Since 2005, the U.S. Mint has been paying more to make a penny than it is actually worth.

The current value of the mostly-zinc and copper penny is approximately 1.26 cents. With Congress looking to cut costs: enter the Coin Modernization and Taxpayer Savings Act of 2008.

The resolution, introduced last week, would require the Mint to start producing steel pennies in nine months and begin incorporating steel into nickels over the next two years.

The rise in production costs is attributed to the hike in metal prices worldwide, caused by a demand from countries like India and China. The nickel is also losing money--it now costs 7.7 cents to manufacture, according to the Mint.

“The costs of metal, zinc and copper have skyrocketed since 2003 to the tune of 250% and 350%, respectively,” said Greg Hernandez, a U.S. Mint representative.

But America isn’t the only country faced with higher currency costs. Canada, too, has gone to the steel penny, but is again having problems because the price of steel is also going up, Hernandez said. Because of this, the Mint is concerned as to whether or not a steel penny is a good option.

“If something isn’t done, the cost of producing [pennies] will remain above face value, and tax payers will be paying an extra $100 million each year,” Hernandez said. “But we need to do alloy research. If we are going to change the metal content of coins, we have to have a process moving forward. We don’t.”

A mostly steel penny could present problems because it’s harder than nickel, copper and zinc. Hernandez said the Mint wasn’t sure if the dies used to strike and emboss current pennies would even work on a different material.

Research for a new penny material could take as long as twenty-four months, Hernandez said, a time frame the resolution- which calls for steel pennies in 270 days- doesn’t provide.

In a letter to the House Financial Services Committee's chairman Barney Frank, the Mint’s Director, Edmund Moy said the Mint needed to “obtain the benefits of open competitive bidding for materials, and implement any required production line changes for the nearly eight billion one-cent coins normally produced annually by our two circulating coin production facilities.”

The number of pennies minted has decreased over the last two years. In 2006, there were 8.234 billion pennies minted, compared with 7.401 billion in 2007. From January to April 2008, the Mint manufactured 1.536 billion pennies, a rate that, if continued, would result in just 6.144 billion pennies for this year.

Pennies and nickels actually cost less to manufacture now than they did in 2007. In Fiscal Year 2007, it cost 1.67 cents to make each penny, and 9.5 cents to make nickels.

Congressman Luis Gutierrez, a Democrat from Illinois, said in a statement recently that action needed to be taken now.

“If we continue minting coins with the current metal content, with each new penny and nickel we issue, we will also be contributing to our national debt by almost as much as the coin is worth. These losses are mounting rapidly, and we need to act immediately to lower the costs of producing the penny and the nickel.”

If the bill passed, it wouldn’t be the first time steel was used in coins; the demand for copper was high during World War II, and pennies made the switch to steel. The change didn’t stick, however, because “people hated the feel of it,” according to Hernandez.

Other experts are for the elimination of the penny altogether.

Robert Whaples, a professor of economics at Wake Forest University, said in his paper, “Time to Eliminate the Penny from the U.S. Coinage System,” that eliminating the penny would have a “negligible impact on inflation.”

He argues that getting rid of pennies would benefit businesses. “The elimination of pennies would save a modicum of time spent fumbling with change – by both the customer and the clerk – increasing efficiency… Eliminating the penny could [also] be associated with the replacement of the dollar bill with a dollar coin,” he said. However, there are some people who simply like the penny.

“We haven’t heard any hue and cry from people dying to get rid of it,” said Hernandez. Americans should make an effort to get the most out of their pennies, he said. “If you don’t want to count them, don’t throw them away. Take them to the bank and they can count them for you.”