Monday, January 19, 2009

Minting Pennies and Nickels: Not Economically Viable?

Due to the rapid rise of commodity prices – especially metals - during the start of 2008, the cost of minting American pennies and nickels is now twice their actual face value. Weird economics at work?

By: Ringo Bones

When the global economic downturn instigated by the subprime mortgage crisis of the summer of 2007 started to be noticed on American soil during the first quarter of 2008. The US Mint or The Bureau of the Mint also started to notice that it’s now worth twice as much to “make” pennies and nickels than their face value – i.e. the coin’s buying power - due to the increasing prices of “coinage” metals like copper and zinc.

Noting that it now costs 2 US cents to make an American penny (a US 1 cent piece) and a nickel (a US 5 cent piece) now cost a dime or 10 US cents to make. It would only be a matter of time that the US Treasury Department will tell The Bureau of the Mint in Washington, D.C. to stop minting coins because they’ll be losing money - weird economics has finally arrived. Given that a typical American “Honest Abe” penny is 98% zinc while an American nickel is 25% nickel and 75% copper. The three metals – namely zinc, nickel and copper - whose trading values went through the roof during the first part of 2008 makes it easy to see why that minting coins using these traditional coinage metals is now more expensive compared to a generation ago.

Most countries around the world has since abandoned using gold and silver as coinage metals since making them costs way more than the coin’s intended face value, looks like copper, zinc and nickel will now be deemed too expensive for coinage use. Some countries have even resorted to using steel and aluminum to keep the cost of minting coins down. Especially during the early 1990’s when Sumitomo attempted to unlawfully manipulate copper prices in the London Metals Exchange by hoarding large stocks of copper for six years.

In the US, grassroots movements like Americans for Common Cents has been busy campaigning for the US Government to keep minting coins because if Uncle Sam ever decides to stop minting pennies and nickels, the penniless could literally become penniless. Like when merchants start rounding-off prices of goods to the nearest dime – given that if the US 10 cent piece or dime becomes the smallest American currency denomination – could cost American consumers 600 million dollars a year in retail expenses.

As we celebrate the 200th anniversary of Abraham Lincoln’s birth and the 100th anniversary of the “Honest Abe” penny in 2009, has the American penny and nickel become an archaic time-wasting transaction of our modern credit-based economy? In my opinion, coins of small denominations – like the American penny and nickel – are still relevant in today’s economic transaction, especially at the retail level. Plus, given that coins are more difficult to counterfeit when compared to paper currency and are less tempting to steal in comparison to credit card data, American pennies and nickels still serve an indispensable part of the American – if not of the global – economy.

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