U.S. COIN HISTORY

Most coins presently are made of a base metal, and their value comes from their status as fiat money. This means that the value of the coin is decreed by government fiat (law), and thus is determined by the free market only as national currencies are subjected to arbitrage in international trade. This causes such coins to be monetary tokens in the same sense that paper currency is, when the paper currency is not backed directly by metal, but rather by a government guarantee of international exchange of goods or services. Some have suggested that such coins not be considered to be “true coins” (see below). However, because fiat money is backed by government guarantee of a certain amount of goods and services, where the value of this is in turn determined by free market currency exchange rates, similar to the case for the international market exchange values which determines the value of metals which back commodity money, in practice there is very little economic difference between the two types of money (types of currencies).

Coins may be minted that have fiat values lower than the value of their component metals, but this is never done intentionally and initially for circulation coins, and happens only in due course later in the history of coin production due to inflation, as market values for the metal overtake the fiat declared face value of the coin. Examples of this phenomenon include the pre-1965 US dime, quarter, half dollar, and dollar, US nickel, and pre-1982 US penny. As a result of the increase in the value of copper, the United States greatly reduced the amount of copper in each penny. Since mid-1982, United States pennies are made of 97.5% zinc, coated with 2.5% copper. Extreme differences between fiat values and metal values of coins causes coins to be removed from circulation by illicit smelters interested in the value of their metal content. This is an example of Gresham’s Law. In fact, the United States Mint, in anticipation of this practice, implemented new interim rules on December 14, 2006, subject to public comment for 30 days, which criminalized the melting and export of pennies and nickels.[2] Violators can be punished with a fine of up to $10,000 and/or imprisoned for a maximum of five years.