For several years, one of the least controversial criticisms of the way the Treasury Department operates has been the need for a major coinage reform. For each of the last 11 years, Treasury has been subsidizing production of the one-cent penny and the five-cent nickel, both of which actually cost more to manufacture than they are worth as legal tender.
It costs 1.5¢ to strike and distribute each penny, and about 7.5¢ for the nickel. In other words, the government—and taxpayers—actually loses money by making these coins. 11 years in a row!
The production of all other circulating coin denominations turn a tidy profit for the U.S. Mint, known as seigniorage. This is how our coinage is supposed to work. If the country loses money on the deal, then the system isn't working!
Finally, the Senate is considering legislation that would tackle three of these issues with U.S. coins: suspend penny production, change the composition of the nickel, and replace $1 bills with dollar coins.
Senate Bill 759, the cleverly named Currency Optimization, Innovation and National Savings (COINS) Act, was introduced by Senators Enzi and McCain at the end of March. Senator McCain called it a "commonsense bill" and emphasized that it should save the Treasury Department billions of dollars annually, creating a windfall without raising taxes on the American people.
For starters, the Act (if passed) would suspend all penny production for at least 10 years. The Government Accountability Office (GAO) will study how this affects the money supply in the interim. If they conclude the suspension has saved money without any ill effects, the elimination of the one-cent coin could become permanent.
Pennies will still be produced for collectors, such as proofs and those included in Mint sets. The legislation is only concerned with circulating currency.
Next, the legislation prescribes changing the composition of the nickel from 25% copper and 75% nickel to 20% copper and 80% nickel. Using a balance of less copper in the alloy should bring down production costs, but the legislation ensures that compatibility with vending machines and other services won't be disrupted by the change.
The last and perhaps most difficult measure taken by this legislation is the replacement of the dollar bill with a coin of the same denomination. Although dollar coins have not been particularly successful over the last few decades in the U.S., it is seen as a cost-saving measure because the coins will be more durable—and therefore need to be replaced less often—than paper notes. After two years, the bill instructs the Bureau of Engraving and Printing to cease production of the $1 bill, at which point those notes in circulation will be collected by banks for destruction.
While somewhat similar bills have been introduced in the past only to die from neglect, one hopes that Congress takes this issue seriously and prioritizes America's future prosperity rather than caving to the short-term costs of making these "common cents" changes.
One consideration that seems absent from the bill is the parallel introduction of a $2 coin. This is what Canada and Australia did when they eliminated their own one-cent coins. Such a move would greatly reduce the burden on businesses and consumers (in terms of space and shipping costs) of replacing all dollar bills with heavier coins. One alternative suggestion would be to increase $2 bill production and make these notes more common.
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