Will Nickels and Pennies Soon Disappear?

Back in December 2006, the US Mint, in yet another power grab over economic life, made it illegal to melt pennies and nickels in addition to exporting large quantities of either. Though the Mint admitted there was no evidence coin melting was occurring, this was the government's attempt at being proactive to prevent the destruction of its legally imposed currency.

So why the concern over people melting down coinage that supposedly belongs to them?

Back when the ban was implemented, the high price of copper was responsible for driving up the price of individual nickels and pennies in terms of metal content. Due to their copper content (nickels minted between 1946 and 2011 are composed of 75 percent copper and pennies minted between 1909 and 1982 are composed of 95 percent copper), both coins have a higher value as metal than as legal tender.

The irony in the government banning the melting of its own issued currency lies in the fact that its own actions contribute to the higher price of copper. Whenever the Federal Reserve engages in dollar easing (read: money printing), this newly printed "wealth" often translates into higher stock and commodity prices. Even the very announcement of increased monetary intervention by Fed officials, including Chairman Ben Bernanke, tends to boost market confidence as stocks rally almost immediately. Recently, commodities and stocks soared when the Fed lowered the interest rate it charges for foreign central banks to utilize its dollar swap lines without explicitly mentioning its intention to sterilize such transactions to prevent an increase in its balance sheet.

Basically, the Fed once again told the world that it opened up the dollar floodgates just a bit more to offset a crisis in Europe.

Along with its intention to hold short-term interest rates near zero until "mid 2013," Bernanke and company are standing by ready to keep borrowing costs suppressed by entering into the market to purchase treasuries. Presently the M2 money supply has been growing at a 15 percent annual rate for the past 6 months:

Will Nickels and Pennies Soon Disappear? | Ludwig von Mises Daily Email