A penny really costs more than a penny to make? That is both hilarious and sad.

The article says it costs 1.2 cents to produce a penny, but doesn't say what the useful life of one penny is...wouldn't that come into play somewhere in the equation?

Amongst the change I received at a store a few weeks ago was a penny minted in 1948. Most of the ones that accumulate around the house are from the "aughts" (or whatever we've decided to call this 1st decade of the new century/millenium).

A nickle costs 5.73 cents to make.

If the value of the coins minted is LESS than the cost to produce, is it still called seigniorage?

But nothing costs more than it used to.

Ah, seignorage. One of my favorite things.

The reason it is a big deal that the penny costs more than 1 cent to mint is that the government makes a lot of money from producing currency. A dollar bill, for example, costs a couple of cents to print, but is exchanged by the government for value equal to $1. A $100 bill costs the same to print as a $1 bill, but the government gets $100 in exchange. The difference between the cost of making the currency and the value of the currency is called seignorage.

Now, all the seignorage is not income to the government. Eventually, someone is going to come back and want $100 worth of value for that $100 bill. For that reason, seignorage is better looked at as a long-term (in effect, perpetual) loan to the government and the income is equal to the forgone interest the government would otherwise have to pay. Right now, there is about $740 billion in circulating currency and the yield on the 30 year Treasury is 5.16%. Right now, seignorage is worth about $38 billion this year.

Three caveats. First, seignorage is only limited to the imputed forgone interest is the currency is circulating. When currency is really collectors' bait, like the proof sets of the 50 state quarters, the entire value of the uncirculating coin is seignorage. The Treasury figures that it has made about $5 billion in seignorage on the state quarters.

Second, it is obvious that a fiat currency -- one that costs the government less to produce than its face value -- is inherently inflationary. Increasing the money supply (a) increases seignorate revenue and (b) causes inflation so that the amount "paid back" by the Treasury in the future is less than the amount received in seignorage. A vicious cycle, indeed.

Third, the trend towards electronic money (debit cards, etc.) reduces seignorage.

Pennies certainly don't. Everyplace you'd use one keeps a cup full of them by the register that you can get free.

Everyplace you'd use one keeps a cup full of them by the register that you can get free

You know, I'm so used to that it never even crosses my mind that it's a remarkable practice.

The streets may not be paved in gold in the good old USA, but we've got free pennies!!

If I ever open a retail business, I intend to round the register totals down to the nearest quarter. So I lose a dime here, 20¢ there...

Not having to deal with small change will be worth it, and I might even win a few regular customers with the practice.

Noam;

Rounding down to the nearest nickel is becoming common around my area. Some places round up, to, and customers don't care (if they do, presumably the cashier rounds down instead, but I have never seen a complaint so I can say for certain).

Any place where the average sale is over $50 or so should just have a policy to ignore the numbers to the right of the decimal point. If your profit margin is that small that you can't do that, then you should be looking for another line of business or work. (The IRS lets you do this, too.)

Our friends Down Under (Australia and New Zealand) have been without any coin of lower value than five cents for about 15 years now. People seem to have adjusted all right.

Bought three cigars today for a total of $18.11 and got $2 back as change.

Or the government colud just find a cheaper composite metal combination of zinc and copper (Americans in 1943 seemed to be OK with the steel pennies not having their normal copper look, and if there's some other metal or alloy that's below the one-cent production threshold, they can try that if the majority of folks want to retain the penny as a form or U.S. coinage).

$18! David you Republican fatcat. (I trust you used the two dollar bills to light the things).