Impact of rising commodity prices on making coins…

A fab post from WSJ Blog. It refers to this speech from Treasury chief Tim Geithner.

The speech in on the FY2013  Budget of Obama. He points how the new budget looks at lowering the costs via several ways. One of them is minting coins differently:

The Budget also proposes legislation to provide Treasury with the ability to change the composition of coins to utilize more cost-effective materials.  Currently, the costs of making the penny and the nickel are more than twice the face value of each of those coins.  In addition to this proposal, Treasury is implementing measures to improve the efficiency of coin and currency production, including improved manufacturing practices and administrative cost reductions, which will save more than $75 million in FY 2013. 

These savings build on a number of steps that the Department has taken during the last three years to improve efficiency and reduce taxpayer costs.

Last December, we announced that we were suspending the production of Presidential dollar coins for circulation.  At that time, there were 1.4 billion surplus dollar coins sitting unused in Federal Reserve vaults.  These surplus coins will now be drawn down over time.  Taking this simple step will save taxpayers $50 million per year in production and storage costs. 

 Hmm. From the US Mint office’s Annual Report:

Increased metal expenses drove COGS up 52.5 percent to $364.7 million from $239.2 million last year. Market prices for copper, nickel, and zinc climbed through FY 2011, increasing per unit metal costs for all circulating denominations. Average market prices for copper and nickel increased 29.3 percent and 19.2 percent, respectively, from FY 2010 to FY 2011. The average daily spot for zinc rose 7.6 percent over the same time period.

**COGS means Cost Of Goods Sold.

Further:

The cost of making pennies and nickels are about twice the face value of the coins–2.4 cents for a penny and 11.2 cents for a nickel, the Treasury Department said earlier this month. Rising commodity prices have driven higher production costs. The Mint said it used 16,365 tons of copper, 2,311 tons of nickel and 11,844 tons of zinc to produce all coins in fiscal year 2011.

Interesting stuff. Impact of rising prices of commodities on producing coins…Forcing US Treasury to make changes in the metals used for coin production…

Are other countries  waking up to this challenge as well? RBI’s AR-2010-1 does not say anything about this…May be  2011-12 report says something..

One Response to “Impact of rising commodity prices on making coins…”

  1. riya Says:

    Since I took up economics for MBA and especially since I was introduced to macroeconomics, I have been following your blog. Thanks for posting interesting information like the coin related article above

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