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Is small change facing extinction?
Feb. 20, 2012
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by Ivan Raconteur

In this age of plastic, there are days when cash seems like an endangered species, but I suspect we will always have a need for it in some form.

However, due to the escalating cost of coins, it is possible that some could face extinction in the not too distant future.

We all know that a dollar is not worth what it once was, and the same is true for the smallest denominations of coins.

These days, a penny consists of 97.5 percent zinc and 2.5 percent copper. It costs the US Treasury Department about 2.4 cents to mint one. The administrative cost alone is about half a cent.

Nickels aren’t much better. A nickel (which, by the way, includes only about one quarter nickel – the rest is copper) costs 11.2 cents to produce.

It doesn’t take a Newtonian intellect to understand why those numbers don’t work in the long term.

No matter how many pennies or nickels we produce, based on these numbers, there is no way to make the deficit up in volume. We are losing ground with every coin we mint.

Because English is such a rich language, we even have a word for this. “Seigniorage” is the difference between the face value of coins and their metal value.

Every dollar’s worth of pennies the Treasury produces costs $2.40 to mint. Every dollar’s worth of nickels produced costs $2.24 to mint.

This illustrates a key difference between public and private enterprises. If a private company was spending $2.40 each to produce widgets, but was only able to sell those widgets for $1 each, production would likely come to a screeching halt in a hurry.

Maybe that is not a fair comparison, since the government probably can’t stop coining money overnight, but it does bear thinking about.

I would be willing to help Uncle Sam out, in exchange for a reasonable consideration.

I have a big old jug of pennies at the bachelor pad, and I’d be willing to sell them back to the government for 2 cents each. This would be a bargain, since the treasury is spending 2.4 cents to make new ones. Buying back my old pennies and putting them back in circulation would save the government (or rather, the taxpayers) .4 cents per coin. I’d be willing to make that trade, because it would be good for America.

Now, my jug of pennies, capacious though it may be, would not be enough to solve Uncle Sam’s problems by itself.

I bet there are a lot of other people like me though, who have a surplus of pennies, and probably nickels, too, and who would be willing to sell them back to the government at a reasonable price that would be less than it is paying to mint new ones.

This would require some planning, of course. There would have to be a limit on how many coins the government bought back; otherwise, enterprising individuals would keep recirculating coins, and things would be worse than they are now.

The lowly penny has a rich history in this country. It was the first coin authorized by the young US government, and the first design was proposed by old Ben Franklin, the kite specialist.

The first pennies were more than five times heavier and nearly 50 percent larger than the pennies of today. From about 1787 until almost halfway through the next century, pennies were 100 percent copper.

More than 300 billion pennies have been minted over the years, featuring 11 different designs. The composition of the coins has also changed a number of times throughout their history.

Honest Abe Lincoln became the first historical figure to grace a US coin in 1909. Known as the “Lincoln penny,” it was the first 1-cent US coin to include the words, “In God We Trust.”

Nickels have also changed over the years.

Since 1938, they have featured Tom Jefferson’s mug on the obverse, and his stately residence, Monticello, on the reverse.

In 2004 and 2005, the US minted what were called “Westward Journey” nickels commemorating the Louisiana Purchase and the Lewis and Clark Expedition.

As a result of shortages of silver during the Civil War era, nickels were created to replace small silver coins known as half-dimes.

Throughout their history, nickels have had a value of 1 cent per gram.

The name nickel referred to other coins made of alloys containing nickel in the years before the 5-cent piece was introduced in 1866.

The nickel was the price for a phone call from a public pay phone, and a ride on some public transportation systems until the 1950s, when the price doubled.

Both pennies and nickels have enjoyed a colorful history, and the changes in their design and composition reflect the popular culture of the past.

Today, we might not even bother to bend down to pick up a penny or a nickel on the sidewalk, but their value as a barometer of pop culture probably exceeds their monetary value.

We might miss these coins if they are ever discontinued. What’s more, we would probably end up paying more for goods and services, because prices would likely be rounded up, not down, in their absence.

Elimination of small change could ultimately be a big deal for consumers.


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