Here’s a weird application of logic, brought to you by the Federal Reserve Bank of Chicago. It started when the cost of creating the U.S. penny went above one cent. The Mint (and therefore the government) is losing money for each of the millions of one-cent pieces it produces and puts into circulation each year. The chart shows how the intrinsic value of the metal within the penny, nickel, and dime have approached and even exceeded the face values of the coins, through 2000.
Francois Velde, a senior economist at the Chicago Fed, suggests revaluing the penny at five cents. This might deter some who might hoard and melt pennies for the higher value of their intrinsic metal.
Here’s the full Chicago Fed Letter [pdf] from Velde describing his suggestion. The letter mentions some drawbacks, such as refitting vending machines to take pennies and attributing their new value. Think it’ll ever work?
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9:49 am (reply)
I hope they do this so the value of my piggy bank quintuples!
Seriously, if this happened, wouldn’t there be a mad rush to grab pennies? And those already hoarding would earn three times more per penny than if they melted them down.
10:23 am (reply)
Well it would discourage people from melting down pennies if they’re worth 5c each in coin form.
The Congress will likely do what they have done in the past—change the composition of the coin to contain less valuable metal, like steel. They’ve already made melting coins illegal, which they’ve done in the past around the time coins were rebased, according to the Fed letter.
6:36 am (reply)
It’s an interesting solution, but would create such a flux in the economy. How can you balance the effect on the penny versus the nickel?
I think they should stop making pennies, and keep the value the same.
1:38 am (reply)
I’ve read that thsiis Veldes attempt to protect the Nickel as well as the penny, but don’t see how. Regardless of the value of the penny adn the number fo five cent pieces in curculation, if the nickel is worth melted, people will melt. But if they do this to the penny…$1 million in pennies becomes $5 million, wow. Pennies are looking like a nice investment. %400 gain overnight aint bad.
1:39 am (reply)
Sorry about the 5 typos.