By David L. Ganz
Melting, treating or exporting selected U.S. one cent coins, and all nickels, went into effect Dec. 14 for a five-month trial expiring in April 2007. Mint Director Edmund C. Moy, acting on behalf of the secretary of the Treasury, has the right, by issuing a regulation, to prohibit 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 Enemy Act to ban gold coin melting. A gold coin recall followed; no such recall seems likely for cents or nickels.
The Trading with the Enemy Act of 1917 provides that, ?During the time of war, the President may, through any agency that he may designate, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities ... ?
President Woodrow Wilson used the act to regulate gold and silver imports and to hold the threat over the marketplace of banning coin melting ? in an era when bullion was traded between governments to settle accounts. Interestingly, 270 million silver dollars were melted in 1918 to help stabilize the currency of India by the explicit provisions of the Pittman Act.
FDR used the Trading with the Enemy Act to prevent coin melting after he essentially nationalized gold coin in 1933.
In the 1960s, silver rose above the official $1.2929 an ounce, the price at which it paid to melt silver dollars for their metal content, and the nation slipped into a coin shortage of major proportions. The Coinage act of 1965, signed by President Johnson in July, gave the Treasury secretary unlimited authority to ban precious metal coin melting.
It was almost immediately exercised. The regulation was withdrawn in 1969.
Cents made the hit parade in 1974, as the price of copper in the then 95 percent copper cent rose to near melt levels. On April 10, 1974, 31 C.F.R. section 94.1 saw the Treasury secretary ban melting without his consent; exports of more than $5 face value were also prohibited, except for numismatic purposes.
June 7, 1978, saw those regulations withdrawn by publication in the Federal Register, the government?s daily periodical of government actions. 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.?
What, then, would cause the Treasury chief to reimpose the ban?
Most likely a serious threat to circulation of coinage. That was the pattern in 1933-1934 for gold (there desiring that it not circulate or be melted), in 1965 (when there were prosecutions for silver coin meltings), and in the mid-1970s when the circulation pool of cents was being hammered almost as soon as it left the Mint.
One difference now is that there are statistical studies that show that the cent does not widely circulate, anyway, and instead has an anecdotal attrition rate of nearly 100 percent. (By contrast, the quarter has a virtually zero percent attrition and is continually reused.)
That changed in 2006 as the current zinc cent?s metal worth increased to more than face value. The Mint says it costs 1.73 cents to produce each new cent because of other costs such as labor and overhead. Nickel production on the same basis is 8.74 cents on a metal cost of approximately 7 cents.
What frightens the Mint is the potential melting of older copper cents which are now worth about 2.13 cents apiece. In the Lincoln Memorial cent series, since 1959, more than 350 billion coins have been produced of which about 100 billion (face value $1 billion) are copper coins issued prior to 1982, and about 250 billion are zinc coins.
As articulated in the Federal Register daily, 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 five-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.
They also believe that ?protecting the five-cent and one-cent coins currently in circulation, without delay, is essential to avoiding the destruction of coins that would result in high costs to the Government.?
From 1789 to 1959, the U.S. Mint produced about 28 billion one-cent pieces. From 1959 to 1974, another 62 billion cents ? all of the Lincoln Memorial design were added to the pool. In the intervening 32 years, approximately 300 billion more have been produced. This means that more than 360 billion Lincoln Memorial cents have been produced ? more coins than all of those ever produced by all the other countries of the world since ancient times.
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, 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.
Economics, for now, don?t seem to be an issue, either, While the price of copper is at record levels, it still remains uneconomical to smelt the 95-percent copper cent domestically; the one cent profit evaporates with the cost of labor and fuel. That would change if copper rises further.
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.
These are temporary regulations effective immediately with an expiry date of April 17, 2007, when the Mint will revisit the entire issue. By that time, they may well have a recommendation for new coinage metal.
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.