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US Mint

Et tu, nickels?

I’ve blogged a few times before about pennies and the effort some people have made to eliminate them. Now it looks like we may need to add the nickel to the endangered coin list.

The U.S. Mint has some good news and bad news in its latest biennial report to Congress. The good news is that we’re wasting less money on pennies and nickels. The bad news is we’re still wasting money on pennies and nickels.

Production costs for all four major coin types fell in fiscal year 2014 due to the falling price of copper, one of the primary metals used to make coins. The Mint estimates it saved $29 million this year compared to last year on account of lower copper prices.

But it continues to lose money on pennies and nickels. It now costs $1.62 to make a dollar’s worth of nickels, and $1.66 to make a dollar’s worth of pennies. By contrast it costs only 36 cents to make a dollar’s worth of quarters, and 40 cents for a buck of dimes. Paper dollar bills are even more cost-effective.

As recently as the early 2000s, the Mint was still turning a small profit on the nickels and pennies it produced. But the costs of those coins spiked in 2006, and haven’t broken even since then.

As of 2013 taxpayers were losing $105 million annually on penny and nickel production. This report doesn’t include total production numbers, so we can’t calculate costs at the moment. But it’s safe to assume that losses on pennies and nickels decreased this year, in line with their falling cost.

As is the Wonkblog way, there are charts to illustrate each of those points above, so click over and take a look. The author suggests that eliminating the penny and nickel could save $100 million annually, but as you know I’m not a big fan of killing off coins. An option that may be less objectionable would be to revalue each coin so that it is now worth ten times its face amount – the penny goes to ten cents in value, the nickel becomes like the half dollar, and so forth. It would make these coins cost effective again, and would produce a modest boost to the economy, which of course means that there’s a greater chance I’ll dance the lead in Swan Lake at the National Ballet before that happens. Just by talking about it we could make Ted Cruz’s head explode. Anyway, while there does’t seem to be much chatter for eliminating the nickel, certainly not at the same level as the penny-killers, at these prices it’s just a matter of time.

Don’t kill the penny, revalue it

Ryan Cooper proposes a big idea to make coins more useful so that people start spending them again instead of hoarding them in jars for months at a time.

Millard is keeping hope alive

Here’s my solution: multiply the face value of every U.S. coin by 10. A penny will be worth 10 cents, a nickel 50 cents, a dime one dollar, a quarter $2.50, and a dollar coin 10 bucks. (We could also reinvent the half-dollar, which is barely produced now, as a nice $5 coin.)

This will have several beneficial effects: first, it will make change real money again. The whole point of having money is to facilitate the process of exchange, but studies have shown that people tend not to spend even the vaunted dollar coin. It’s no surprise, given that we’ve been training people for decades to think of change as worthless. And multiplying by 10 sounds like a lot, but if anything, it isn’t going far enough — the BLS inflation calculator only goes back to 1913, but even so, one dollar from that time was worth the equivalent of $23.87 today! The one-cent coin was the smallest then, and people still somehow survived. Rounding to the nearest tenth of a dollar in cash transactions today will be no problem.

Second, it will be easy to accomplish. We won’t have to have a big fight with the zinc lobby or Abraham Lincoln fans over whether to stop production of a particular coin, or rebuild all the vending machines around differently-shaped coins. Instead, we just alter the mint plates slightly with new numbers. (Making U.S. money more coin-based would also save the government a bit of money, since coins last much, much longer than paper money.)

Third — and this might be the most contentious part of this proposal — changing coins could be a nice piece of badly-needed economic stimulus. Effectively, we’d be printing up a bunch of new money and handing it to whoever has coins on hand. We’d have to think carefully about the details, but the idea would be to allow people who have old coins to hand them in for fresh new versions worth 10 times as much. Vending machines can be easily reprogrammed to help soak up the old currency (which will be exactly the same size and weight as the new stuff), and banks could be required to exchange for the new versions for a few years. To keep them from being swamped and to ease the effect, we could say banks don’t have to exchange more than $50 worth of new currency per person per day, or something similar.


