The Business Of (Literally) Making Money: The Public Model

Drop a penny in the street and you probably won’t be heartbroken. But that tiny “copper” piece is worth a bit more than it's credited for.

Last year, the U.S. spent 1.5 cents to produce a single penny, according to reports from the U.S. Government Accountability Office (GAO).

So while one or two or 10 won’t change your fortune, the annual accumulation of undervalued coins can mean a deficit or surplus of millions for the United States.

The Price Of Production

Between the manufacturing costs of the penny and additional 6.3 cents per nickel, the nation lost quite a bit of money — a sum of $66.8 million — in 2016.

The deficit wasn’t unexpected. The cost to produce those two denominations has long exceeded circulation value, including in 2011, when the government spent a whopping 2.4 cents per penny and 11.2 cents per nickel.

Fortunately, the losses have generally been more than made up for by dimes and quarters, which each yield sizeable profits. Last year, the government raked in $217 million from the 10-cent piece, whose production cost 3.1 cents, and $431.4 million from the quarter, which cost about 7.6 cents. Altogether, the coins contributed to a $578.7 million surplus.

While the U.S. Mint doesn’t always post positive earnings — it ran a $11 million deficit in 2011 — its manufacturing operation most often generates increasingly favorable seigniorage. From 2012 to 2015, the four denominations produced rising profits from $40 million to $153 million to $315 million to $549 million.

Higher Surpluses

Despite the overall profitability of coin production, U.S. officials have recently looked into cost-cutting initiatives. The Obama administration called for a currency review and evaluation of penny and nickel alternatives, and in 2010, Congress ordered the U.S. Mint to consider cheaper manufacturing processes.

In the past, the government cut expenses by altering coin composition and shifting away from expensive metals. Pennies are now 97.5 percent zinc and 2.5 percent copper rather than entirely copper, while the previously nickel “nickel” is now only 25 percent nickel and 75 percent copper.

Some think the formulas still need adjusting. By GAO estimates, the U.S. could save as much as $39 million annually through new coin recipes, while Time projects a sum beyond $100 million. Still, the Mint insists that present compounds are maximally cost efficient.

"There are no alternative metal compositions that reduce the manufacturing unit cost of the penny below its face value," the Mint said in its 2014 annual report.

Some expect that the expensive denomination could soon go the way of Canada’s penny, which was killed in 2012 for its unprofitability. The coin cost Canada 1.6 cents to produce and forced annual losses of $11 million.

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