Ken Marich
Have you ever thought about how much our U.S. coins and currency cost to produce? For our government, the monopoly on the creation of coinage and banknotes is supposed to be a profitable endeavor.
Let’s first evaluate our currency (paper money). Actually, paper money is a misnomer. U.S. currency is made of a cloth that is composed of 75% cotton and 25% linen with silk fibers running through the bills. According to the U.S. Federal Reserve, the wear and tear of paper money is gauged by sophisticated processing equipment in order to determine its remaining lifespan. Those not meeting specific standards are removed from circulation and destroyed. Each year, the Federal Reserve Bank (FRB) submits an order to the Department of the Treasury’s Bureau of Engraving and Printing (BEP). The BEP produces the requested currency and sells it to state and local banks at face value. Banknote life span in years is determined by the denomination and public use. Based on 2016 estimates, the lifespan (L) and production cost (C) are as follows: $1=5.8 yrs (L)/$0.05 (C), $5=5.5/$0.11, $10=4.5/$0.11, $20=7.9/$0.12, $50=8.5/19.4, $100=15/$0.16. Overall, the cost and lifespan of U.S. currency (banknotes) is very profitable for our government.
Coins, on the other hand, have a relatively long lifespan (average 25 years), and currently have both profitable and non-profitable segments. The Mint’s coin production costs are primarily determined by the market price of the raw metal, a factor over which it has no control. Daily spot prices of copper, nickel and zinc, the three main metallic materials, have fluctuated in excess of 500 percent over the last 10 years. Production costs vary for each denomination based on the coin weight and metallic alloy composition. Currently (2017), the dime, quarter, half dollar and dollar are profitable for the government with production costs of: dime ($0.03 each), quarter ($0.08), half dollar ($0.15) and the dollar ($0.10). Federal Reserve Banks provide the mint with monthly coin orders and a rolling 12-month forecast. Reserve banks, commercial banks and other financial institutions purchase coins from the FRB at the face value of the coins. In contrast, the penny and nickel costs of production were higher than their face value. The penny is struck from a composition of 97.5% zinc and 2.5% copper, while the nickel is created from 75% copper and 25% nickel. In 2016, the cost to produce a penny was 1.5 cents, and a nickel was 6.32 cents. With mintages of 9.1 billion pennies and 1.6 billion nickels, this resulted in a $67 million loss for the Mint in 2016. There is current debate in the House about changing coinage composition and/or eliminating the penny to make these coins profitable for the Mint.
For more information on the SaddleBrooke Coin Club, contact Ken Marich at 520-825-1709 or [email protected].