US coins in circulation get damaged and are eligible to be redeemed through the US Mint Mutilated Coin Redemption Program, begun in 1911. Individuals and businesses can exchange bent, damaged, or partial coins (also known as mutilated coins) for reimbursement when no longer acceptable as legal tender. The program’s purpose is to promote confidence in US coinage.
The Mint suspended the program in 2015 to assess its security and develop additional safeguards to enhance the integrity of the acceptance and processing of mutilated coins. This suspension is another example of government intervention resulting in unintended economic and business consequences with the low confidence in the Mint redeeming mutilated US coins.
One substantial source of mutilated coins is the metal recycling industry from mechanical shredding of scrap automobiles, vending machines, and coin-operated laundry equipment. Millions of autos are recycled each year in the US. A July 2021 Institute of Scrap Recycling Industries (ISRI) press release states, “Recovered coinage has become an integral part of many recycling companies’ operations, product mix, and bottom lines.” Coins lost in car seats, car floors, glove compartments and other places show auto owners low concern for lost coins. ISRI members clean, sort and store the coins by denomination. The ISRI explains in comments to the Mint,
While traveling through an auto shredder, coins become bent and twisted and end up in the nonferrous mixed metal stream, called Zorba, leaving the shredder. Around 2003, much of the Zorba generated in the U.S. began going to China because of the country’s high demand for aluminum. Handpicking of the material resulted in a far greater quantity of coins being recovered than ever before, hence the sudden increase in the amount of U.S. coins being redeemed at the Mint by foreign participants.
“By shredding the coins and redeeming them, recyclers are getting rid of damaged coins and therefore helping protect the integrity [of US coinage],” ISRI explains. “Shredding is energy efficient, and better for worker safety and productivity because people aren’t picking through the coins.”
Melting old coins into new ones saves energy, reduces mining for precious metals, and saves taxpayer money. Recycling and reclaiming the valuable commodities are “integral for environmental sustainability and circularity,” which, in turn, were key elements of President Biden’s environmental and climate agenda, from ISRI comments.
Metal recyclers have collected and stored damaged coins since the Mint’s 2015 program suspension. The Mint reinstated the program in 2018 with revisions of new guidelines and certifications for submissions. They shut it down again in 2019.
Metal recyclers are making a wise business decision to recover mutilated coins, sort, save, and store them with intent for redemption from the Mint. This is practical and economically smart given low profit margins in parts of the metal recycling industry.
“The Mint kept saying it liked the program and would resume it, so our members continued collecting these coins and providing the security around them at a terrific cost,” ISRI says. “Our members are out that money, and they’re out the money for having held them, as well as the opportunity cost.”
The Mint moratorium placed on the mutilated coin redemption program is having a detrimental economic impact on US-based metal recyclers suffering from low prices and very slim margins for several years. They face additional financial difficulty because of their inability to redeem mutilated coins in their inventory. On May 5, 2021, the Mint announced plans to revise the program, including a prohibition on redeeming coins damaged during the recycling process with public comments due by July 2, 2024.
Discontinuing the redemption program would negatively impact the manufacturing supply chain, ISRI commented.
Accordingly, recyclers have lost significant revenues as a result of the program’s suspension. Worse, after storing many years’ worth of mutilated coins, the Mint’s recent proposal to discontinue the program solely for recyclers, recyclers would now be forced to forfeit millions of dollars’ worth of these coins and [forfeit] the associated storage and security costs.
This government intervention to prevent damaged coin redemption from private businesses is another example of a needless cost placed on each business. This is another federal government program action not having an economic incentive to be efficient and practical to meet the needs of market place customers.
Originally Posted at https://mises.org/