Since the Treasury imposed a ban on melting or exporting cents and nickels Dec. 14, the hobby has been looking for the other shoe to drop: the announcement of new compositions for both coins.
Nothing has happened yet on that front. What will the Mint decide and will Congress go along with the recommendations? I don?t know. I am on record at the Sarasota Coin Club?s January meeting in Orlando with a forecast that bonded steel is in our future so that the coins can retain their current look. That, of course, is pure speculation.
What I do know is that the market has been working to take the pressure off the Mint since the ban was imposed. Prices of zinc and copper have declined so much that the current copper-coated zinc cent contains only three-quarters of a cent worth of metal. Nobody would now melt those even if it were legal to do so. There is no profit in it.
Even with the five-cent coin, the pressure appears to be easing, though the value of the metal in the coin still exceeds face value by 1.8 cents. Curiously, the great fall in the price of copper (which is three-quarters of the metallic content) has more than offset the soaring price of nickel, which is just one-quarter of the nickel?s composition.
The price of nickel might be ready for a big fall, too. Markets that soar are inherently unstable. What goes up can indeed come down. Last week we reported nickel at over $18 a pound, up by a factor of 7 from its level of 2002. As this is written, it is barely above $17. For all I know, tomorrow it could be $20. Then again, it might be $15.
The Mint has caught a break. So, too, have taxpayers. Though the Mint still makes good money on the dime, quarter and higher denominations, if Mint costs for the cent and nickel exceed face value, that reduces overall profit and there is less to give to the Treasury to support other programs.
This break, even if Mint production costs retreat to below face value for the nickel, are not likely to stop the current effort to find alternative compositions. It only buys time. Why is that? Well, the handwriting is on the wall. Even if this business cycle has seen the top metals prices and the down cycle kicks in for a while, there is the need to look out longer term. Inflation is a fact of life, even if it runs at what central banks consider to be desirable, 2 percent annually. Sooner or later a change must come.
The Mint realized this in 1982, much to the hobby?s surprise. We were thinking of a much more direct cause and effect ? at least I was. Copper behaved more or less for 20 years after that. The Mint bought a generation of time, which was not a bad bargain.
I didn?t like the idea of zinc cents. Who did? I wondered in print whether Gresham?s Law would function and whether the 95-percent copper coins would disappear from change, perhaps provoking a coin shortage before the Mint was ready to meet it. The hoarding did not take place to any great degree. The Mint was ready to meet the challenge of demand and the recurrent cent shortages of the 1970s simply stopped. Some years later I wrote an editorial congratulating the Mint on the repeal of Gresham?s Law when it was obvious that the copper cents were still abundant in circulation. The zinc cent was a great success.
Whatever the Mint chooses to do now, it is likely that the decision makers would consider any fix that lasts 25 years as a great success. Even in the heyday of the gold standard, fixes to the coinage occurred regularly. There are so many examples that there is no space to list them all. Simply consider the big ones. Gold coins got lighter in 1834. Silver coins got lighter in 1853. Silver coins got heavier again in 1873. The cent shrank enormously in two steps, the first in 1857 and the second in 1864. The late 19th century Free Coinage of Silver movement was one long political plea for devaluation that was granted in 1933.
How will the Mint get us through another generation? Let?s wait and see.