Coin shortage could turn pennies to nickels

Talk about pennies from heaven.

Who would have ever thought that those pennies saved up would be worth more in the long run. Well, with a potential shortage of coins in the United States could help out with this matter. Which means all those pennies in your piggy bank could be worth five times their current value soon, says an economist at the Federal Reserve Bank of Chicago.

Sharply rising prices of metals such as copper and nickel have meant the face value of pennies and nickels are worth less than the material that they are made of, increasing the risk that speculators could melt the coins and sell them for a profit.

Such a risk spurred the U.S. Mint last month to issue regulations limiting melting and exporting of the coins.

But Francois Velde, senior economist at the Chicago Fed, argued in a recent research note that prohibitions by the Mint would unlikely deter serious speculators who already have piled up the coinage.

The best solution, Velde said, would be to "rebase" the penny by making it worth five cents rather than one cent. Doing so would increase the amount of five-cent coins in circulation and do away with the almost worthless one cent coin.

"History shows that when coins are worth melting, they disappear," Velde wrote.

"Rebasing the penny would ... debase the five-cent piece and put it safely away from its melting point," he added.

Raw material prices in general have skyrocketed in the last five years, sending copper prices to record highs of $4.16 a pound in May. Copper pennies number 154 to a pound. Prices have since come down from that peak but could still trek higher, Velde said.

Since 1982, the Mint began making copper-coated zinc pennies to prevent metals speculators from taking advantage of lofty base metal prices. Though the penny is losing its importance -- it is worth only four seconds of the average American's work time, assuming a 40-hour workweek -- the Mint is making more and more pennies.

Velde said that since 1982 the Mint has produced 910 pennies for every American. Last year there were 8.23 billion pennies in circulation, according to the Mint.

"These factors suggest that, sooner or later, the penny will join the farthing (one-quarter of a penny) and the hapenny (one-half of a penny) in coin museums," he said.

You do the Math

You do the Math

You really have to think, research, and know your investment options before you go diving into something blindfolded. To illustrate this, pick the offer below that seems better:

1. I'll give you $1,000 a day for 30 days.

2. I'll give you a penny on day one and then double your money every day for the rest of the 30-day month.

So which would you pick?

Well, some of you might think this is just another trick question, and really don't know what to pick. Other may have heard this one before, while some are saying I want my $30,000 screw that penny stuff.

Well, let's just do the math shall we. The first option plays on our impatience, because it takes no time at all to do the math on it: You'll have $30,000 at the end of the month. The second option doesn't seem so great at first glance, plus it takes time to do the math. But it'd be time well spent: Choose the second option and you'd have more than $5 million at the end of a 30-day month.