Rep. Ron Paul, R-Texas, is running for President of the United States and also chairs the House subcommittee that oversees coinage. So on April 17, a hearing on “The Future of Money: Coin Production” was called and held before his House Financial Services Subcommittee on Domestic Monetary Policy & Technology.
To no one’s surprise, Paul used the opportunity to call for the abolition of the Federal Reserve, which currently orders all of the nation’s coin supply from the U.S. Mint. But one of the key witnesses invited, Rodney J. Bosco, director of disputes and investigations of Navigant Consulting, Inc., lobbed bombshells at the way U.S. coinage is currently manufactured.
Instead of losing about 2 cents on each cent that is produced, and about 7 cents on each nickel, Bosco suggested a compositional change of all U.S. coinage, including the cent. This could yield $200 million a year in taxpayer savings by the Mint. He cited a client, the Royal Canadian Mint, to both articulate his view and give his opinion credibility.
His prepared statement was accompanied by a strategic analysis that, combined, was a 68-page and nearly 20,000-word presentation. Two other witnesses were heard, neither of whom were from the numismatic community. This continues a substantial change in the way Dr. Paul runs the subcommittee.
The two other witnesses:
• John Blake, executive vice president of Engineering, Cummins Allison Corporation
• Dennis Weber, coin industry consultant
Two pieces of legislation were also being considered: H.R. 3693, “Cents and Sensibility Act” and H.R. 3694, “Saving Taxpayer Expenditures by Employing Less Imported Nickel Act (STEEL Nickel Act)”.
“We as a country live beyond our means” is the reason Dr. Paul gives for why the cent is no longer copper, dimes are no longer silver and gold is used just for trade coins and collectors. “We even dilute base metals,” he went on, not to mention gold and silver metal.
Aside from copper cents that went to zinc in 1982, as Dr. Paul succinctly put it, “Now we’re going to the steel standard.” But “steel pennies,” as he called them, may well be in our future.
Significantly, Bosco laid to rest that the idea that the Mint does not have fixed costs sunk into the production of cents and 5-cent coins. Rep. Steve Stivers, R-Ohio, a sponsor of legislation to change the composition of coinage, said the actual cost to produce the cent is 2.41 cents and the nickel costs 11.18 cents apiece.
Prior discussion for the most part has ignored the fixed costs that push those costs per coin so high. At 2.41 cents apiece, even if the metal was given to the Mint for free, it would still cost 1.41 cents to produce a cent. This 1.41 cents in costs would remain even if the cent was eliminated. For the nickel, if the Mint is given the metal for free, it would still cost 6.18 cents to strike. Sunk costs include the cost of running the die shop, and other administrative costs which he estimated at $17.7 million that would have to be “reallocated” over the production of the other denomiminations.
The practical effect of eliminating the cent and nickel is to raise the sunk costs of producing the dime and quarter, and eventually would make the “last coin standing” bear all of the fixed cost and make it impractical to use coinage at all. (In prior years, he said the Mint only allocated $5.1 million in fixed , sunk costs to cent production. The nickel’s fixed costs are around $16.1 million.
Bosco presented three key findings: • raw materials (metal) makes up more than 50 percent of the cost of production, and changing materials would reduce the cost by 80 percent – using a steel-layered technology.
• An “alloy recovery” program would decimate copper and nickel alloy production – one-third of coins produced in the last 30 years could be recovered and melted, yielding the Mint a $2 billion profit, and making surviving clad coinage much scarcer.
• Elimination of the “penny” would not result in any savings.
Rep. Carolyn Maloney, D-N.Y., ranking minority member, said the hearing was worthwhile but suggested that action be deferred until the end of the year when the Mint is required to present findings to Congress on affordable steel coins and other alternatives.