Government Losing Money Making Nickels and Pennies

At a cost of 8 cents each, nickels are no bargain for taxpayers

Jar of coins
Image Source / Getty Images

The federal government has been spending more money to make and distribute nickels and pennies than they are actually worth, according to the Government Accountability Office (GAO).

In fact, in its report to the House of Representativescommittee on financial services, the GAO stated that due to rising metal prices, the U.S. Mint is now spending 8 cents to make a nickel and 1.7 cents to make a penny since 2006. You don’t need to be an accounting whiz to know that won’t work for long.

As a result, the profit or “Seigniorage” made by the federal government from producing and circulating coins have been reduced.

So use cheaper metals to make nickels and pennies right?  Sorry, that would simply be too simple.

Why Metals Matter

First, forget about saving any money on the penny, which is currently 97.5% zinc. According to the GAO, the Mint has yet to find a metal available in the quantities needed cheaper than zinc, now selling for about 67 cents a pound.

However, the Mint told the GAO it could save taxpayers as much as $39 million a year by changing the copper-nickel mixture now used to make nickels and dimes to plated steel, similar to that used to make the steel pennies circulated during World War II.

The Mint had previously estimated it could save $83 million a year by switching to plated steel for making nickels, dimes, and quarters, but later decided against using steel for quarters because less-valuable foreign steel coins would have similar characteristics to a steel quarter and could be used as counterfeit U.S. quarters.

The U.S. Mint, a bureau of the Treasury Department, produced about 13 billion coins in 2014.

While savings of either $39 million or $83 million is a lot of money, remember that the overall U.S. deficit is now about $431 billion, and as the GAO pointed out, any change in the metals used in coins could costs American businesses much more. 

How Businesses Could Be Hurt

Certainly, any industry that depends on automated recognition and acceptance of coins -- like vending machines, coin-op laundries, public transit systems, and banks – would have to modify or replace their equipment to deal with the new “cheaper” coins.

Associations representing those very industries told the GAO that modifying some 22-million coin machines – mainly vending machines -- to verify and accept steel-based coins would cost their businesses from $2.4 billion to $10 billion. The costs, they said, would be so high because the coin machines would have to be modified to accept the new coins as well as current coins, which would remain in circulation for decades.

But Not so Fast, Said GAO

The GAO, however, found the coin-handling industry’s cost estimates might have been overstated “for several reasons.” For example:

  • While the automated vending industry estimated that over 7-million vending machines would require modification, a 2015 industry survey cited by the GAO estimated that there were only 4.5-million vending machines in the United States.
  • The industry’s cost estimate assumed that all U.S. coins would be converted to steel, but the Mint had already decided not to make any changes to the quarter. So machines that only accept quarters – like those used in coin laundries – would not need to be modified.

Oh, in case you were wondering about slot machines, very few, if any, that accept or pay out coins remain in use in the United States, a fact decried by many nostalgic gamblers.

Expect No Change in Your Change Anytime Soon

Any change in the composition or other characteristics of our coins requires an act of Congress. Under the Coin Modernization, Oversight, and Continuity Act of 2010, any new or modified must work in all existing machines that accept coins “to the greatest extent practicable.”

Before making any changes in the metal used in our coins, the Mint will have to determine whether those changes meet the Act’s criteria for recommending them to Congress – a step the Mint has not yet undertaken.

And considering the snail-like pace at which Congress moves the legislative process these days, the Mint will probably go on spending 8 cents to make a nickel for years to come.

In fact, being a bunch of realists at heart, the GAO made no recommendations on the problem.