Most of us have carried around a pocket full of change at one time or another, and probably within that mix of loose change were a few pennies and nickels. But few of us have probably ever spent much time thinking about what goes into producing these coins, let alone the associated cost. For those unaware, all U.S. coins are minted and put into circulation courtesy of the U.S. Mint, including the pennies and nickels that we all carry around from time to time. The U.S. Mint, a bureau of the Department of the Treasury, spends a surprisingly large amount of money to produce these coins, which, in truth, can’t buy much of anything these days.
Should Pennies and Nickels Remain in Circulation?
So that everyone is on the same page, nickels produced by the U.S. Mint comprise 75% copper and 25% nickel. Modern-day pennies, meanwhile, are made of 97.5% zinc and about 2.5% copper. Understanding the make-up of these coins will help settle the debate concerning whether or not these copper and silver-colored coins should continue to be part of today’s American currency. Since 2006, the cost of minting and putting pennies and nickels into circulation has been getting more and more expensive, according to several studies. Coincidentally, it was in 2006 when the U.S. Mint informed Congress that the cost of producing pennies and nickels was starting to surpass the value of the coins themselves. This trend has continued since 2006 and shows no signs of stopping anytime soon.
The True Cost of Producing America’s Pennies and Nickels
When you factor in materials, machinery, labor, and shipping, it cost around 1.23 cents to produce a single penny and 5.73 cents to produce a single nickel in 2006. Just one year later, in 2007, the cost of producing nickels climbed even higher, coming in at 9.5 cents per coin. The production cost for pennies did not change. Today, however, is a different story. As of the writing of this article, it costs roughly 2.4 cents to produce one penny and 11.2 cents to produce one nickel. Bearing all that in mind, this would be an opportune time to take a second look at the make-up of these coins as it might help to explain why the cost of producing them is so high. Available data shows it costs 1.1 cents in zinc and copper and 6 cents in copper and nickel to make just one penny and one nickel, respectively.
Understanding the Role of the Federal Reserve and the U.S. Mint When It Comes to Pennies and Nickels
The answer to whether or not pennies and nickels should remain in circulation ultimately comes down to who you ask, the U.S. Mint or the Federal Reserve. Even though the material costs exceed the value of pennies and nickels, it is still worthwhile for the U.S. Mint to keep producing them since they enjoy a higher profit margin producing other coins, such as quarters and half-dollars. Available data shows it costs 9 cents and 15 cents, respectively, to mint a single quarter or half-dollar. While those costs might sound high, the U.S. Mint not only recoups those costs but also enjoys a substantial profit whenever they sell those coins to the Federal Reserve.
When the Federal Reserve decides it’s time to release more coins into circulation, they don’t order specific coins from the U.S. Mint. They, instead, order quarters, half-dollars, dimes, and, of course, pennies and nickels all at once. So while they might be taking a loss on pennies and nickels, the U.S. Mint makes out like a bandit on all other coins when the Federal Reserve makes a buy. To further put this into context, a 2005 study revealed that the U.S. Mint enjoyed a profit of $730 million selling coins to the Federal Reserve, losing only about $45 million by producing pennies and nickels.
In summary, the cost of producing pennies and nickels is significantly higher than the value of the actual coins. But unless the Federal Reserve stops buying them from the U.S. Mint, they are not going anywhere, especially since many Americans still pay for goods and services with cold, hard cash.