President Obama’s recently submitted 2013 Budget includes a proposal to provide the United States Mint with greater flexibility in the material composition of circulating coins. Specifically, the Budget seeks to enable the Treasury Department to explore, analyze, and approve new, less expensive metals for all circulating coins.
Currently, the authority to establish the composition of coins rests with Congress. In December 2010, the Coin Modernization, Oversight, and Continuity Act of 2010 was signed into law, which provided the Secretary of the Treasury with the authority conduct research and development activities for alternative metallic coinage materials. Within a required report due to Congress by December 2012, the Secretary may make recommendations for changes to the composition for circulating coins, however any changes would still need to be accomplished through an act of Congress. By contrast, the proposal included in the 2013 Budget would bypass Congress and provide the Secretary with direct authority to alter coin compositions.
The Budget provides justification for the change based on “volatile metal prices” which have contributed to negative margins on both the penny and nickel. During the 2011 fiscal year, the United States Mint’s unit cost to produce and distribute the cent was 2.41 cents and the unit cost for the nickel was 11.18 cents.
Since 2006, it has cost the US Mint more than the respective face value to produce the cent and the nickel. In the latest fiscal year, the losses generated from producing cents and nickels was $116.70 million. Since 2006, total losses from producing the two denominations has reached $359.80 million.
Historically, the gains, or seigniorage, generated from producing the dime, quarter, and dollar coins have more than offset the losses generated from the cent and nickel. However, this situation may change in the coming years due to the higher anticipated demand for cents and nickels and the recent decision to suspend production of Presidential Dollars for circulation. During the 2011 fiscal year, the most profitable denomination was the $1 coin, which generated $382.8 million in seigniorage. Without this amount, the US Mint would have experienced a loss from circulating coin operations.
The 2013 Budget is somewhat odd in that it takes credit for the decision to halt the production of “excess dollar coins ” as an example of the Administration’s moves to cut wasteful spending (Cuts, Consolidations, and Savings page 2), but then later acknowledges that the suspension will reduce the amount of revenue generated by the Mint to offset losses generated from the cent and nickel (Cuts, Consolidations, and Savings page 173).
The Budget also mentions that the United Stats Mint annually returns “hundreds of millions of dollars” to the Treasury General Fund. While this was true in prior years, for the 2011 fiscal year, the United States Mint deposited only $51 million to the Treasury General Fund. The US Mint held a significant portion of their net income and seigniorage in reserve, citing uncertainties in cash flow due to the losses generated by the cent and nickel and the expected reduction in seigniorage generated from the production of Presidential Dollars.
Another proposed step included in the Budget is the removal of the requirement for at least 20% of all dollar coins produced and issued by the United States Mint to be Native American Dollars. The Budget indicates that removing the requirement “would increase the Mint’s flexibility to match the supply to consumer demand.” In previous years, the 20% requirement resulted in the US Mint producing the Native American Dollars in large numbers essentially driven by the production of Presidential Dollars. However, since the production of Presidential Dollars for circulation has been suspended, the issues created by the 20% requirement will be less significant.
Full text from Cuts, Consolidations, and Savings Page 173:
SAVINGS: INCREASED FLEXIBILITY FOR THE U.S. MINT IN COINAGE
Department of the TreasuryThe Budget proposes to provide the Mint with greater flexibility in the material composition of coins to reduce its losses on some coins and the production costs associated with volatile metal prices. Additionally, the Budget increases the Mint’s flexibility to match customer demand and supply by eliminating the provision requiring the Mint to produce Native American dollar coins in an amount equal to 20 percent of all dollar coins produced.
Justification
The Mint’s primary cost driver is the price of metal, a factor over which it has no control. Daily spot prices of copper and zinc, the Mint’s two main metallic materials, have fluctuated in excess of 400 percent, and the price of nickel by 500 percent over the past 10 years.1 This contributes to volatile and negative margins on both the penny and nickel: recently, the penny has cost approximately 2.4 cents, and the nickel approximately 11.2 cents to produce.2
Through its gains on the costs of producing other coins, the Mint annually returns hundreds of millions of dollars to the Treasury General Fund (GF) and is funded by the Mint Public Enterprise Fund. The gains from the dime, quarter, and dollar coin are used to offset the losses from the penny and the nickel, with the excess funds being transferred to GF. However, on December 13, 2011, citing inventories of 1.4 billion surplus dollar coins in Federal Reserve vaults, enough to meet current levels of circulating demand for more than a decade, the Secretary of the Treasury suspended production of the Presidential dollar coin as part of the Vice President’s Campaign to Cut Waste. The suspended production of the Presidential dollar coin will reduce the amount of revenue available for the Mint to offset production costs of the penny and the nickel. Greater flexibility in the composition of coinage materials could enable the Mint to utilize less expensive metals in the minting process and substantially reduce its production costs. Using alternative coinage materials could save the Mint millions annually after a potential initial period of development and capital adjustments. Savings estimates will be available after the Mint concludes ongoing research on the most cost-effective materials.
