Quote:
How does melt value have meaning if it is illegal to melt the pennies?
It has meaning because of two factors:
A. The melt value is a lower bound of the cost of minting.
It is not vital for a coin melt value to be below it's FV (as every coin circulates in multiple transactions before disappearing from circulation), but it quickly reaches a point (as usually total minting cost is more than double melt for base metals) it is not longer economic to mint the coin anymore.
B. If you have multiple coins in the system, with different metal compositions or weight which is not linearly related to their FV, you create a situation where people are preferring one type of currency, hoard it, and spend other forms.
This is known as the Gresham's law (
http://en.wikipedia.org/wiki/Gresham%27s_law).The process gets a speed up when coin melt value exceeds FV.
The results of hoarding a coin with minting cost > FV are obvious, the government lose money on each such coin.
C. (and perhaps most important).
You may argue that melt is irrelevant when melting is illegal, but then you should ask, why is it illegal, and would it be forever illegal.
IMO, currently it is illegal as cents are still in circulation, and are using as legal tender.
Why would the government allow melting pennies if they would be brought out of circulation?
Simply, it is a cheap way to provide the market with high grade copper scrap, and they have no use for it if it sits in your house.
There's no guarantee this would happen, but I think after a couple of years at most outside circulation, melting will be legal.
When will the cents come out of circulation?
Good question, I have no idea.
If you have asked me that question in 2000, I'd say 2005 at most.
I believe it is around the corner, but I'm already proven wrong for 8 years.
Posted 04/27/2013 5:04 pm
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