Avoiding a Meltdown: Managing the Value of Small Change

In 2007, the American bald eagle, a symbol of our nation, was removed from the threatened species list. But another American icon (or two) might well take its place on the list. On December 14, 2006, the United States Mint announced new regulations “to limit the exportation, melting, or treatment” of the American penny and nickel coins. The purpose of these regulations is “to safeguard against a potential shortage of these coins in circulation.” The regulations make it illegal to export, melt or treat one-cent and five-cent coins of the United States, except in some cases or with the Secretary of the Treasury’s explicit permission.

Our pennies and nickels, it turns out, are threatened with extinction by melting. Why that is the case, and what can be done about it, is the subject of this article. As inflation erodes the value of money, a coin of a given denomination (say, one cent or five cents) loses value. But coins are made of a physical material whose intrinsic value is usually low relative to the value of the coin, yet not negligible. Every now and then, we reach a point where the market value of the coin (its purchasing power) drops close to or below the intrinsic value of the materials used to make it. Our pennies and nickels have now reached that point.