House Financial Services Committee Chairman Barney Frank, D-Mass., abruptly canceled a hearing first slated for Oct. 31, and then Nov. 7, that had been designed to deal with the administration's attempt to take control from Congress of coinage size, weight, composition and design, and another congressman's attempt to hijack the cent melting prohibition for a constituent who wanted to melt pennies and send the metal to China.
Opposition mounted from Rep. Spencer Bachus, R-Ala., ranking minority member of the full committee, which has charge of all coin and currency matters. The full committee was once known as the Banking and Currency Committee and Banking, Housing and Urban Affairs. Special subcommittees used to handle coinage matters and developed an expertise in the field; more recently, the full committee has handled coinage matters as an ancillary or subsidiary function to the main work of the unit.
On Oct. 31, the committee had scheduled a grueling day of hearings on several bills, two of which had numismatic consequences. One was canceled because of Republican opposition led by Bachus; the unit unanimously approved and sent to the House floor four other matters including one coin bill.
That bill, H.R. 3703, would allow an exception from the $1 coin dispensing capability requirement for certain vending machines. Under existing law, the Presidential Dollar Coin Act of 2005 (Public Law 109-145) requires retailers, including vending machines, located on federal property to accept and dispense $1 coins by January 2008.
This requirement additionally applies to transit systems receiving federal subsidies and to the military. According to the committee and bill sponsors, while most vending machines are already able to accept $1 coins, few are programmed to dispense $1 coins. H.R. 3703 will exempt vending machines from the "dispense" requirement that do not have reason to dispense dollars in change.
The change would destroy an enforced two-way market for the dollar coins, use and re-use, as is typical and unlegislated for other coins. It was thought necessary for dollar coins, which still do not circulate with the velocity of other money.
Bachus said of that measure, "H.R. 3703, introduced by Mr. Scott, is basically a technical and clarifying amendment to the Presidential Dollar Coin Act that was sponsored by Mr. Castle and Chairman Maloney. This bill is non-controversial," which is true in the sense that both parties back the measure. On the remaining measure -pulled because of his opposition - Bachus was not silent. He used his opening remarks to attack the issue head-on: "I'd also like to say a few words about a bill that was scheduled to be on the mark-up roster today but was pulled last night - H.R. 3956, the "Coin Modernization and Taxpayer Savings Act."
"The bill would have handed over to the U.S. Mint - without even a hearing - powers Congress is granted in Article 1 of the Constitution and has exercised without a problem since 1792. If enacted, we could have seen every large-volume coin handling operation - from soda machine operators like Coke and Pepsi to taxpayer-funded public transit - absorbing huge costs to deal with coins of the same denomination co-circulating with different weights."
He had an additional objection: "Additionally, the bill would have allowed a single company with a few employees to mine the taxpayers' pockets to the tune of more than $40 million."
An Ohio firm from Jackson County, south of Columbus, came up with the idea of eliminating the ban on melting cents and allowing private enterprise to go through millions of coins and melt them for their metal content. Jackson Metals president Walter Luhrman made the pitch to Rep. Zachary Space, D-Ohio, who introduced a bill to overturn the Mint's cent-melting ban - and which Frank intended to fold into the modernization act.
The Cleveland Plain Dealer reported Nov. 11 that the hearing "was canceled last week because of a scheduling conflict. A new hearing date has not been set." It quoted Rep. Space as terming his bill a "no-lose, win-win situation." The claim: it would save taxpayers millions of dollars a year and provide jobs in Jackson County. Luhrman's firm employs 16 people and could add 15 jobs if the cent-melting ban is rescinded, the Plain Dealer said.
The more intriguing part of the scheme would have "more-valuable pennies, like Indian Head cents ... removed from the meltdown mix and sold to collectors. Less-valuable newer pennies would be recirculated in parts of the country where the coins are scarce, sparing the government the expense of minting new pennies for those areas," said Luhrman.
The bill introduced by Rep. Space would have augmented the original bill to modernize the Mint and had the backing of Frank. Edmund Moy, Mint director, supported the original bill to give the Mint authority to change coin weights at will and even have multiple weights and compositions. He opposed the new bill by Rep. Space because of an additional feature.
That provided that "The regulations prescribed by the Director of the United States Mint ... shall cease to apply as of the date of the enactment of this Act, and shall have no force or effect after such date, with respect to 1-cent coins." It goes on to say that "The Secretary of the Treasury shall have no authority to prescribe any regulations under Section 5111(d) of title 31, United States Code, that would limit or prohibit the export, melting, or treatment of the 1-cent coin during the period beginning on the date of the enactment of this Act and ending on the date when the Secretary first issues a 1-cent coin with a different metallic content than the 1-cent coins issued as of such date of enactment."
What is driving all this is the price of copper ($3.15 a pound), nickel ($15.07 a pound) even if the world's newspaper headlines are on gold ($803 an ounce or $9,636 a troy pound), silver ($14.73 an ounce or $176 a pound) and platinum ($1,473 an ounce or $17,676 a pound), the cost of base metals has caused the production costs of the cent and nickel to soar.