How much money are we talking about? According to the Federal Reserve, as of 2010 there was about $40 billion worth of coins in circulation, which constituted 4.3 percent of the U.S. currency stock. We’d be increasing that by $360 billion at a stroke, which would actually be a pretty powerful economic stimulus. Indeed, it might cause a bit of moderate inflationary pressure, as all the coin hoarders with soup tureens full of pennies went on spending sprees. However, that would be exactly the kind of situation the Federal Reserve is equipped to handle. I doubt any inflationary pressure would be sustained long, but if so, it would be a godsend to the Fed, which has been stuck at the zero lower bound and mostly below its inflation target since the financial crisis. Indeed, there is a very strong case that a bit higher inflation target is wise economic policy for the future.

Usually, when I blog about coins it’s in the context of arguing against eliminating the dollar bill in favor of dollar coins, but I have also objected to killing the penny. As does Kevin Drum, I mostly like this idea, but I think Cooper sells short the problem of rounding prices to the nearest old-school dime. The limited bit of empirical evidence we have suggests this would affect poorer folks adversely, since prices would be rounded up much more often than they would be rounded down. One thing that occurred to me in writing this post is that it would likely cause a hike in transit fares around the country – here in Houston, a ride costs $1.25, which would undoubtedly become $1.30 under Cooper’s plan. I’m not sure what the best way to deal with that is. On the plus side, it would as Cooper notes provide a bit of short-term stimulus, which likely means Cooper is underestimating the opposition to his idea as well. This will never happen, but it’s an interesting suggestion. What do you think?

Is this the end for the dollar coin?

Fine by me if it is.

Millard is keeping hope alive

The dollar wars have raged for years, with various sides battling over what a dollar should look like: Should it be a green piece of paper (cotton, actually) that you can slide in your wallet? Or should it be a metal coin that you put in your pocket?

On one side are the vending machine companies, the miners, and anyone who has traveled enough in Europe to know the convenience of a coin worth one or two euros or pounds. On the other side is Crane, the company that makes the paper for dollar bills, and the banks and retailers that prefer the convenience of paper bills.

A working assumption has been that coins would be cheaper, in the long run, for the government. They cost more to make but last much longer than paper money. The Government Accounting Office estimated the move could save $4.4 billion over the next 30 years. Others have been doubtful that such savings would materialize, as Wonkblog’s Brad Plumer details here.

Now, researchers at the Federal Reserve are weighing in, and they, too, find that getting rid of $1 bills entirely wouldn’t be the panacea that some analysts have claimed.

The most important points of the new working paper, by Michael Lambert, Shaun Ferrari and Brian Wajert, boil down to this: Coins aren’t all they’re cracked up to be.

See here for my previous entry in this ongoing bit of obsession, and be sure to read that Brad Plumer piece from last year as well. Basically, the Fed questions the “seigniorage” effect, which is the primary driver of savings for the government, and points out a bunch of costs that hadn’t previously been taken into account. The net result is that the presumed benefit of switching to coins is likely to be pretty small, especially considering they’re spread over a long time period. As noted at the end, the pro-coin people disagree with this finding, so my hope that this debate is over is almost certainly premature. But I can hope.

The dollar coin is an idea that just won’t die

It keeps turning up like a bad penny, as it were.

I have still never seen one of these

American consumers have shown about as much appetite for the $1 coin as kids do their spinach. They may not know what’s best for them either. Congressional auditors say doing away with dollar bills entirely and replacing them with dollar coins could save taxpayers some $4.4 billion over the next 30 years.

Vending machine operators have long championed the use of $1 coins because they don’t jam the machines, cutting down on repair costs and lost sales. But most people don’t seem to like carrying them. In the past five years, the U.S. Mint has produced 2.4 billion Presidential $1 coins. Most are stored by the Federal Reserve, and production was suspended about a year ago.

The latest projection from the Government Accountability Office on the potential savings from switching to dollar coins entirely comes as lawmakers begin exploring new ways for the government to save money by changing the money itself.

The Mint is preparing a report for Congress showing how changes in the metal content of coins could save money.

The last time the government made major metallurgical changes in U.S. coins was nearly 50 years ago when Congress directed the Mint to remove silver from dimes and quarters and to reduce its content in half dollar coins. Now, Congress is looking at new changes in response to rising prices for copper and nickel.

The bit about changing the composition of existing coins in order to save money makes sense and is something I’d support. The rest is a story we’ve heard before, so I’ll just refer you to the points I made the last time this report was in the news. Brad Plumer echoes my arguments and adds some further information. As I’ve said before, I doubt anyone’s mind will be changed by any of this, so as always we’ll see what if anything comes of this.

Still trying to kill bills

Planet Money reports on the continuing efforts to eradicate the paper dollar bill and replace it with dollar coins.

