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Coin Composition Change Included In Obama's 2011 Budget


By Alec Nevalainen
Coinflation.com
February 02, 2010



This section appears in the Terminations, Reductions, and Savings portion of the budget. This document can be found at http://www.whitehouse.gov/omb/budget/fy2011/assets/trs.pdf.

One omission from the proposed composition change is the Presidential and Native American Dollars. Either they are satisfied with the current composition or they were left out inadvertently (which I can understand, the Presidential dollar program is easily forgettable).

Full text from page 100:

OTHER SAVINGS: COINAGE MATERIAL
Department of the Treasury

The Budget proposes to provide the U.S. Mint with greater flexibility in the material composition of coins to reduce its losses on some coins and the production costs associated with volatile metal prices.


Justification

The Mint's primary cost driver is the price of metal, a factor over which it has no control. Daily spot prices of copper and zinc, the Mint's two main metallic materials, have fluctuated in excess of 100 percent, and the price of nickel by 500 percent in recent years.¹  This contributes to volatile and negative margins on both the penny and nickel: in recent years the penny has cost approximately 1.8 cents and the nickel approximately 9 cents to produce.²  Costs have exceeded the value of these two coins by over $100 million in prior years. Through its gains on other coins, the Mint annually returns hundreds of millions of dollars to the Treasury General Fund (GF) and is funded by the Mint Public Enterprise Fund.

Greater flexibility in the composition of coinage materials could enable the Mint to utilize less expensive metals in the minting process and substantially reduce its production costs. Using alternative coinage materials could save $150 million annually after an initial period of development and capital adjustments. These savings result from increased seigniorage, or the difference between the face value of the coin paid by the Federal Reserve and the cost of production. Seigniorage increases the available means of financing, but has no direct budgetary impact. Specifically, the Budget includes provisions that authorize the Department of the Treasury to approve alternative coinage compositions and weights across five denominations (half dollar, quarter, dime, nickel, and penny).

The 2011 Budget would bring the costs of coins more in-line with their face values and create a more sustainable, cost-effective 21st Century use of materials in the minting process. The Budget enables the Department of the Treasury to explore, analyze, and approve new, less expensive materials for all circulating coins based on factors that will result in the highest quality of coin production at the most cost-effective price. Such factors may include physical, chemical, metallurgical and technical characteristics; material, fabrication, minting, and distribution costs; materials availability and sources of raw materials; durability; effects on sorting, handling, packaging and vending machines; and resistance to counterfeiting. The added flexibility the Budget proposes will improve the minting process and enable the Mint to mitigate the high, volatile costs of commodity metals.

Citations

1. Global InfoMine, Metals Prices, http://www.infomine.com/investment/metalprices/ (January 2010).
2. USA TODAY, Coins Cost More to Make than Face Value, http://www.usatoday.com/money/2006-05-09-penny-usat_x.htm (May 2006).


My cynicism towards Congress prevents me from being optimistic about the change, not sure if the zinc, nickel, and copper lobby will let it happen. Canada's current system of a steel-based composition coin would seem to be the odds-on favorite if the change were to occur. Aluminum is another alternative, but the weight of each coin would be significantly less and probably upset the coin-op industry.

Using history as a guide, it's easy to predict this section will be dropped before the budget is passed. Jarden Zinc and many others with a direct interest in maintaining the status quo have been very effective with their lobbying efforts (at least this is how it appears).

It will be very interesting to watch how this unfolds.

Please visit Coinflation.com for more updates.




About The Author: Alec Nevalainen is retired after spending years in the information technology industry. He publishes several free websites to help investors price coins and bullion products including Coinflation.com, GoldGramBars.com, and SilverGramBars.com. He can be contacted at [email protected].




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