The 2013 Budget would bring the costs of coins more in-line with their face values and create a more sustainable, cost-effective 21st Century use of materials in the minting process. The Budget enables the Department of the Treasury to explore, analyze, and approve new, less-expensive metals for all circulating coins based on factors that will result in the highest quality of coin production at the most cost-effective price. Such factors may include physical, chemical, metallurgical, and technical characteristics; material, fabrication, minting, and distribution costs; materials availability and sources of raw materials; durability; effects on sorting, handling, packaging and vending machines; and resistance to counterfeiting. The added flexibility the Budget proposes will improve the minting process and enable the Mint to mitigate the high, volatile costs of commodity metals.
Additionally, the Budget would remove the current law requirement that twenty percent of all dollar coins produced be of the Native American design. Numismatic quality dollar coins would remain available for purchase, but eliminating the twenty percent requirement would increase the Mint’s flexibility to match the supply to consumer demand.
Citations
1 http://www.infomine.com/investment/metalprices/
2 http://news.coinupdate.com/cost-to-make-penny-and-nickel-rises-1139/
While I think there is very little chance for Obama’s 2013 budget to get approved, especially in light of what happened to his 2012 budget, this is nonetheless a very good indicator of what the government is thinking in regards to the situation with circulating coinage. The days of the penny and nickel, at least in their current composition, are clearly numbered. My best guess is the changeover happens sometime early/mid 2013 either by an Act of Congress or by an executive order of some sort.
For those who like to stockpile, best pick up some rolls of nickels now.
They may stop minting pennies and nickels and convert the composition of dimes, quarters and halves to steel. The dollar coin will remain the same.
Maybe the Federal Reserve should stop debasing the currency. Then the Mint wouldn’t have to worry about rising prices!
As the dollar is continually devalued by the Fed and run away government spending it would probably be wise to go ahead and make all coins out of steel or even plastic. It’s not that the material used in coinage is getting alot more expensive it’s the fact the dollar doesn’t buy what it use to…not even the material to make it. LOL
Here is an idea. How about a sound monetary system ? Then our money can be made of copper and maybe silver again. You know. let the people have things of actual value as a currency? Just like the previous 4000 years of history.
Oh no, now i am on the FBI watch list as our oppressive government has recently classified advocates of a Gold/Silver standard as extremists!!!
get rid of the paper $1. keep the $1 coin for the positive gain in seigniorage. and then the nickel and penny can stay the same. no paper $1 in circulation would decrease interest also. the nickel has been a nickel since 1866. the last evidence of representative money left.
OR let’s use casino chips and forget metal coins. what is the point really?
Allowing them to do this is a bad idea. Every Freedom loving American should fight against it. Congress should keep their authority over coin composition and not delegate it and they should keep the composition the same as it is now. The reason is because WHEN (Not if) the Federal Reserve is abolished, with it will go all value of those pesky Federal Reserve Notes. Their value will eventually fall to the intrinsic value of the paper they are made from. Who cares if the government run mints are losing money making coins with at least SOME intrinsic value. The USPS has lost money since George Washington was president! Those penny and nickel coins are issued by the mint, are NOT backed by debt (someone else’s liability) like Federal Reserve notes are, and will continue to function as money when the Federal Reserve is taken out and Freedom once again returns to this country.
Save all Nickels and Pennies from here on out if you have not already been doing so. You can go to your bank now and order boxes of rolls. Change the paper for coins with intrinsic value. The Nickel is worth more than 5 cents. You make money walking out the door. They will be worth even more after they pull them out of circulation.
The U.S, Mint has been producing the presidential $1 for the last 5 years. The program seemed to be working. However, the Obama administration called a halt to the distribution of these collectable/spendable coins for 2012 and beyond. Too expensive to make/store/distribute they claimed. My question is “how can it be cheaper to constantly print and distribute paper money when the lifespan of a dollar bill is a mere fraction of the endurance of a metal coin?”
I hope they don’t change the composition of the quarter until after the current ATB series is done. It would totally ruin the set if the metal is changed half way through.
Why can’t we just adopt something similar to what Finland did when they introduced the Euro – they didn’t bother introducing the 1 and 2 cent coins, i.e. get rid of 1 and 5 cent coins here in the US. In all honesty, what can you buy for 5 cents, let alone 10? As far as I remember the Staten Island ferry once was a quarter, and you certainly need these coins for parking meters (in most cities), but why bother with 1, 5 & 10 cents anymore? In 10 years from now they will have hardly any value anyway because of inflation…
But I guess it’s never going to happen considering the narrowmindedness of those in congress and in the house of representatives…
“Volatile metal prices” what a joke! I wonder if doubling the base money supply could have contributed to those volatile prices? Hmmm… maybe Uncle Benny and Tiny Tim could form a think-tank on the issue?
From gold and silver, to copper and nickel, to zinc and steel. What’s next? Why don’t we just cut to the chase and have plastic coins?
While you are joking about changing them all to plastic, theres types of sturdy plastic that we could use as high as our debt is that could help it might seem funny but as much as coins are slipping away as a primary choice when spending sturdy plastic isn’t a bad idea…pennies,nickles,dimes!!!!