I have still never seen one of these

In its most recent report, the GAO recommends switching to coins, which could make $4.4 billion for the government over 30 years. But the report says the government benefit does not come from the fact that coins are more cost effective. Instead the benefit comes from something called “seigniorage.”

Seigniorage is the profit the government makes from having money out in the economy. More money out there means more profit for the government.

Over time, coins earn more seigniorage for the government, but only because we don’t like using them.

“Lots of people when they take coins out of their pocket or purse at the end of the day put them in what we call a coin jar,” says the GAO’s Lorelei St. James, who oversaw the agency’s most recent study.

As a result, the GAO estimates that if the government were to eliminate $1 bills and switch to coins, it would have to replace every two bills with three coins, because one of the coins would sit idle.

So more coins means more profit for the government. But where does that profit come from? It comes from us — the public.

If you put a dollar coin in a coin jar, that’s a dollar you haven’t invested, a dollar you’re not doing anything with. Economists consider this a kind of tax.

I’ve said before and I’ll say again that I’d rather have a wallet full of bills than a pocket full of coins. That’s basically a matter of taste, so let me give two more reasons why I don’t care for this, and why I think it’s as unlikely as ever to happen.

One reason is vending machines. Remember when they only took coins, and only coins up to a quarter? There was an argument that once they all converted to accept dollar coins, they’d finally get a foothold. There was always a certain chicken-and-egg quality to that argument – did we need the newer vending machines to drive acceptance of the dollar coins, or did we need acceptance of the dollar coins to push the adoption of the newer vending machines – but that’s all moot now. This is because nowadays every vending machine out there accepts bills. And the next generation of vending machines after that won’t be of any help because what they’ll have in place of a coin slot is some form of connectivity – Bluetooth and/or an IP address – to accept payment from your smartphone. For the dollar coin, that ship has sailed.

I’m also skeptical of the seigniorage argument. For one thing, projecting out over 30 years is tricky business. Hell, we could be completely cashless by then. For another, I just have a hard time believing that a significant number of dollar coins would get tossed into a jar or change drawer and forgotten about. Actually, that’s probably what happens now while they’re basically novelties. I almost never take coins with me when I leave the house in the morning, so on those rare occasions when I get one as change, I suppose I do just toss it in with my collectible coins and never spend it. My point is that if those were the only dollar singles I had, I wouldn’t do that. Why would I, once they’re no longer novelties? The $4.4 billion over 30 years works out to about one lost dollar coin per person every two years, so I suppose it’s not a ridiculous assumption. It just doesn’t strike me as being particularly persuasive, and that’s before we discuss whether seigniorage is a good way for the government to get revenue.

Anyway, just another entry in the great bill-versus-coin debate. Has anyone’s mind changed on this topic over time? I can’t say I feel any differently now than I did a decade ago. What about you?

The case for keeping the penny

The Canadian penny is about to become a collector’s item.

They clutter your dresser and cost too much to make. They’re a nuisance and have outlived their purpose.

Finance Minister Jim Flaherty was talking about the Canadian penny and why the Royal Canadian Mint will end its production this fall as part of his austerity budget.

“The penny is a currency without any currency in Canada, and it costs us 1.5 cents to produce a penny,” Flaherty told reporters.

Responses Friday were mixed, with some Canadians saying it would make life easier, while others worried it would become an opening for sneaky price hikes.


Flaherty said a Canadian senate committee held hearings on the penny last year and not one witness came forward to say it should be spared.

A government statement said New Zealand, Australia, the Netherlands, Norway, Finland, Sweden and others “have made smooth transitions to a penny-free economy.” It said penny production cost $11 million a year, and that the coins, which feature two maple leaves and Queen Elizabeth II in profile, would remain legal tender until they eventually disappeared from circulation.

It said it expected businesses to round out the numbers on price tags where necessary.

This explains the details of rounding out the prices.

The 2012 federal budget states: “The government expects that businesses will apply rounding for cash transactions in a fair and transparent manner.”

The rounding will not be done on single items but on the total bill of sale. If the price ends in a one, two, six, or seven it gets rounded down to 0 or 5; and rounded up if it ends in three, four, eight or nine.

Businesses will not need to adjust their cash registers.

