The United States Mint has released its second report to Congress required under the Coin Modernization, Oversight, and Continuity Act of 2010. The Act had authorized the Treasury Department to conduct research and development activities with regards to alternative metallic materials for circulating coins and required a biennial report to Congress including information on the production costs for circulating coins, recommendations for changes to coin composition, and recommendations for changes to coin production.
The first required report delivered by the Mint in December 2012 primarily concluded that additional work was required before any recommendations could be made for specific changes in coin composition or methods of production. The second report similarly does not recommend any immediate changes to composition or methods of manufacture, but suggests continued research within a narrower field of potential composition and production changes.
The unit production costs for each of the current four circulating coin denominations showed declines compared to the previous year. The declines were driven by higher production volumes which spread fixed costs over a larger number of units, decreased metal costs for certain denominations, and a reduction in manufacturing costs.
For the fiscal year ended September 30, 2014, the cost to produce and distribute each circulating coin denomination was as follows:
- 1.66 cents for each cent compared to 1.83 cents in the prior year
- 8.09 cents for each nickel compared to 9.41 cents in the prior year
- 3.91 cents for each dime compared to 4.56 cents in the prior year
- 8.95 cents for each quarter compared to 10.5 cents in the prior year
During the year, average spot prices for nickel increased 3.9% while average copper prices fell 6.9%. This resulted in a reduction in metal costs for the nickel, dime, and quarter which are predominantly composed of copper. The average spot prices for zinc increased 8.4%, which resulted in an increase in metal costs for the cent, which is predominantly zinc. In the case of the cent, the higher metal costs were offset by the increased in production which spread fixed costs over more units.
For the year, the cent generated negative seigniorage of $55 million and the nickel generated negative seigniorage of $49.5 million. These negative amounts were more than offset by the positive seigniorage from the other denominations. Across all denominations and including the impact from mutilated coins, the US Mint generated $289.1 million in positive seigniorage from circulating coinage. This was more than double the prior year total of $137.4 million.
Coin Industry Stakeholder Outreach
One of the major aspects of the United States Mint’s research and development activities over the past year have included outreach to coin industry stakeholders to gauge the impact of any potential changes to coin composition. The Mint received 962 comments through the outreach program, which were segmented by role of the contributor into three groups: equipment manufacturers, logistics sector, and commerce sector.
Equipment manufacturers had emphasized that any change that alters the size, design, or content of a coin without comprehensive consultation and coordination with the industry could harm the economy. This included the ominous potential scenario that the currently reliable United States coin circulation infrastructure could be adversely affected or even fail altogether.
Commenters from the logistics sector, which included depository institutions and the armored carrier industry, recommended no changes to the metallic compositions of circulating coins. They cited challenges to banks since bulk coinage is counted by weight and higher charges to businesses and consumers to pass on costs costs related to new equipment. Additional comments indicated that alternative metals resulting in heavier coins would result in increased transportation costs.
The commerce sector provided the largest number of comments. Of particular focus was the potential impact of a change in circulating coin composition to industries that use machines to accept coins for automated payments. The machines use acceptors that identify the electromagnetic signature, weight, and shape of a coin to determine the value. The National Automatic Merchandising Association estimated the cost of changing the seven million vending machines across the country at $3.5 billion. Other groups specifically opposed changing the composition of the quarter due to the immediate and significant impacts. The cost of retrofitting parking meters was estimated at $200 to $300 per machine, resulting in total costs exceeding $400 million.
Alternative Metals Research
After the first phase of alternative metals research concluded in December 2012, the Mint had identified six materials for continued testing in a second phase of research. Five of these were “co-circulate” materials which would not have the same electromagnetic signature as current coins, while one material (80/20 cupronickel) would be considered a “seamless” material with the same electromagnetic signature and weight resulting in no appreciable impact to the coin-accepting industry.
The six materials included:
- Copper-plated zinc (CPZ)
- Tin-plated on copper plated on zinc (TPCPZ)
- Nickel-plated steel (NPS)
- multi-ply-plated-steel (MPPS)
- stainless steel
- 80/20 cupronickel (80% copper, 20% nickel)
During testing, the TPCPZ and CPZ failed due to poor results on the wear test. The NPS and MPPS initially showed poor striking qualities and even after consultation with the Royal Mint and Royal Canadian Mint, there were issues with die life and coinability. The stainless steel option was considered unsuitable for the quarter denomination and higher due to the potential for counterfeiting, although it was still considered feasible for the nickel and possibly the dime.
Bimetallic materials for circulating coins were also researched. This included the potential of using the current cent as the center with an outer ring made from the current nickel composition. The Mint’s study concluded that the capital cost required to produce bimetallic coins would increase unit costs to an unsustainable level.
The Mint is still researching an alternative variation termed “nickel silver”, which is composed of copper, nickel, and zinc to yield a silver appearance. The alloy is expected to yield a coin with the same electromagnetic signature and weight within the acceptable variance of current coins. Another area of investigation is plated coins with a silicon-steel core that could have a unique electromagnetic signature. Silicon steel would have a similar price to low carbon steel.
Coin Production Research
The Mint explored changes to circulating coin production methods which could potentially reduce costs. The Mint investigated using laser blanking with off-site bulk annealing and laser blanking with continued on-site annealing.
Although technical and environmental assessments raised no significant concerns, the economic analysis showed that laser blanking would be unfavorable compared to current die blanking machines.
During the course of study, the Mint did identify a method of die blanking with a push-back system that could eliminate the expense of on-site annealing with low capital investment and likely result in overall cost savings.
Conclusions and Recommendations
The Mint offered five conclusions and recommendations. Broadly, these address the case of the lowest denomination cent, the workhorse denomination quarter, and a comparison of potential cost savings to the estimated cost to industry stakeholders.
- There are no alternative metal compositions that reduce the manufacturing unit cost of the penny below its face value.
- Based on the response from coin industry stakeholders, the estimated industry cost ($2.4 billion to $6 billion)to accommodate an alternative metal for circulating coins that incorporates a change to the weight or EMS characteristics far exceeds the estimated annual government savings ($46 million to $57 million).
- The coin industry stakeholders overwhelmingly recommended no change to the quarter.
- The Mint does not recommend the use of copper-plated zinc or tin-plated copper-plated zinc for circulating coins with a face value equal to or exceeding five-cents. In addition, the Mint does not recommend the use of multi-ply-plated-steel or nickel-plated steel for circulating coins with a face value equal to or greater than twenty-five cents.
- Based on the coin industry response as well as the Mint’s R&D results, the Mint should evaluate the potential cost savings ($5.25 million annually) of alternative metal compositions that meet the seamless criteria of no change to the weight or EMS characteristics for circulating coins and its corresponding effect on the coin stakeholders.
Going forward, the Mint indicated planned areas of further study which included continued testing and evaluation of the seamless 80/20 cupronickel alloy while continuing alloy development of other potentially seamless alternatives. The Mint also plans to continue stainless steel research and development, explore production improvements such as push-back blanking, continue coin industry stakeholder outreach, and initiate studies to understand consumer behavior regarding the use of coins for commerce.
The United States Mint’s complete 2014 Biennial Report to Congress along with appendices can be found here.