According to Mint spokesman Michael White, it now costs 1.7 cents to produce a cent and 9.53 cents to make a nickel. That includes overhead.
There is a profit to be made from melting pre-1982 cents.
There are about 150 copper cents to the pound, which is measured in avoirdupois rather than the troy system used for precious metals. Each pound of copper therefore contains at least $1.44 in face value, a built-in profit of $1.50 a pound. The last time that something comparable happened was in 1973, and that resulted in a legislative initiative of the Mint to authorize an aluminum cent. The idea for that ultimately fizzled when the price of copper retreated.
The Mint Report for 1959 discloses that 492,982,444 cents were produced from 1793 to 1873. From 1874 to 1958, that number jumped to 27,336,415,676 for a total of $278,293,981.20 worth of cents or 27,829,398,120 coins. Add to that over 158 billion cents that were produced in the Lincoln Memorial cent series (1959-1982) at all three mints, Philadelphia, Denver and San Francisco. Roughly 186 billion copper cents struck have a face value of about $1.86 billion and the copper value is twice that.
Melting has a long history with American coinage. Nearly all of it is perfectly legal. For example, 1,308,372 large cents or about one percent of the total mintage, were melted by the Mint; the last melt at the Mint took place in 1950 when 296 were sent to the furnaces.
7,469,350 Flying Eagle cents were melted - about 4.7 percent of the total mintage for the series. Among two-cent pieces, over 9 million pieces or 19.79 percent of total mintage were melted down. Of three-cent silver pieces, a whopping 21.8 million or 51.02 percent of the original total mintage has been sent to Mint melting cauldrons.
Some 410,214 silver 20-cent pieces were melted, representing 30.27 percent of all of the denomination minted; about 39 percent of all silver dollars - totaling 331 million - have likewise been destroyed. (The numbers for gold coins, which were part of an authorized government withdrawal program, are even more startling: about 39 percent of all $20 gold pieces were melted, as were 46 percent of all eagle $10 gold pieces and 33 percent of all half eagles or $5 gold coins).
All of the data quoted was assembled from a hundred year's worth of Mint reports to the President that were compiled by denomination and then totaled. This was then compared to the total mintage figure quoted in the 1970 Mint report.
The question of melting usually arises when metal prices rise. In the early 1970s, the nation seemed on the verge of a new coin shortage.
As a result of coin meltings, Treasury's general counsel drafted regulations to prohibit melting. These are the melting prohibitions found in 31 C.F.R. § 94.1 (1976), which, during their period of effectiveness, criminalized smelting of copper coins. (The regulations are no longer in effect but have been superseded this year (2007) with new regulations prohibiting melting.)
There were also regulations that prohibited melting of silver coins. While there were several criminal prosecutions, the market economy caught up with reality and Congress changed the composition of coinage.
Final regulations banning exportation or melting of large quantities of cents and nickels was announced in the April 16, 2007, Federal Register, the government's daily publication used to announce regulations, modifications, laws and rules. The announcement completes a process begun last year when temporary regulations were issued after the world price of copper and zinc caused the current cent's nominal value to exceed its face value.
Melting, treating or exporting selected U.S. one-cent coins, and all nickels, went into effect Dec. 15, 2006, for a five-month trial expiring in April 2007. Mint Director Moy issued a regulation prohibiting the melting with criminal penalties imposed on those who ignore it.
Last time that a melting ban was imposed was in April 1974, more than 30 years ago, when the Nixon Administration's Treasury chief George P. Shultz issued orders as part 94 of title 31 of the Code of Federal Regulations. Earlier, it had been used to prevent melting of silver coins during the coin crisis of the 1960s.
All of these are based on use of an obscure proviso in the Coinage Act of 1965. Some 73 years ago, the Roosevelt Administration used a provision in the 1917 Trading with the Enemies Act to ban gold coin melting. A gold coin recall followed. No such recall seems likely for cents or nickels.
The final regulations are not intended to be permanent and are likely to change when the pressure of commodity prices change. The Mint in 2006 said it cost 1.73 cents to produce a new cent, including labor and overhead. Nickel production on the same basis was then cited at 8.74 cents on a metal cost of approximately 7 cents. Found in volume 72 of the Federal Register at pages 18880-02 (2007 WL 1107391 (F.R.)), the final regs differ from the original proposed and temporary regulations because of comments and response received from the public, and one very specific comment from the Industry Council for Tangible Assets.
"To protect the coinage of the United States, the United States Mint is adopting a final rule that prohibits the exportation, melting, and treatment of 5-cent and one-cent coins. This rule is issued pursuant to 31 U.S.C. 5111(d), which authorizes the Secretary of the Treasury to prohibit or limit the exportation, melting, or treatment of United States coins when the Secretary decides the prohibition or limitation is necessary to protect the coinage of the United States. This rule's purpose is to ensure that sufficient quantities of 5-cent and one-cent coins remain in circulation to meet the needs of the United States."
