U.S. Mint Bans Melting Pennies, Nickels

[Cladiator]

U.S. Mint Bans Melting Pennies, Nickels

By MARTIN CRUTSINGER (AP Economics Writer)

From Associated Press

December 14, 2006 12:26 AM EST

WASHINGTON - Given rising metal prices, the pennies and nickels in your pocket are worth more melted down than their face value - and that has the government worried.

 

U.S. Mint officials said Wednesday they were putting into place rules prohibiting the melting down of 1-cent and 5-cent coins. The rules also limit the number of coins that can be shipped out of the country.

 

"We are taking this action because the nation needs its coinage for commerce. We don't want to see our pennies and nickels melted down so a few individuals can take advantage of the American taxpayer," Mint Director Edmund Moy said in a statement.

 

Officials said they had received a number of inquiries from the public in recent months concerning the value of the metal in the coins and whether it was legal to melt them.

 

The new regulations prohibit the melting of 1-cent and 5-cent coins, with a penalty of up to five years in prison and a fine of up to $10,000 for people convicted of violating the rule.

 

The rules also require that shipments of the coins out of the country be for legitimate coinage and numismatic purposes and cap the size of any one shipment to $100 worth of the coins.

 

Because of the prevailing prices of copper, zinc and nickel, the cost of producing pennies and nickels exceeds the face value of the coins.

 

A nickel is 25 percent nickel and 75 percent copper. The metal in one coin costs 6.99 cents for each 5-cent coin. When the Mint's cost of producing the coins is added, the total cost for each nickel is 8.34 cents.

 

Modern pennies have 2.5 percent copper content with zinc making up the rest of the coin. The current copper and zinc in a penny are worth 1.12 cents. The cost of production drives the cost of each penny up to 1.73 cents.

 

Pennies made before 1982, which are still in circulation, would be even more lucrative to melt down because they contain 95 percent copper and only 5 percent zinc. The metal value in those coins is 2.13 cents per coin, Mint officials said.

 

The new regulations are being published in the Federal Register and will go into effect as interim rules which will not become final until the government has a chance to consider possible modifications based on public comments.

[Zoins]

There have been a few proponents of eliminating the penny and even the nickel. According to WIkipedia, the Seated Liberty Dollar was removed from general circulation in 1853 when the silver content was worth more than $1 and didn't reenter circulation until 1870 when the price of silver fell. Is this a good time to push for the elimination of the penny and nickel?

[DC Dawg]

There have been a few proponents of eliminating the penny and even the nickel. According to WIkipedia, the Seated Liberty Dollar was removed from general circulation in 1853 when the silver content was worth more than $1 and didn't reenter circulation until 1870 when the price of silver fell. Is this a good time to push for the elimination of the penny and nickel?

The primary job of the Mint is to create coinage to supply the order of the various Federal Reserve Banks. If a Fed Bank orders cents or nickels, then the Mint has to strike enough to satisfy the orders. As long as the Fed Banks make the orders, the Mint fills them. In economic terms, there is a demand and the Mint creates the supply.

 

Regardless of the cost of the metals, the total output of the Mint is much greater than the cost of the metal and production costs. After all, the Fed Banks pay face value for the coins while the Mint manufactures them at a lesser cost. When adding the numismatic sales the result is that the Mint is not loosing money. They will make less money because of the costs of the metals, but they are still running a profit.

 

The difference between the situation now and the situations (there have been others) in the 19th century was the overall economics of producing coinage. Losing money on a unit coin (e.g, $1) like they did made the Mint a money loosing venture. The government, especially during that era, could not take on that kind of debt (they did, but for other reasons). It would also cause other economic and political hardships for the government if the coins were hoarded and even exported because they were worth more than face value. Basically, it would cause a collapse of the US monetary system.

 

In the 21st century, economics are quite a bit different. Not only are we talking about what is called minor coinage, but the way the financial markets work and the health of the government will not effect the US monetary system in the same way. HOWEVER, if there is an announcement that there is a shortage of cents and nickels, this would cause hoarding and potentially create an inflationary atmosphere. It would not be as bad as other hoarding issues (see the 1960s) because the economy is a bit more robust and we are talking about base metals, which has a different intrinsic value than silver, which was the problem in the 1960s.

 

You may ask, "isn't this a perception problem?" Yes it is! But we are talking about human nature and raw emotion, which caused a lot of people to jump to their deaths in 1929 and 1930 over missing margin calls!

