The Adverse Effects of Changing Materials of Construction for U.S. Coins

September 2014  |  Contributors: Nam D. Pham, Ph.D., Anil Sarda

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Proposals to change the materials of construction of nickels, dimes, and quarters will create operational disruptions for over 13 million (72.8% of the existing 17.9 million) coin-operated machines across the country. The U.S. Mint potentially generates up to $85 million in addition to the existing $208 million in seigniorage in FY2013 at the expense of small business owners, municipal officials, and American consumers. The upfront retrofitting costs to the municipalities and owners and operators of coin-operated machines are estimated to be between $941.6 million and $2.3 billion to upgrade the hardware and software of over 13 million affected coin-operated machines. These costs could increase significantly if the diameter and thickness of U.S. coinage are also changed. 

While revenues of coin-operated machine businesses are declining and profits are shrinking, retrofitting costs will put an additional financial burden on small business owners that could drive them out of business. Similarly, municipalities will have to pay between $41 million and $199 million to retrofit nearly 2 million coin-operated parking meters and buses. Evidence shows that these costs will be passed-through consumers via price increases. With currently modest inflation and stagnant real wages, a price increase of 10% on vending machines, 12.5% on laundromats, 20% on metered parking and payphones, and 50% on amusement machines, will take a toll on the average American household. The costs to retrofit far outweigh the benefits. Indeed, the direct costs to the U.S. economy will be between 10 and 27 times the benefits to the U.S. Mint.