Saturday, January 27, 2007

Is the Humble Penny Doomed?

A sample of copper ore and a U.S. penny.

Is the humble penny doomed? The U.S. government is worried that it might be, and has taken steps to protect it. The truth is that Canada's penny is now even more vulnerable than its U.S. counterpart. Why? South of the border unscrupulous metal pirates have scooped pennies up by the ton, and melted them down. Here in Canada, the threat has not yet even been recognized.

In a report published in June 2006 the United States Mint revealed that it was costing 1.23 cents to produce each penny. Also, it cost 5.73 cents to manufacture each nickel. Since 1982 the monetary policy of the U.S. was to ensure that there are 910 pennies in circulation for each American. In 2006 their government should have had 8.23 billion pennies in circulation, but to make sure that no one tampered with the available supply, a law was passed which made melting or bulk exporting of U.S. coins a prison time offence.

There has always been the problem of coin hording, but the new problem is metal salvage, and no one knows how many tons of U.S. and Canadian pennies may already have been melted down. In 1982 the U.S. thought it solved the problem by producing copper coated zinc pennies. This would discourage coin-melting if shortages of base metals caused a spike in prices. That's what happened to all the silver coins we had in our pockets when we were kids. They were melted down as were many silver Canadian war medals.

Consider this: One pound of copper will make 154 pennies. That's $1.54, right? Well in May 2006 copper reached US$4.16 per pound. Do a simple calculation. $1,540 dollars worth of pennies was then worth $4,160 as copper metal. That is very tempting profit to people who are not afraid of the U.S. Secret Service chasing after them. In future, copper prices will certainly go higher.

In the U.S. there are voices insisting that the penny has lost its importance. A recent estimate suggests that the average American worker (who does a 40 hour week) earns a penny in just four seconds. They suggest that the American people are willing to forgo having pennies in their pockets. It has been suggested that the U.S. government might even revalue the penny supply upward, to five cents value each. That would certainly be a tidy windfall for all those who routinely horde pennies in piggybanks or coffee cups. If that idea becomes a serious consideration, look forward to the unprotected Canadian penny being kidnapped by the truckload, as the pirates scoop up all of our stock of copper coins.
UPDATE Feb.5 - A temporary reprieve for the penny?
"Lately, copper has been holding on at around $2.60 US for .45 kg (one pound), down some 35 per cent from a May 2006 stratospheric high of just under $4 U.S. for .45 kg."

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