Is The Cent Doomed?

If it costs more to make a penny than the penny is worth, at what point does cent production come to a halt?  Once again the spot price of Zinc is approaching danger levels not seen since 2006.  Currently Zinc is priced at $1.60/pound.  US Mint officials must be shaking their heads as they did when copper prices rose above face value.  The solution in the 80s was to alter the composition from 95% copper to 98% zinc.  If prices hold, the options are limited if production is to continue.

Change Dimensions?
In 1982 the weight was reduced from 3.11 grams to 2.5 grams.  While the diameter remained the same, the lower specific gravity of zinc contributed greatly to the lower weight.  Vending companies scream bloody murder at the idea of changes in size - they'll have to retool all those vending machines to accept the new coin dimension.  Being so few vending machine products demand the use of one cent denominations, this argument may not weigh heavily on the decision makers.  Counting and rolling machines would need attention.  Of greater concern would be public acceptance and how the economy would handle a new coin.  There have not been 2 different sizes of the same denomination in circulation size the mid 1800s.

The US has issued coins substantially smaller, the 3 Cent Silver being the smallest at .8 grams.  A smaller coin would decrease material costs but the production cost per unit would be about the same.  Distribution costs would decline some with less fuel for the same face value, but per-trip charges would be unchanged.

I think a smaller size is not a desirable option.

Change Composition
These Zincolns are bad enough.  Hydrozincite (Zinc Rot) has reduced the lifespan of our current pennies to a couple of decades.  Ask any coin roll hunter what they think of the new pennies.  These are junk.  Rather than use them, people are more likely to toss them in a coffee can.  It's too much trouble to mess with messy coins.

A switch to s cheaper metal is possible, but with a loss of durability.  Aluminum is easy to bend and snap.  Glass and ceramics have been talked about, often with a lot of wincing and dubious expressions.  If the money breaks into pieces when dropped, its not looked upon favorably.  Carbon fiber and high tech materials, while potentially more durable, don't have production methods in place capable of producing billions of coins at an affordable price.

A different material does not top the list of viable options.

Eliminate the Cent?
It worked in Canada.  Round it up or down.  Meanwhile the Canadian government has been able to reclaim lots of those now defunct coins.  The loss of seignorage is offset by the material reclamation.

Fact of the matter is a couple hundred years of inflation has removed the cent from daily lives.  We pay with bills, debit and credit cards, automatic electronic payments, and digital accounts.  For the most part, cents are used to make change, and give old ladies something for which to dig around in their purse for 10 minutes when there are 14 people in line behind them.

For now, cents are an integral part of the economy, but not a vital part.  It's our lowest single integer unit of exchange.  To keep things on the up and up, we need it.  Move to rounding, there will be plenty of less scrupulous individuals who will look to use the practice to swindle others.  Still, we're only talking pennies in the swindle.  Practicality sees most pennies filling a coffee can, then rolled up every now and then to take back to the bank.  We empty our pockets at night, refilling them in the morning with bills and quarters for the soda machine.

If the cent were to be discontinued, all those folks saving copper pennies are in for a disappointment.  The cost of separating zinc vs copper cents, then refining the copper cents into 100% copper is cost prohibitive.  You'd need several tons of pennies to even try to make a profit on the metal content.  Shipping and transportion costs will see people dropping them all off at the bank in a heartbeat.

The End is Near
Production costs are primarily dependent on metal content.  Distribution is another consideration.  The cost of shipping 8 billion cents hundreds of miles is already excessive-looking at 50 million pounds for the coins, bags, boxes, rolls, and pallets.  Bring back the fuel costs of 2008, combine it with high metal spot prices and the equation points to a certain end.  I see the Canadian model as the most likely path the US will follow.  Lincolns will become Extincolns.

I give it no more than 10 years.


The Future
The nature of the situation is a fixed face value coin being produced with an inflationary material resource.  At some point, EVERY coin will be forced out of service as material costs rise to exceed face value.  It's not just the penny, they are all doomed.  Make them smaller, maker them cheaper, and they will still be eliminated one by one.  Eliminate the penny, the nickel is next.  Even if the nickel we reduced in size and produced with nickel (or copper) plating on a zinc core, it's only a matter of time until production and distribution costs exceed 5¢ per coin.  At an annual inflation rate of 2%, 30-35 more years will see the nickel become obsolete in daily use.  Listening to my grandmother, everything used to cost a nickel back in the day...a movie, loaf of bread, quart of milk, a car.

The loss of the cent and nickel puts prices into the realm of the single decimal.  That loaf of bread will be $2.1 instead of $2.10.  I've not figured out how the 9/10 of a cent tax on a gallon of gas will be figured in.  This opens the door for sales tax to be rounded to 10%.  A single decimal makes the quarter a questionable coin.  Do we kill it off and replace it with dimes and resized half dollars?  It would make better sense.  At least until they too become too small to bother with.