This final rule became effective April 16, 2007. Congress gave the secretary of the Treasury broad discretion to ensure that he can effectively protect the nation's coinage and to ensure that sufficient quantities of coins are in circulation to meet the needs of the United States.
Secretary Henry Paulson (acting through Mint Director Moy) has made this determination because the values of the metal contents of 5-cent and one-cent coins "are in excess of their respective face values, raising the likelihood that these coins will be the subject of recycling and speculation."
The prohibitions contained in this final rule apply only to 5-cent and one-cent coins. The regulation says that "it is anticipated that this regulation will be a temporary measure that will be rescinded once actions are taken, or conditions change, to abate concerns that sufficient quantities of 5-cent and one-cent coins will remain in circulation to meet the needs of the United States."
The Mint sought comments on the original regulations proposed and "received 31 comments from members of the public, businesses and trade associations." Two commentaries fully supported the regulation. One trade association supported the regulation as long as its proposed exception was included in the final regulation. Three commentaries stated that the regulation should only be a temporary measure until a solution could be attained on the underlying issue. Eighteen commentaries generally opposed the regulation.
The Federal Register notice says that "One bank and three individuals suggested that the United States government should eliminate the 5-cent coin and the one-cent coin as circulating coinage. The bank stated, 'The cost associated with the creating and handling of these low denomination coins far exceeds their value.' Five commentaries suggested that the United States Mint change the content of the 5-cent and one-cent coins to less expensive alloys. Two commentaries suggested that the United States Mint eliminate the one-cent coin and alter the composition of the 5-cent coin."
The Mint sent a head's up to Congress, noting that "the changes suggested by these comments are outside the scope of the interim rule."
Surprisingly, in light of the Modernization Act that they support, they noted, "however, that under Article I, Section 8, clause 5, of the United States Constitution, only Congress has the power to coin money and regulate its value. Congress determines the denominations, specifications, and design of United States coins."
Put differently, they are saying that if Congress eliminates the denominations, it's OK with them.
They acknowledge, though, that the Mint "has ongoing research into alternative metals for the nation's coinage. Changing the metal content or the denomination of United States coins requires legislation passed by Congress and approved by the President."
The Mint said at the time that the proposed regs were altered such that it would allow "exportation of 5-cent and one-cent coins having an aggregate face value of up to $25 when it is clear that the purpose for exporting such coins is for legitimate personal numismatic, amusement, or recreational use." The prior limit proposed was $5.
ICTA, a trade association for rare coin and precious metals dealers, submitted a comment suggesting that an exception be added for the exportation, melting, or treatment of "war nickels."
War nickels were 5-cent coins produced during World War II, from 1942 through 1945, from a special alloy of copper, silver and manganese in order to conserve nickel for the war effort. ICTA pointed out that "war nickels are traded for their numismatic value, they are melted for the value of their metal composition, and that few, if any, remain as circulating coins." The Mint responded by saying, "Because it appears that covering war nickels under the regulation would disrupt long-standing practices and would not further the protection of circulating coinage, we have added an exc eption for such coins."
Old prohibitions were withdrawn June 7, 1978, by publication in the Federal Register. In mid-July 1978, Mint legal counsel Miklos ("Mike") Lonkay wrote me in response to an inquiry that "the Secretary, if he deems such action necessary to protect the nation's coinage, may reimpose the ban on any or all U.S. coin denominations at any time."
As articulated in the Federal Register, the Mint fears a coin shortage or high replacement cost for coins withdrawn from the circulation pool. "First, the economic burden on the Treasury, and ultimately on taxpayers, occasioned by the need to replace 5-cent and one-cent coins withdrawn from circulation if these regulations are not implemented could be in excess of $1 million per day," they claim.
Small wonder then that Research Triangle Institute, a North Carolina think tank hired by the Mint to examine U.S. coinage, recommended a generation ago that cent production be terminated because it is "both less costly and generally more acceptable to user groups than any of the alternative solutions to the penny dilemma which RTI examined."
In 1976, RTI's conclusion claimed elimination of the cent "will be less costly than increasing Mint capacity to meet an artificially-high demand due to attrition caused by the cent's declining purchasing power" and then went on to say that elimination would "permit the Mint to reduce its operating costs as well as to avoid the expense of constructing new capacity."
With nearly 400 billion one-cent coins in the pool now of all compositions, most of which are never in real circulation, it would be hard to argue that their presence was threatened or that a melting prohibition was warranted.
Affected by the ban are all nickels and cents that have the specifications of current coins that's the copper-plated zinc cent and the 3.121-gram cent (but not older Flying Eagle cents or large cents, for example).
For nickels, it's the five-gram coin produced since 1866, but not the half dime. One thing not affected for now: the 2009 congressionally mandated Lincoln bicentennial commemorative coins including a traditional copper cent intended for collectors. That would require an act of Congress.