treasury-related phenomenon that started, for me, about six months ago. Among the change I get back from purchases are an increasing number of coins struck in the 1960s. And it’s all the mass circulation coins – the pennies, nickels, dimes and quarters that pour from and into cash registers in an annual $8 billion dollar cascade.

Everyone might not know that when the composition of these most U.S. coins changed in the mid-sixties. The reason was the scarcity of silver – hence its cost. Before 1965, dimes, quarters, and half-dollars were 90% silver. In 1965 that changed; the dime and quarter went to 0% silver while the new Kennedy half went to 70% and then to 40% silver. The new mass circulation Eisenhower dollar and its successor, the Susan B. Anthony, were minted without silver content except for the silver proof sets that were 60% nickel and 40% silver. The Eisenhowers were 75% copper and 25% nickel while the Anthonys were 90.66 copper and 8.33% nickel.

But nickels have always been 100% nickel and pennies 100% copper, right? Wrong. Nickels are 75% copper and 25% nickel. Pennies were 95% copper and 5% zinc until 1982 when they went to 97.5% zinc and 2.5% copper.

The amount of coinage to be in circulation is set by the Federal Reserve Board. The Mint meets the requirement. In FY2001, $564 million or 59% of the Mint's total operational costs were associated with circulating coinage. Another 37% was related to meeting the needs of the numismatic community (coin collectors), with the remaining 4% going to the protection of assets.

The Mint says it has achieved a 19 percent reduction in manufacturing costs since 1997. I have no doubt that the Mint can back this claim with data so reliable that, as the phrase goes, “you can take it all the way to the bank.” And lest one think it possible to make money by cornering the market on coins and selling them for the value of the raw materials, most countries, including the U.S., criminalize the mutilation or defacement of their respective currency, whether coin or paper.

So what you see is not necessarily what you get. And coining a phrase may not be worth your time and effort unless it comes naturally.


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