A Solution in Sight to the Continuing Rise in US Coin Costs

For the 17th year in a row, the cost of producing the US penny (1 cent) and nickel (5 cents) has exceeded their face value, and is now running at an all time high, according to the United States Mint’s latest annual report.

The perennial gap between costs and face value prompted the Coin Modernization, Oversight, and Continuity Act of 2010 to be passed, which requires the Mint to conduct R&D on alternative materials for all circulating coins and provide biennial reports to Congress on the status of production costs, trends and possible new materials or technologies for coin production. The latest report, the sixth, was presented to Congress shortly after publication of the US Mint’s annual report.

The objective is to find alternative compositions that will be less costly and seamless to the general public, coin handling industry, and vending machine operations.

The report shows that the problem is not confined only to the penny and nickel, but also to the higher denomination coins. Whilst the dimes and quarters are currently worth more than they cost, their margins have shrunk significantly over the past two years due to the soaring costs of metal (with the average daily price for copper per metric tonne increasing 57.5% from 2020 to 2022, and nickel and zinc by 81.2% and 61.7% respectively). 

The nickel is currently composed of 75% copper and 25% nickel; while the copper- nickel clad dime and quarter are composed of outer layers of 75% copper and 25% nickel bonded to a core of pure copper. As of last year, every nickel cost 10.4 cents to make, up 40.2% from 7.4 cents in 2020.

The cost to make a dime increased from 3.7 cents in 2020 to 5 cents in 2022 – a 34.9% increase. The cost to make a quarter went from 8.6 cents to 11.1 cents – a 28.7% increase.

The change in ratio of copper and nickel from 75/25 to 80/20 would generate savings of $12 million annually. Testing has been completed and the alternative cupro- nickel alloy is ‘ready to go’, says the Mint, adding that there would be minimal impact, if any, to the public. If authorised, the Mint would need approximately one year for final supplier validation for large-scale production before starting production or general circulation in the next calendar year.

In addition to the proposed change to the alloy, a number of other alternatives are also being investigated that could yield further savings, but research and testing is not as advanced.

Meanwhile, the quest for an alternative to the penny continues. The current composition, which was introduced in 1982, is a copper-plated zinc. It currently costs 2.7 cents to produce – up from 1.7 cents in 2020, a 58% increase.

The only proposed alternative so far is copper-plated steel. But the Mint has identified only one supplier capable of producing the blanks, and not in the volumes required (5.3 billion at 2022 levels). Moreover, the cost of this alternative would still exceed the face value. Further testing has been put on hold pending more research.

Changing the metal composition of any of the coins would require authorisation by Congress, which has yet to happen.

Legislation already exists to make the changes, under the Coin Metal Modification Authorization and Cost Savings Act of 2020. Enacting it would allow the Mint to act in real time on various alternative metals and, it says, ‘help to address market fluctuations in metals; proactively reduce risk of supply chain problems; make counterfeiting coins more difficult; and, most important, reduce costs.’ 

Fresh attempts have been made to enact the 2020 bill, which stalled due to priority being given to pandemic measures. A bipartisan bill has now been reintroduced in the Senate to give the Mint the authority to make the proposed changes. Perhaps the latest figures for the cost of coins, combined with a ready to go solution, will finally prompt Congress to act.