That’s only for cash transactions – if you pay via credit or debit card, you get charged the original, un-rounded amount. Call my cynical, but I have a sneaking suspicion that large retailers will have pricing software that is sophisticated enough to adjust retail prices on various items in a way to tilt the roundoffs in their favor. You’d never notice it, of course, but in the aggregate I bet it would add up to some real money.

Indeed, there’s some empirical evidence for that, which leads to the case for keeping the penny.

A 2001 economic analysis by Penn State’s Raymond Lombra found that a post-penny economy—in which we round to the nearest nickel—would probably hurt the poor disproportionately. In theory, rounding would balance itself out over time—with some transactions rounding up and others rounding down. Lombra’s simulations, however, which were based on the price book of a major retail chain, found that between 60 and 93 percent of transactions would round up, costing consumers nearly $600 million a year. Because the poor tend to use cash more often, they would shoulder most of that burden.

Admittedly, that’s just one study from a decade ago, but is there any reason to think it wouldn’t be at least as valid today? For sure, lower income folks disproportionately use cash, so even a relatively small effect, which $600 million in our economy would be, would still be mostly felt by those who could least afford it. I’m one of those people who likes the penny, for strictly sentimental reasons, but this is enough to make me want to defend that position. You’ll need to show me a fix for this problem before I’ll listen to any penny-elimination talk for the US.

Coinis interruptis

No more Presidential dollar coins will be minted for general circulation.

Have you ever seen a $1 presidential coin? Neither have we. Except that one time when we received seven of them in change from a MetroCard machine in the New York City subway system and, perplexed as to where to fit such weighty coins in our dainty-sized wallet, we relegated them to the bottom of our junk drawer.

And perhaps for that very reason, Vice President Joseph Biden announced Tuesday that the U.S. Mint would halt the production of those pesky $1 coins for circulation, because they’re not exactly in demand.

In fact, the U.S. Treasury Department said there are 1.4 billion surplus $1 presidential coins just sitting in the vaults of the Federal Reserve, and that the government would save taxpayers at least $50 million per year in production and storage costs by suspending their production.

Instead, U.S. Mint will produce a limited number of the coins, which “will be sold at a premium to collectors, so it will ensure that the coins will not be produced at a cost to taxpayers,” said Treasury spokesman Matt Anderson.

Until Tuesday’s announcement, the U.S. Mint had been on track to produce 1.6 billion more of the $1 presidential coins through the year 2016, even though the 1.4 billion in surplus is enough to meet demand for more than a decade, Anderson said.

File that under “more reasons why the paper dollar bill will never go away”, despite the insistence of some that it’s more cost efficient. Not if no one wants them it’s not, and given our track record I daresay any effort to mandate their usage by getting rid of the paper dollars will be about as successful as metric coversion has been. Don’t get me wrong, I like the idea of dollar coins, but as an option, not a requirement. Kevin Drum has more.

Slowdown at the Mint

They’re not making as many coins as they used to.

As falls the economy, so falls the jingle of coinmaking at the U.S. Mint.

Production at the federal government’s coin factory in Denver fell a sharp 26 percent in 2008 from the previous year, contributing to a national output decline of 30 percent.

Mint officials said the drop is a direct reflection of the plunging economy and the resulting fall in cash-register transactions that require merchants to provide change.

“Coin demand is definitely affected by economic activity,” said Greg Hernandez, acting director of public affairs in Washington for the U.S. Mint.

“Banks are not ordering as many coins as they were,” he said. “If local banks are not getting orders from local merchants, it’s going to affect Mint production.”

The U.S. Mint in 2008 produced 10.1 billion general-circulation coins, the fewest in at least 10 years.


Part of the coin-production decline stems from diminishing consumer interest in collecting quarters issued for each of the 50 states — a phenomenon that had ramped up the minting of quarters to a record level in 2000.

And some analysts say increasing use of credit and debit cards, and other electronic transactions, has played a role in reduced demand for coins and currency.

But economic conditions are believed to be the biggest factor.

“If people are just buying fewer things and there are fewer transactions, that will have an effect” on the demand for cash, said Dennis Stansbury, assistant vice president for cash operations at the Denver branch of the Federal Reserve Bank of Kansas City.

That makes sense, though I admit it’s not something I ever would have thought of. Learn something new every day.

Mint officials said they expect production of at least one coin type — the relatively new U.S. presidential $1 coin — to increase as the government conducts a marketing push for merchant and consumer acceptance of the coin.

It’s been more than a year, and I’ve still never seen one of these coins. Maybe some day.