 

I hope this made sense... it's late... but I love this policy stuff.

 

Scott

[zrlevin]

Interesting.

[WoodenJefferson]

As I understand, it is still not economical to melt these coins because it would require additional capitol investments because the energy cost still exceeds the actual value of the refined metal.

 

This was not the case of silver were it was profitable to melt and refine for the precious metal for resale.

 

Intersting to see how this all plays out.

 

Anytime a lever presents itself...the Government is sure to use it to their advantage.

[DWLange]

The government also banned the melting of silver coins in 1967, and we've seen how that played out. For the time being, the cost of rendering cents and nickels into their components exceeds the potential profit, but the real message here is that inflation has made both denominations obsolete. Until our congressmen start listening to economists instead of lobbyists for the copper and zinc industries, reason will not prevail.

[cpm9ball]

David, I read not too long ago that Canada is taking all of their pre-1982 (not sure of the exact year) coinage out of circulation. They have an arrangement with one of the smelters to melt it and they will receive a substantial profit from the operation.

 

Chris

[Tradedollarnut]

I wonder where the Mint gets the authority to make such a rule?

[Architecht]

Plastic coins in our future?

[MunkyMan95]

I think that the mint should delete the cents from our currency and round everything up or down to the nearest nickel. Or do away with decimals altogether and just use the dollars.

 

The reason I didn't say get rid of the nickels is because I have an album to fill up from 2007 to 2016!

[jtryka]

I wonder where the Mint gets the authority to make such a rule?

 

I don't believe they have such authority, as creating rules with jail time as a potential penalty should lie with the Congress and not a beaurocrat.

[cladking]

As I understand, it is still not economical to melt these coins because it would require additional capitol investments because the energy cost still exceeds the actual value of the refined metal.

 

This was not the case of silver were it was profitable to melt and refine for the precious metal for resale.

 

Intersting to see how this all plays out.

 

Anytime a lever presents itself...the Government is sure to use it to their advantage.

 

No, this isn't true. Silver had refining costs whereas cu/ ni coins can simply be used as alloy to make various products. Most WILL go into stainless steel. You have to melt something to make alloy so the cost is simply transportation costs.

[cladking]

They've gotten themselves in a world of hurt. The penny is meaningless in the modern economy so won't be missed. Actually the nickel is nearly meaningless as well BUT IT IS REQUIRED TO MAKE CHANGE.

 

At some point there will be enough people hoarding these coins that it will impact business. It will imnpact the economy. It is actually a serious enough threat to cause a recession. Of course Americans are a pretty resourceful bunch so will just start cutting dimes in half to make change. The mint redeems coin by weight anyway so these would still be "good money". Government will eventually repudiate these half dimes but, hey, at least the economy keeps moving in the mean time and by that time their spend thrift ways will have made the "coins" effectively worthless anyway.

[gmarguli]

Plastic coins in our future?

 

Some countries have experimented with plastic coins. I'm not sure if they were intended for general use or test coins or designed for collectors, but I've encountered a few over the years.

[John Martinez]

I wonder where the Mint gets the authority to make such a rule?

 

I don't believe they have such authority, as creating rules with jail time as a potential penalty should lie with the Congress and not a beaurocrat.

 

Their authority to do this is written in the CFR. It is law. All The Secretary of the Mint has to do is publish it in the Federal Register, and it's a done deal.

 

TITLE 31--MONEY AND FINANCE

 

SUBTITLE IV--MONEY

 

CHAPTER 51--COINS AND CURRENCY

 

SUBCHAPTER II--GENERAL AUTHORITY

 

Sec. 5111. Minting and issuing coins, medals, and numismatic

items

 

(d)(1) The Secretary may prohibit or limit the exportation, melting,

or treatment of United States coins when the Secretary decides the

prohibition or limitation is necessary to protect the coinage of the

United States.

(2) A person knowingly violating an order or license issued or

regulation prescribed under paragraph (1) of this subsection, shall be

fined not more than $10,000, imprisoned not more than 5 years, or both.

(3) Coins exported, melted, or treated in violation of an order or

license issued or regulation prescribed, and metal resulting from the

melting or treatment, shall be forfeited to the United States

Government. The powers of the Secretary and the remedies available to

enforce forfeitures are those provided in part II of subchapter C of

chapter 75 of the Internal Revenue Code of 1954 \1\ (26 U.S.C. 7321 et

seq.).

