Financial Reform: Obama Wants to Make Pennies and Nickels More Economical
By Josh Sanburn | @joshsanburn | February 15, 2012 | + Tweet
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The White House wants pennies and nickels to be more cost-effective. Here's one of the more uncomfortable truths about U.S. currency: it costs more than a penny to make a penny, and more than a nickel to make a nickel. Now, President Obama is trying to convince Congress to give him permission to lower the cost of minting coins. But making a penny more economical won't be easy.
We'll admit we didn't get around to doing a close reading of the White House's $3.8 trillion, 2,000-page budget that was sent to Congress this week. Frankly, neither did we. But there was one request buried deep within Obama's budget: a proposal to make pennies and nickels more cost-effective to produce (more on that: why free birth control doesn't hike insurance costs).
If approved, the budget would allow the Treasury Department to "change the composition of coins to more efficient materials." Why? Because it currently costs the federal government 2.4 cents to make a penny and 11.2 cents for each nickel. The special formula for making U.S. coins has remained the same for the last 30 years. Changing the recipe could save more than $100 million a year.
Since 1982, our copper-looking pennies have been made mostly of zinc. In 1970, the price of copper rose, so President Richard Nixon proposed changing the penny's composition to a cheaper aluminum. That plan went nowhere until the Reagan administration changed the penny's makeup successfully. Today, only 2.5% of a penny is copper (which makes up the coin's coating), while 97.5% is zinc. In fact, our nickels, which are 75% copper and 25% nickel, contain more copper than the penny does. But the rising price of raw materials like zinc has gradually increased the cost of minting coins. The U.S. Mint paid approximately 1.1 cents for the metal used in a penny until the last cent. And the raw materials for a nickel are about 6 cents per coin.
Some interest groups, like the Zinc Association, like the current state of coinage, and some even believe it might make counterfeiting cheaper coins easier. And then, of course, there are those who believe that in an increasingly digital world, perhaps we should get rid of our small coins altogether. But the true crux of the proposal seems to be whether the Mint can come up with a metal mixture cheap enough to replace what's currently in use. The Treasury has been analyzing new metals for a couple of years, but considering the administrative costs for producing 4.3 billion pennies a year is approximately 0.5 cents per penny, finding a low-cost alternative might be the toughest obstacle of all.
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