CBS News’ ubiquitous weekly news magazine, 60 Minutes, broadcasted a report on Sunday that discussed the costs of producing cents and nickels (see embedded video below). According to the US Mint, over 8 billion copper-coated zinc cents were produced ($80 million) costing the Mint $134 million to produce. Producing 1.3 billion nickels ($65 million) made with the .75 copper alloy that has been in use since 1866, and cost $124 million.


Should We Make Cents?
Source: CBS News

Mint Director Edmund Moy, who was interviewed for the report by Morley Safer, said that the costs were a direct result of the rising metal prices. “You know, coins are made out of metal,” Moy said. “And worldwide demand for copper, nickel and zinc have dramatically increased over the last three years. That’s what’s primarily driving up the cost of making the penny and nickel,”

Stephen Dubner, the co-author of the bestseller Freakonomics, puts the penny in the same category as your appendix and other useless relics. “It’s just not useful,” Dubner said. Unfortunately, Dubner may not have heard that researchers may have found that the appendix does have a useful function.

The focus of the report was to look at the economics of continuing the production of Lincoln Cents. While the report mentioned the tradition of the cent and the coin features Abraham Lincoln, probably the country’s greatest president, and the 2009 redesign program, the argument about removing these coins from circulation are based on their economic worth. But if they are useless and have no value, then why is there a demand for these coins being produced?

I have previously explained that the Mint’s primary “is to produce an adequate volume of circulating coinage for the nation to conduct its trade and commerce.” To carry out this mission, the Mint distributes coins to the Federal Reserve System banks and branches as necessary. Regardless of the cost of production, is it really necessary for the Mint to produce so many cents for circulation?

Unlike commemorative or other collectible items, the number of business strike coins distributed is determined by the individual Federal Reserve banks. As the need arises, the Federal Reserve banks place orders with the Mint for coins to distribute to the nations banks. From those banks, coins are circulated to the public through business or teller operations. Although there are some stockpiles of under used coinage (mostly halves and dollars), the Mint uses “just-in-time” inventory management and distribution like many other manufacturing facilities. Thus, productions of business strikes are based on the demand created by the ordering practice of the various Federal Reserve banks.

If the cent is obsolete and economically infeasible with little buying power, then why is the Federal Reserve ordering so many for circulation?


How Cents are Made
Source: CBS News

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