 

[astrostu]

Plastic bills I could live with. Plastic coins? I think not. It also destroys the very foundation purpose behind why coins were created - a lump of semi-precious metal stamped with its weight so it could be of a standard use in transactions. It's only been the last ~40-50 years that US coins haven't been worth the metal they're stamped on, but I think that going to plastic is just too far. Maybe it's because I still remember playing with metal toy trucks instead of the bright hunks of plastic kids use today.

[John Martinez]

This brings up another issue. What good is it to buy 90% Silver Bags if you can't melt them when things go down the tubes? Ok, so you can trade with them, so why would I take 90% silver coins over regular coins if I can't melt them?

 

And...Buying ASE Bullion coins. I wonder when the mint will forbid their melting?

 

[Zoins]

I don't see a big deal with plastic. People use $100 plastic casino chips all the time

[PerryHall]

I think this law will be honored by the public as much as the prohibition laws were honored. It will be tough to enforce since once the coins are melted, the evidence is destroyed.

[pendragon1998]

This brings up another issue. What good is it to buy 90% Silver Bags if you can't melt them when things go down the tubes? Ok, so you can trade with them, so why would I take 90% silver coins over regular coins if I can't melt them?

 

And...Buying ASE Bullion coins. I wonder when the mint will forbid their melting?

 

 

The article was in reference to cents and nickels only. Silver coin has been being melted for decades, but currently, the mint isn't issuing silver coins for use as tender (ASEs are technically tender, but you'd be a *spoon* to buy a candy bar with one, and the mint's already making a big profit on them) The cent and nickel are intended for actual use, and the metal content of the copper and nickel are the issue here.

 

What I find interesting is that I recently went through around $100 worth of cents and come up with an approximate Cu:Zn ratio of 20-30:70-80 . Very little, relatively speaking from the 60s, and just a little more from the 70s, and of course, they stopped making copper cents in 1982. It seems like the overall number of copper cents out in circulation isn't that high anyway. In another decade, what proportion of cents will still be copper (assuming we still use cents)? I suspect that it still makes sense to hoard copper cents, as the ban on melting will probably get lifted in a decade or two anyway. If nothing else, they'll be neat for the kids to look through. What if you'd had a huge hoard of silver coin back when they banned melting it, and you just took it all into the bank? You'd be kicking yourself now.

 

Nobody's melting cents right now as it is, so I'm just going to keep on hoarding for now.

[truthteller]

"In the 21st century, economics are quite a bit different. Not only are we talking about what is called minor coinage, but the way the financial markets work and the health of the government will not effect the US monetary system in the same way. HOWEVER, if there is an announcement that there is a shortage of cents and nickels, this would cause hoarding and potentially create an inflationary atmosphere. It would not be as bad as other hoarding issues (see the 1960s) because the economy is a bit more robust and we are talking about base metals, which has a different intrinsic value than silver, which was the problem in the 1960s"

 

 

I agree. You are literally seeing the last gasps of the value of the American dollar before the plunge. When a government has to pass laws to avoid melting it's MINOR coinage for the debased metal value, that government is foolishly trying to legislate economic/capitalistic factors. When Mexico had the modern bimetalic silver coins in circulation, the silver value began to supercede the coin's purchasing value. The Mexican government then withdrew the coinage from circulation rather than making it illegal to melt.

 

 

TRUTH

[just-john]

We will go to somerthing like the EURO bi metal and larger amounts also like 21/2 -5-10 dollar coins.They need to do something pretty quick Chavez or s starts taking their oil payments out of the country in change that would be the start of some intersting times

[John Martinez]

This brings up another issue. What good is it to buy 90% Silver Bags if you can't melt them when things go down the tubes? Ok, so you can trade with them, so why would I take 90% silver coins over regular coins if I can't melt them?

 

And...Buying ASE Bullion coins. I wonder when the mint will forbid their melting?

 

 

The article was in reference to cents and nickels only. Silver coin has been being melted for decades, but currently, the mint isn't issuing silver coins for use as tender (ASEs are technically tender, but you'd be a *spoon* to buy a candy bar with one, and the mint's already making a big profit on them) The cent and nickel are intended for actual use, and the metal content of the copper and nickel are the issue here.

 

They did ban melting of silver in late '60's. Some people are making a killing selling 90% silver bags for the sole purpose of hedging against a dive in the economy. As far as I know that ban is still on.

