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Selling Dimes for 5 Cents

February 20, 2013, 3:07 pm

Gotta love the government.  Buy high, sell low.  Source

20130220_nickel1

 

Category: Economics
  • Torontonian

    The US mint has traditionally coined money at a loss:

    The Coinage Act of 1792:

    Section 14. And be it further enacted, that it shall be lawful for any person or persons to bring to the said mint gold and silver bullion in order to their being coined; and that the bullion so brought shall be there assayed and coined as speedily as may be after the receipt thereof, and free of expense to the person or persons by whom the same shall have been brought. And as soon as the said bullion shall have been coined, the person or persons by whom the same shall have been delivered, shall upon demand receive in lieu thereof coins of the same species of bullion which shall have been so delivered, weight for weight, of the pure gold or pure silver therein contained: Provided nevertheless, That it shall be at the mutual option of the party or parties bringing such bullion, and of the director of said mint, to make an immediate exchange of coins for standard bullion, with a deduction of one half percent from the weight of the pure gold, or pure silver contained in the said bullion, as an indemnification to the mint for the time which will necessarily be required for coining the said bullion, and for the advance which shall have been so made in coins. And it shall be the duty of the Secretary of the Treasury to furnish the said mint from time to time whenever the state of the treasury will admit thereof, with such sums as may be necessary for effecting the said exchanges, to be replaced as speedily as may be out of the coins which shall have been made of the bullion for which the monies so furnished shall have been exchanged; and the said deductions of one half percent. shall constitute a fund towards defraying the expenses of the said mint.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Seen & unseen:

    Seen – cost of minting pennies

    Unseen – cost of rounding up to nearest nickel/dime

    No, they won’t round down.

  • mesocyclone

    Which is apparently why they finally passed a law making it illegal to melt down coins.

  • Scott from Ohio

    They're rounding down just fine in Canada.

  • MNHawk

    That's the problem, when your lowest denomination hasn't changed since 1857, when a cent was worth about a quarter is, today.

  • MNHawk

    They'll do whatever they have to do to keep business. If all there was to attracting a customer was giving them 3 cents, every business in the world would do it. That would be the cheapest form of attracting a customer ever conceived.

    And frankly, if you're that concerned over 3 cents, you have issues.

  • Martin Eisenhardt

    Just one thought: An actual penny coin is not used to store the value of one penny - it is a means of transferring this value from one person to another (i.e. you give your penny to someone who in return gives you goods or services in the value of a penny). So you should not look at the minting costs vs. the nominal value of the coin; you should look at the minting costs vs. the number of transfers the minted coin enables and how much value can be transferred by that coin (or note) over its lifetime.

    I admit that I do not have any hard numbers, but chances are that this comparison will not look quite as bad as the one you are presenting in your post.

    Nevertheless, many countries have stopped minting their lowest unit of currency, including my current place of residence (Switzerland) where the smallest coin is CH 0.05, although prices still use CH 0.01 increments. And very fortunately, most shops either round correctly to the nearest CH 0.05 multiple or even round down by default.

  • Tim

    True story:

    Like a lot of people, I kept change in various mason jars; with the intent of 'eventually' taking them to the bank. Over the years in various rentals, I probably moved these jars 2 or 3 times.

    Well, one year, our TV finally gave up the ghost right around Christmas time; so we decided to cash in a couple of gift cards and these jars of change.

    I had over $400 in coins.

    The simple answer: stop minting coins for a bit. Stores that really want to provide exact change will find creative solutions to get customers to bring these back to circulation. Stores that don't will find creative solutions to satisfy customers.

  • marque2

    The problem with having the underlying currency worth less than the metal value of the coin is that folks will gather the coins, and take them to Mexico to be smelted and turned into something else. The US eventually won't be able to keep up with demand of minting the new coins to replace those destroyed by opportunists.

  • marque2

    Can always take them to Mexico

  • marque2

    It is interesting that if we get rid of pennies and nickles we would have to get rid of the quarter as well since it would be difficult to make change. We would end up with dimes and hopefully smaller 50 cent pieces. Dollar coins would be fine, but I have no idea why they were made so big and heavy.

    Another option would be to revalue the currency. Give everybody a six month window to trade your old dollars for new dollars that are worth 10 old dollars. Not as bad as it sounds. the Dollar has lost at least 90% of its value since WWII. An added side effect is all those who use dollars in the drug trade and other dubious enterprises would be stuck holding the old dollar, which would be harder to trade in after the window.

  • MingoV

    The excuse I've read repeatedly about the high cost of coins is that in our fiat money economy, the coins' costs don't matter. What counts is their durability compared with paper.

    In 1900 the lowest value coin was a penny. Corrected for inflation, that penny is worth 28 cents today. If we change our coinage based on purchasing power, then we should dump the penny, nickel, and dime.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Good for them!

    1. Unsubstantiated.

    2. News flash – the US ain’t
    Canada.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Like jack up prices by .03, in line with competition, as long as they could?

    No, I don’t think the effect would be very large, but there would be an effect. And no, there would
    not be a drive to reduce prices (immediately) as you say.

    The problem is doing it across all monetary transactions, and our economy is substantially larger than Canada’s (see above).

    And frankly, if you’re not concerned about that in an economy as large as ours, you have economic ignorance issues.

  • Gil

    I thought it was always against the law to destroy currency.

  • mesocyclone

    It is not against the law in the US to destroy paper currency, and it has only recently been against the law to destroy coinage.

  • MNHawk

    You know. You can foil the evil business by using a credit card.

    Exit question. Do you get this exercised at gas stations, who round to the nearest cent, despite pricing their product in tenths of a cent? Did people get this excited in 1970, when a cent was worth a nickel today?

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Um, wasn’t aware that we ever transacted in ha’pennies, in this country….

    You are exactly correct, however, that such a move would drive adoption of all electronic transactions, if they priced to the (more accurate) penny.

    I don’t think this will really make any difference at all, since all taxes are about to skyrocket, and everything is about to implode anyway.

  • FelineCannonball

    It discourages counterfeits.

  • Martin Eisenhardt

    I agree that this might become a problem - but not yet. You have to factor in the costs for collecting, transporting and actually melting the coins. Again, without having any hard data at hand, I assume that the business model you describe is not yet feasible, but it might be in the future.

  • marque2

    True, but there was a great example with silver coins which disappeared in a matter of just a few years.

  • marque2

    Instead of getting rid of the penny, why not revalue the currency? Could come up with New Dollars, with each New Dollar equal in value to 10 old dollars. That would bring the value back to somewhere around where it was just after WWII, and solve the penny crisis.