A penny may soon become a steel

WASHINGTON — These days, your thoughts are worth 1.7 cents.

That's what it costs the government to forge a penny, thanks to the rising price of metal. A nickel costs 10 cents. Congress, in its infinite wisdom, has concluded that's a pretty bad deal.

A House subcommittee chaired by Rep. Luis Gutierrez, D-Ill., convened a hearing Tuesday on a proposal to change the composition of both coins. Republicans and Democrats like the concept, particularly its promise to save taxpayers $100 million a year by using cheaper metals at the U.S. Mint. If the legislation clears the House and Senate and President Bush signs it, you could be plucking steel pennies off the street before year's end.

The Mint has coined U.S. money since 1792. Congress has given it the power to tweak coin composition several times. Rationing begat a steel penny and a no-nickel 5-cent piece during World War II. Rising prices pushed silver out of coins in the 1960s. In the early 1980s, copper inflation gave us the copper-plated penny used today.

Until recently, Mint officials say, no U.S. coin had ever cost more to produce than it was worth.

Global metal prices began shooting up in late 2003, driven by increased demand for raw materials, particularly in India and China, according to Mint statistics. The price of copper quadrupled in the last five years. Nickel more than tripled, and zinc nearly did the same. The Mint lost $33 million on penny and nickel production in the 2006 fiscal year. In 2007, it lost $99 million.

"There is no indication that copper, nickel and zinc prices will decrease over the short term," Mint Director Edmund Moy warned the House Subcommittee on Domestic and International Monetary Policy, Trade and Technology in written testimony.

Enter the Coin Modernization and Taxpayer Savings Act of 2008, which would let the Treasury set the weight and composition of any coin whose production costs exceed its face value for five consecutive years. It also requires the Mint to start producing a primarily steel penny within 180 days of the bill becoming law, so taxpayers would save money almost right away.

The bill requires any new coin to work in existing vending machines. That's a concession to the National Automatic Merchandising Association, which opposed an earlier version for fear it could force hundreds of dollars in upgrades to each of the nation's more than 6 million dispensers of soda, snacks and other convenience items. An association lobbyist testified in favor of the revised bill Tuesday.

Other concerns persist. Moy told the subcommittee that six months isn't nearly enough time to produce a steel penny and that the five-years-of-losses requirement would prevent the Treasury from stepping in early if the dime or quarter — which now run 7 cents and 10 cents to produce, respectively — suddenly grow more expensive.

Several Republicans worried about Congress giving up coinage control to the executive branch. Rep. Ron Paul, R-Texas, called the proposal an unconstitutional delegation of power and a symbol of "how far we have fallen" in monetary policy. America, he said, has failed to maintain a gold standard or silver standard for its currency. "Now," he said, "we cannot even maintain a zinc standard."