The decision to suspend production of dollar coins for circulation indirectly is kicking the props out from under the cent and the nickel because it is seigniorage from the dollar coins that is masking the large losses the U.S. Mint takes each year to strike cents and nickels.
Is this all part of a choreographed maneuver to arrive at a predetermined conclusion in a coin review process mandated by Congress? The Mint is to submit its report to Congress in 2013.
Consider: Every year when the Mint’s annual report is released, I write about the amount of money the Mint turns over to the Treasury. This sum is seigniorage plus the profits on numismatic and bullion coins sales. This number has been declining, but nevertheless, it still strikes most people as a large sum of money. The most recent number from Fiscal Year 2010 that I reported early earlier this year was $405.8 million.
What happens when the annual report figures that presumably would be available for the 2013 report to Congress cuts that overall profit figure by more than half?
In 2010, the Mint struck just over 400 million $1 coins. Two-thirds of that total is seigniorage, reflecting the fact that it cost the Mint 31.57 cents to strike and supply to Federal Reserve each $1 coin. That works out to $275 million in seigniorge subtracted from the $405.8 million profit total.
In FY 2010 it cost 1.79 cents to make a cent, or a loss of .79 cents for each one made. It cost 9.22 cents to strike a nickel for a loss of 4.22 cents per coin. Those costs likely have risen significantly since then, most especially because the Mint is striking more of these money-losing coins.
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So the stage is set. Dollars are suspended. Mint’s income declines dramatically. Mint submits report pointing this out to Congress and perhaps suggests alternative compositions, or even abolishing the cent and/or nickel altogether. Simple? Right?
And softening up public opinion is news of the legislation that would mandate cents and nickels made primarily of steel (See story on Page 4). Steel is advocated on the grounds that it is a metal we produce in the United States.
On those grounds, perhaps we should consider steel dimes and quarters as well. I am sure that would be a tough sell, but if you have ever spent a stainless steel coin, it has a pretty good feel to it.
The vending machine industry lobby might growl about it, but its members are on the verge of sweeping technological changes to their vending machines anyway, so that means everything just might be on the table in 2013 when the congressional negotiations occur and the lobbyists line up to counter the idea of changing government purchases of their favored metals. Steel lobbyists of the American Iron and Steel Institute might change the coin dynamics on Capitol Hill.
Apparent financial necessity created by the dollar suspension might just be that final push to make 2013 a year of sweeping changes to U.S. coinage.