Friday, December 15, 2006
Monies can be divided into two categories: fiat and commodity. Fiat is money by government decree; commodity money is something with intrinsic value that's generally accepted as a medium of exchange. Pennies and nickels have now, thanks to the rise in metals prices, traversed from one category to the other. I find it interesting that the U.S. government would rather lose seigniorage and keep these coins in circulation than withdraw the penny and nickel.
Worth noting: even in 2004, when prices for copper, zinc, and nickel were much lower, the operating profit margins on nickels and pennies were less than 10%, compared to more than 60% for other coins. (Source: US Mint annual report.)