Move To Steel Coinage Impacts Currency Value, Silver Supply

Wealth Cycles

A measure introduced in the U.S. Congress seeks to replace the base metal of most American coins with steel. The move would slash zinc, nickel and copper content of U.S. coins to a fraction of today’s already reduced levels. Like past changes in metal content, the bill represents a logical continuation of currency debasement and calls into question the strength of U.S. fiat currency—yet another sign of the decline of the global monetary system.

Congressman Steve Stivers (R-OH) introduced the bill, H.B. 1719—the “Cents and Sensibility Act”—on April 24. It mandates that pennies, nickels, dimes and quarters be composed primarily of steel; specifically U.S. produced steel. He presents the bill as a budget measure, stating, “This legislation is a common-sense solution to decrease the cost of minting our coins. Not only will it cost less, but steel is an American resource that we have here at home and can be manufactured right here in our backyard.” His office asserts that, according to the House Financial Services Committee, the U.S. government would save up to $433 million over 10 years.

Conveniently, Worthington Industries, a steel processor that supplies steel blanks for Canadian currency, is located in Stivers’ district and strongly supports the bill.

At present, a penny contains 97.5% zinc and 2.5% copper (for exterior plating) while a nickel contains 75% copper and 25% nickel. Yes, a nickel contains more copper than a penny! Dimes and quarters contain a different cupronickel blend of 8.33% nickel to 91.67% copper. As of May 8, a penny contains one-half cent worth of metal; nickels contain 4.7 cents. Factoring in production costs, the U.S. Mint reported that a penny cost 2¢ and a nickel cost 10¢ to manufacture in 2012. Interestingly enough, an external consultant to the Mint found that steel pennies would cost the same as the zinc-copper blend. A steel coin mandate would all but eliminate copper, nickel and zinc from the currency and significantly reduce the value of nickels, dimes and quarters, as iron is far more common.

Though not considered precious metals per se, zinc, nickel and copper are often mined from locations also rich in silver.

Indeed, the vast majority—somewhere in the range of 70%—of silver mining occurs as a by-product of other metal extraction. Thus the amount of silver mined depends on the demand for these other metals. In 2012, the U.S. Mint consumed 14,662 metric tons of zinc for new penny minting and 6,244.8 metric tons of nickel to produce nickels, dimes and quarters.  Another 36,031 metric tons of copper went into nickels, dimes and quarters. Taking this much out of demand for zinc, nickel and copper will reduce new supplies of silver, introducing more volatility and price increases into the silver market.

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