What This Country Needs Is a Good 5 Cent Nickel

If you go to the website, today you will find that the composition of a nickel is 75% copper and 25% nickel.  Originally only silver dollars were real money at .77 troy oz of silver per dollar.  Dimes, quarters and halves were 90% silver just like the silver dollar but 2 halves, 4 quarters or 10 dimes only had .715 troy oz of silver.  The difference was seignorage or the cost of making the smaller units.  The lowly penny and nickel were mere tokens that were not really worth anything near their commodity value.

In 1965 due to LBJ’s guns and butter programs 90% silver coinage was removed from circulation because the commodity value of the coinage exceeded the face value.  Dimes and quarters became tokens and Kennedy halves were reduced to 40% silver for a few more years until they to became mere tokens as well.  Today all commonly circulated coins are just tokens.  However, the old pre 1982 penny with a copper content is now worth a little [amazon asin=B0040HILTQ&template=*lrc ad (left)]over 2 cents.  The new penny that is 97½% zinc has risen to almost 60% of its face value.  The commodity value of the nickel is now almost 90% of its face value.

Back in 2011, Texas billionaire, Kyle Bass purchased 20 million nickels that at the time had a commodity value of $.068/each.  In other words he invested one million dollars that was worth $1.36 million dollars with a downside floor of 1 million dollars.  When the Federal Reserve asked why he wanted 20 million nickels he is rumored to have replied, “I like nickels”.  Today those nickels have a commodity value of only 0.896 million dollars, however, he can always deposit them at the bank for 1.0 million dollars at any time.  Not a bad investment.  No downside – only upside.[amazon asin=1478230967&template=*lrc ad (right)]

In several countries around the world there have been overnight currency devaluations where say 10 old units were worth 1 new unit the next morning to everyone’s surprise.  The new paper dollar or peso or whatever was usually a different color than the old paper currency.  The banks just adjusted everyone’s balance and the general population was given a brief period of time to turn in the old currency for the new currency at a rate of 10 to 1 before the old currency became completely worthless.  Normally when this happened the coinage never changed.  It was just too difficult to call in all the loose change and re-mint it in a new design.  So if 10 coins equaled one [amazon asin=B0028RXSI4&template=*lrc ad (left)]old paper currency unit before the devaluation then the same 10 coins equaled one new paper currency unit after the change over.  There just was not enough change out there to worry over so if you had your savings in hard change in milk jugs sitting around the house you were OK.  However, if all your savings would fit in a few milk jugs then maybe you were not OK after all.

The US Mint will probably catch on pretty soon and change the metal composition in nickels to all zinc or maybe even cheap steel.  There has been talk of discontinuing the penny and the nickel altogether and just rounding up or down to the nearest ten cents.  Gresham’s law will kill the present nickel one way or another.

In the meantime, for those of you who have a little extra room in your safe and are too lazy to bolt it to the floor just add some weight to make it harder to cart off in the middle of the night.  Just ask your friendly banker for a $100 box of nickels (2,000 coins) that weighs 22 pounds and is the size of a small shoebox.  You may want to tell him you will want one every week and to please have one ready for you.  If copper and nickel go back up to 2011 prices each $100 box will be worth $136 (who says the bank doesn’t pay interest any more?).  At worst you can bring them back and deposit them in your account for what you paid for them.  At best……….well you and Kyle Bass can figure that one out.