 

The US Mint is making a mint selling bullion coins now.

 

Point is, if they did it to silver in the '60's and doing it to nickels and pennies now, what's to stop the mint from banning melting of American Eagle Bullion coins in the future? Nothing. So, unless I'm buying coins for strictly numismatic value, why bother with the bullion coins if one's sole purpose is to hedge against a bad economy and the Mint will ban melting or taking them outside the country when I need them the most?

 

The Mint warns against different scams on their web site. The Mint should list the pushing of their Bullion Coins as a safety net when it has the power to and most likely will ban melting them as a sacam in and of itself?

[pendragon1998]

What possible reason could they have to ban the melting of bullion coins? I'm sorry, that's a little paranoid for me, and I don't even like the government. Doing so is not going to put more coins into circulation. Nor will it cost the government anything, as they don't tax us for income earned due to our silver coins appreciating (knock on wood).

 

As for melting down silver coins, I'm sure it is legal, as lots of folks are doing it as we speak. Does anyone here know when the law prohibiting melting silver coin was passed and repealed?

[Zoins]

What possible reason could they have to ban the melting of bullion coins? I'm sorry, that's a little paranoid for me, and I don't even like the government. Doing so is not going to put more coins into circulation. Nor will it cost the government anything, as they don't tax us for income earned due to our silver coins appreciating (knock on wood).

 

As for melting down silver coins, I'm sure it is legal, as lots of folks are doing it as we speak. Does anyone here know when the law prohibiting melting silver coin was passed and repealed?

I agree. If there is ever a shortage of silver again, melting the coins will make more silver available and lessen the problem. It's not like silver coins are being used as currency anymore. If there still a law on the books, there's probably no reason for it anymore.

[thebeav]

Look at the tremendous discount that silver bags are trading at now and have been for a long time. You know they're getting melted !!!

 

Paul

[pendragon1998]

What I find interesting is that I recently went through around $100 worth of cents and come up with an approximate Cu:Zn ratio of 20-30:70-80 . Very little, relatively speaking from the 60s, and just a little more from the 70s, and of course, they stopped making copper cents in 1982. It seems like the relative number of copper cents out in circulation isn't that high anyway. In another decade, what proportion of cents will still be copper (assuming we still use cents)? I suspect that it still makes sense to hoard copper cents, as the ban on melting will probably get lifted in a decade or two anyway when the zincolns far outnumber the coppers.

 

No one else think this was an interesting point?

 

I liked the line in the mint release that

The United States Mint also has received a steady flow of inquiries from the public over the past several months concerning the metal value of these coins and whether it is legal to melt them.

 

If that's not the stupidest thing I've heard in a while, I don't know what is. I'm astounded, looking around the net for related articles, how many people are under the impresion that damaging a coin is against the law (or was). Almost no one had the correct understanding of what defacing a coin meant in a legal sense.

 

This brings me to another issue: they've made it illegal (for 120 days) to melt cents. How about to otherwise destroy them? Is eBay going to have to cancel all the auctions of squashed cents? We don't know the date they were made, after all! How about kids squashing cents under trains? Or me sitting on the porch melting cents with a butane lighter?

 

How can the treasury ban the melting of some coins and not others? What about the precedence of the decades of smelting operations the government allowed? I bet what ends up happening is the government will make it illegal for citizens to melt the coins, but make it legal for the government to do it themselves. That way, the gov gets all the money.

[just-john]

the sons of patriarch H.L. Hunt, Nelson Bunker and William Herbert, together with some wealthy Arabs, formed a silver pool. In a short period of time they had amassed more than 200 million ounces of silver, equivalent to half the world's deliverable supply.

 

When the Hunt's had begun accumulating silver back in 1973 the price was in the $1.95 / ounce range. Early in '79, the price was about $5. Late '79 / early '80 the price was in the $50's, peaking at $54. market in

GOLD was not allowed to be held or they would have gone after it

Those TEXAS boys paid for my first house.You never know what could happen when dealing with people with that money/power.But if it looks like something could start with

metal's again well Hello Phelp's Dodge in covered

[thebeav]

I'm surprised they can just announce that this is illegal without an act of congress or some such thing.

 

Paul

[PerryHall]

I'm surprised they can just announce that this is illegal without an act of congress or some such thing.

 

Paul

 

I'm sure there must be a law somewhere that gives them this authority.