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Oobie's Blog

14 Jan 2021

Reducing Financial Loss due to Coin Productoin: A Proposal

Young Numismatists Exchange | Oobie

Seeing World coin collector's recent blog post reminded me that I forgot to upload my final paper for my college writing course. The task was to write a proposal that solved a certain issue. The proposal paper combines evaluation, analysis, and argumentative formats into one paper, so without knowledge of one or more of those formats, you will struggle to write a proposal well. I chose to propose a solution to reduce financial loss due to coin production, so I hope you all enjoy. Also, I made a 94 on this paper; not too bad if I say so myself.

Reducing Financial Loss due to Coin Production: A Proposal

Context:


Since the United States Mint was established in the late 1700’s, the one-cent denomination, colloquially known as the “penny,” has been produced in Mint facilities. Almost one hundred years later, the Mint began producing the five-cent denomination, known as the “nickel.” Both denominations have been instrumental as national currency, but inflation has caused them to become almost obsolete. The amount of money it takes to produce one penny is around 1.99 cents, almost double its face value, and the cost to produce one nickel is around 7.62 cents (Unser, 2020). With prices inflating every year, along with digital banking’s growing popularity, the penny and nickel are becoming a burden to the American economy and its people, and the United States Mint has a financial loss each time one of these coins are produced.


Thesis:


The United States Mint can eliminate the large financial losses due to one-cent and five-cent production by ending production of both coins.


Failed Solutions:


Prior to 1857, the United States one-cent was around the size of a half-dollar, and it was composed of 100% copper. These coins were known as “large-cents” after their size was drastically reduced to the size of the modern cent. The composition of the one-cent coin was also changed to reduce financial loss in one-cent production, along with the size change. The composition of the one-cent was changed to a cupro-nickel alloy, which was then changed to a bronze alloy a few years later following flaws in production. The bronze alloy reversed the financial loss, allowing the Mint to continue its production until 1982. The composition change slowly lost its ability to create a positive seigniorage for the Mint due to rising copper prices, so the Mint changed the one-cent’s composition once again to the copper-plated zinc, which is the composition of the modern penny. Like the transition from pure copper to bronze, the transition from bronze to copper-plated zinc reversed the financial loss, but inflation in copper prices, as well as rising production costs, have caused financial loss in the copper-plated zinc penny’s production. Therefore, composition changes to the one-cent have been failed solutions for long-term financial stability. Unlike the one-cent, no solutions have been implemented to curve the financial loss due to nickel production.


My Solution:


The United States Mint should stop one-cent and five-cent production, thus eliminating any financial losses that will be incurred in future coin production. Pennies and nickels currently in circulation will be recalled to banks to be sent to the Mint for melting, and individuals will be credited for the total face value of the coins they take to their respective bank during a set time period. The metal salvaged from melted coins can be reused in other coin production, used in government construction projects, or sold for profit.


Implementation of Solution:


One-cent and five-cent coin production will be scheduled to stop during a specific year. In order to forewarn the public and allow preparation for coin recalls, the United States Mint will issue an official statement with the scheduled stop-year in the statement. After the statement is released, the Mint will suggest for individuals to collect their pennies and nickels and turn them into banks for credit. After production of the coins stops, citizens will be given a certain amount of time to turn in their coins for full value, likely around one year. After this deadline, citizens will only be given credit for half the face value of their coins, as implementing a deadline will encourage citizens to trade their coins before their coins’ value is halved. In order to prevent further circulation of pennies and nickels and recall these coins as quickly as possible, banks will not be allowed to sell businesses pennies or nickels, and businesses will be expected to cash their coins for credit as well.


Expected Outcomes:


The goal of ending penny and nickel production is to mitigate financial loss incurred by coin production. Moreover, the United States Mint is expected to have a significantly higher seigniorage after these two coins are eliminated from production lines. Since dime and quarter production already creates a large positive seigniorage for the Mint, even after financial loss due to pennies and nickels, the Mint can expect a considerable increase in profits.


Parameters of Success:


The success of the financial loss mitigation will be measured by calculating the percent increase of the United States Mint’s seigniorage each year for at least five years after penny and nickel production have ceased. In order to find the percent increase, the theoretical financial loss for the current year must be calculated based on proportional assumption; the last year of production’s total seigniorage before financial loss divided by its respective financial loss will be set equal to the current year over theoretical financial loss. The theoretical financial loss for the current year will be found by dividing the product of the current year’s total seigniorage and the last year of production’s financial loss by the last year’s seigniorage prior to loss. The quotient of these factors will yield the theoretical financial loss for the current year. In order to find the percent increase in seigniorage, the theoretical financial loss will be subtracted from the total seigniorage for the current year, and the difference will be divided by the total seigniorage for the current year. The quotient of this calculation will then be converted into a percentage by simply multiplying by 100. If the final percentage is 15% or above, the solution will be considered successful. Likewise, if it is below 15%, it will be considered unsuccessful.


Sources:


Unser, Mike. “Penny Costs 1.99 Cents to Make in 2019, Nickel Costs 7.62 Cents; US Mint Realizes $318.3M in Seigniorage.” (February 2020). https://www.coinnews.net/2020/02/07/penny-costs-1-99-cents-to-make-in-2019/

Comments

Mokie

Level 6

Although the Mint tries to operate at a profit (to the chagrin of us collectors), the government as whole offers a number of products and services that generate loss. Since none of our money is backed by anything other than our trust, I think it is important to keep the Cent and Nickel as they are considered two of the bedrocks of our monetary system. Although the economic impact of their withdrawal might be slightly favorable, the resulting public loss of trust in our economy would be more damaging than any slight benefit.

Longstrider

Level 6

Every year people write about this "new" idea to save the USA. I for one don't need any more government ideas. At least you wrote a paper for this. I agree with Bama.. If the cent and nickel are so terrible why do people use and love them so.

I think a smaller five cent piece would be better than just abolishing the "nickel" altogether. At this point, I believe the changing of five-cent composition would help reduce losses at the mint, but many vending machine, counters, etc. would lose the ability to count and verify these denomination.

Golfer

Level 5

I think the country could do without the cent and nickel. Something to get used to. The country's debt will be a problem for sure. Thanks for a nice blog. Great work.

CentSearcher

Level 5

Very well put, though I would not enjoy the end of the cent's production. I also don't think it will happen anytime soon. Anyways, thanks for the read!

Stumpy

Level 5

Very well written. I agree with the overall concept, I just don't think the public and/or politicians would even consider it, must less proceed with ceasing production. Nice blog, I would grade you higher.

I. R. Bama

Level 5

Why not eliminate ALL coins following you line of reasoning. None of our circulation strikes have any real value compared to stated face value too. It's all fiat. It only has value because the government says so, along with paper money. Why not go to all electronic monetary systems. They wouldn't have any intrinsic value either. The while thing will have to collapse at one point because the government keeps issuing more and more "money" that is worthless. Probably sooner than later

Mike

Level 7

The United States of America is 24 trillion in debt. I do not think getting rid of the cent and nickel wil! pay that of. The debt is rising but not because of cents or nickels. They can lower production to cut cost at the mint but not our national debt. That is the debt we should worry about. Lower production . Otherwise we might as well get rid of the dime next the quarter after that. . Excellent research and very informative blog. This was done very well. I want to thank you for this. I don't find anything wrong. I enjoyed it. But the Treasury Department runs the mint. I'm sure they are well informed on the situation.. Is there a simple answer I can't answer that. There increasing prices on everything they make. I can't see that solving anything. Very well done.

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