The Coin Analyst: U.S. Mint Releases Report on Alternative Metallic Composition for Circulating Coins
By Louis Golino for CoinWeek....
For the first time since 1965 the U.S. Mint has done major research into possible alternative metallic composition and changes in the method of production for all circulating coins with the goal of reducing production costs.
The study, which was conducted by an outside metallurgic research consulting company, found that additional research and development is required before any steps should be taken to change the composition of U.S. circulating coins or the way they are made.
The study, which was presented to the Congress on December 14, is required by Public Law 111-302, the 2010 Coin Modernization, Oversight, and Continuity Act. This is the first biennial report to Congress on "the current status of coin production costs and analysis of alternative content."
A large part of the impetus for the study is the widely-known fact that for years it has cost more for the Mint to produce pennies and nickels than their face value. The cost to produce and distribute coins is only partly attributable to metal costs. In recent years many metals, especially copper, have risen in value.
According to the U.S. Mint's Director of Public Affairs, Tom Jurkowsky: "In undertaking the effort, the Mint contracted the services of Concurrent Technologies Corporation (CTC)―an independent, nonprofit, applied scientific R&D professional services organization―to commence R&D on metallic materials for circulating coins and to prepare the background information, analysis, and supporting data necessary for the bureau's report to Congress."
"Additionally, the Mint constructed a dedicated R&D laboratory within its Philadelphia facility. During testing at the laboratory, Mint personnel produced hundreds of test strike pieces composed of 29 different formulations. Factors considered in assessing alternatives included the potential new coins' color; wear resistance and lifespan; ability to be shaped and hold an imprint; and ease of acceptance to the vending industry and other stakeholders."
He added that "After a nearly two-year R&D effort that was significant, meaningful and thorough, the Mint found that additional R&D is required before it can make detailed recommendations for any appropriate changes in coin composition or methods of production. Accordingly, the second round will allow the Mint to (1) conduct production-scale tests with multiple lots of proposed coin materials to verify the potential supply chains and the results from the preliminary tests described in the CTC study and (2) conduct further research regarding estimated costs to stakeholders associated with a change in the electro-magnetic signature of circulating coins."
One of the interesting facts the study found is that the cost to produce one and five-cent coins has declined since 2011, but it is still twice the face value of the coins. In 2012 it cost 2 cents to make a penny and ten cents to make a nickel, whereas in 2011 it was 2.4 cents for the penny and 11.18 cents for the nickel. The costs include the metal, production cost to the Mint, administrative cost, and the cost for the Federal Reserve to distribute the coins.
One cent coins are made of copper-plated zinc, and nickels are made of cupronickel.
Because the cost to make those small denomination coins vastly exceeds their face value, the government does not earn any seigniorage on those coins. Seigniorage is the difference between the total cost to produce and distribute a coin and it face value, which is what the Federal Reserve pays the Mint for the coins.
Dimes and quarters cost approximately 5 cents and 11 cents respectively to produce in both of the past two years. Those two coins and half dollars, which are only made for collectors, are made of cupronickel clad copper and are referred to as clad coins in numismatic parlance.
On the other hand, higher denomination coins, especially dollars, produce substantial seigniorage because they cost little to produce and have a higher face value. In 2012 one dollar coins, which are now only produced for collectors, cost 21 cents each to produce, whereas last year when they were still made for circulation, they cost 18 cents. One dollar coins are made of clad manganese brass, which is what gives them their golden color, designed in part to distinguish them from quarters. Earlier modern dollars such as the Susan B. Anthony dollars were made of clad.
Coins of the same size and weight as current circulating coins but made of different metals, the study found, produce different electro-magentic signatures. That means that changes to the metallic composition and production method of our coinage would impose transition costs of the vending machine industry, which the report estimates would be anywhere from $700 million to $3. 5 billion.
Because only aluminum, iron, zinc, and lead cost less than the metals currently used to make coins, the study focused on commercially-available alloys and plated metals that use aluminum, zinc, steel, copper, and nickel.
A key conclusion of the study is that changing the metallic composition of the one cent coin would not produce significant savings because the current market price of zinc is competitive with the cost of alternative metals such as steel.
In addition, the study noted that with the exception of the cent, all current circulating coins produce the electro-magnetic properties of copper. One of the main reasons further analysis is needed is that the study found that changing the electro-magnetic signature of coins other than pennies could result in significant production cost savings for the Mint, but that needs to be studied in more detail to know for sure.
The full report sent to Congress, and the one from the contracting company are available on the Mint's web site: http://www.usmint.gov/about_
2013 Mint product schedule update:
The West Point American silver eagle two-coin proof set, which was announced in the recently-released 2013 product schedule (http://catalog.usmint.gov/
The West Point set, whose formal name is yet to be determined, is expected to include a reverse proof silver eagle with a "W" mintmark and an uncirculated coin with the same mintmark that is different from the uncirculated coins the Mint has issued since 2006 that also have a "W" mintmark and are produced on specially-burnished blanks.
The sets are expected to be made to demand like the 2012 San Francisco silver eagle proof sets, and will be offered for sale for a one-month window from sometime in May until sometime in June. Additional details will be available later.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.