Is the Nickle’s Time Running Out as the Penny Disappears?
The American penny has officially been discontinued. As of the last minting, the focus has shifted to the nickel, which faces similar challenges. Production costs for nickels far exceed their actual value, echoing the issues that led to the penny’s retirement.
Nickel’s Cost Issues and Production Challenges
Currently, it costs nearly 9 cents to produce each nickel. In contrast, the penny’s production cost was around 5 cents. The materials used in nickels are 75% copper and 25% nickel, while pennies are primarily made of zinc with a thin copper coating.
Metal prices fluctuate, with current copper and nickel costs roughly double what they were in late 2016. Meanwhile, zinc prices have remained consistent during that time.
The US Mint, alongside Artazn, a leading zinc supplier, has been exploring ways to bring nickel production costs down to under 5 cents. Mark Weller, executive director of Americans for Common Cents, suggested that a modified nickel could be produced in about a year, designed to look exactly like the existing coin.
Decreasing Usefulness of Coins
Alongside production costs, the nickel’s practical utility is in decline. Americans are increasingly using cash less frequently, decreasing the demand for coins. Other countries have already phased out low-value coins; both New Zealand and Australia ceased nickel production in the early 2000s, shortly after eliminating their pennies.
David Smith, an economics professor at Pepperdine University, noted that reducing reliance on cash diminishes the urgency to eliminate the nickel. However, he predicts eventual discontinuation in 15 to 20 years, despite a sentiment of nostalgia surrounding these coins.
Impact of a Cashless Economy
Weller expressed concern that the transition to a cashless economy primarily benefits large banks and credit card companies, leading to hidden costs for consumers. These corporations charge businesses transaction fees, which are likely to be passed down to customers.
Merchants currently grappling with penny shortages are contemplating the legality of rounding purchases to the nearest 5 cents. They have urged Congress for regulations to clarify this matter. Rounding transactions could significantly impact consumers, with a Federal Reserve study indicating that moving to the nearest dime could cost American households an average of 42 cents annually.
Even if nickels are redesigned for cost efficiency, production concerns remain. Administrative and distribution costs still account for a significant portion of expenses, making it challenging to sustain lower production costs.
Future of the Nickel
While recent changes in the minting of pennies may suggest a trend, both Weller and Smith believe that the nickel will persist for now. Despite losses incurred by the Mint on both pennies and nickels since 2006, the complete elimination of the nickel is not expected in the immediate future.
