Penny Pinch: Government to Cut Minting Costs

As part of the White House budget released in January, the federal government claims it has a coin problem. Specifically, it cost too much to make them – especially nickels and pennies. But it's looking for ways to fix the problem.

Here’s the back story. The White House, as part of its 2011 budget, claims the cost of coining a single penny is 1.8 cents and the cost of forging a nickel costs nine cents. Conversely, it only costs .10 cents to make one U.S. quarter. The chief culprit on the penny and nickel front is the high cost of metal these days. According to the U.S. Mint, the prices of the two major metals-based ingredients that go into the production of pennies and nickels – copper and zinc – have risen significantly in recent years. That’s an issue, as pennies, for example, are comprised of 97.5% zinc and 2.5% copper, according to government statistics. In addition, the cost of nickel has been on the upswing, too – up about 500% in recent years.

Ironically, one reason why those metals cost more is increased mining regulation from the U.S. government. Another reason is higher demand for zinc, copper and nickel.

Altogether, the higher cost of production has cost the U.S. government – and by extension, the U.S. taxpayer – more than $100 million annually.

To shave costs, the White House proposes to tweak the recipe for making pennies and nickels (the White House is not advocating the elimination of the copper penny – at least not yet). One idea is to use cheaper metals when forging coins. Another is to cut back on supply of pennies, which aren’t in as much demand as more consumers use debit cards to make purchases. In a December study by Nilson Report, there were 34 billion U.S. debit card transactions in 2008, totaling $1.33 trillion. That's up from 16.1 billion transactions totaling $583 billion in 2003. If consumers aren’t demanding pennies, the thinking goes, why not make less of them?

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