We have been informed by Timothy Giethner, we will no longer be producing the penny or the nickel as of January the first of 2013.

Tim Giethner stated in a press conference today (11-24-2012) that the U.S. Mint will remove the penny and nickel coins from circulation, starting early in January 2013, with plans to potentially also remove the dime from circulation in 2014.

Due to the rising costs of zinc and production related expenses, the U.S. Mint now spends 4.8 cents to make a penny. And the cost of copper and nickel have inflated the cost to create a nickel coin to 16.2 cents.

Description		Denomination	Metal Value	Metal % of Denomination
	1909-1982 Cent (95% copper) *	$0.01	$0.0238623	238.62%

1946-2012 Nickel

$0.05

$0.0517926

103.58%

In 2011, the U.S. mint made over 4.9 billion pennies, at a cost of $118 million to make. That is $236 million to produce only $49 million worth of pennies, a loss of $187 million in minting costs. Minting the nickel coin also represents a significant loss in revenue.

By comparison, the dime (which costs 9.2 cents to mint) and the quarter (21.31 cents) are economically more feasible, and will continue in circulation through 2013. However, according to Giethner, the dime may be in jeopardy as early as 2014.

Once the phase out of pennies and nickels begins, merchants must be equipped to round all transactions to the nearest ten-cent increment.

Two days later CNN reported that the Government Accountability Office (GAO) called for the United States to stop printing one-dollar bills and switch instead to one-dollar coins. The GAO claimed that such a move could actually make the government some money:

A $1 coin typically costs about 30 cents for the U.S. Mint to produce, but then the government can sell them to Americans for a dollar each. That financial gain is called seigniorage, and over a period of 30 years, it could [make] the U.S. government about $4.4 billion, the GAO said.

In contrast, producing paper bills is cheaper, at about 5 cents apiece. But they also wear far more quickly. A typical $1 bill lasts only 4.7 years, according to GAO estimates.

The push is nothing new. The GAO has been recommending the change for the last 22 years, and will try again Thursday in a hearing before the House Financial Services Committee.

"We continue to believe that replacing the note with a coin is likely to provide a financial benefit to the government if the note is eliminated and negative public reaction is effectively managed through stakeholder outreach and public education," Lorelei St. James, a GAO director, said in prepared remarks to be presented Thursday.

St. James points to 10 countries, including Canada and the United Kingdom, that have successfully replaced low-denomination notes with coins, even in spite of public disapproval.

The report also notes that as inflation erodes the purchasing power of a currency, low-denominated notes like the $1 bill are circulated more quickly, causing wear and making the switch to coins more worthwhile.

Discounted Net Benefit to the Government of Replacing the $1 Note with a $1 Coin

If you take into consideration the time line displayed above, then you can surmise that the up and coming generation will not realize the change in the currency and therefor accept it without even giving it a second thought.

It will be seven years before the government begins to realize a profit or the public begins to accept the change.

Now I have read in many blogs that it is due to hyperinflation or the defacing of money that leads the way to such a change.

I purpose that it is neither of the above.

I suggest that it something totally different.  

To be continued, feel free to leave your comments, they are welcome.